NBFCs Turn To Public Deposits And Bond Markets For Capital: Report

The report noted that NBFCs became slightly more efficient in FY25, their cost-to-income ratio improved slightly from 36.7 per cent in FY24 to 36.2 per cent

NBFCs witnessed a robust year in financial year 2025 and grew faster than traditional banks in lending activity

Source : Freepik

India's Non-Banking Financial Companies (NBFCs) are moving away from traditional way of bank borrowings and increasingly turning to public deposits and domestic bond markets for substantial capital raising, according to a recent report by Deven Choksey Research.

NBFCs provide financial services similar to those of banks, but they are not commercial schedule banks. They offer loans, investments, and other financial products, regulated by the Reserve Bank of India (RBI) but they do not accept traditional deposits like banks.

NBFCs witnessed a robust year in financial year 2025 and grew faster than traditional banks in lending activity. NBFCs recorded a credit growth of 20 per cent, much higher than the 12 per cent growth seen in the banking sector.

The report added that a big share of this growth came from the rising demand for gold loans, pushing the total loans given by NBFCs to Rs 24.5 trillion.

The overall size of the NBFC sector also grew significantly, with total assets increasing by 20 per cent year-on-year (YoY) to Rs 28.2 trillion. Borrowings rose by 22 per cent YoY to Rs 19.9 trillion, showing that NBFCs were actively raising funds to support their growth.

The report further highlighted that the profitability across the sector was mixed, with larger listed NBFCs seeing an 8 per cent rise in profits, but the microfinance institutions (MFI) segment saw a sharp 95 per cent decline in profits due to high levels of stress and increased provisioning.

The report noted that NBFCs became slightly more efficient in FY25, their cost-to-income ratio improved slightly from 36.7 per cent in FY24 to 36.2 per cent.

Asset quality of the NBFCs also improved a bit, with Gross Non-Performing Assets (NPA) improving by 10 basis points. However, the MFI segment reported a rise in loan defaults due to ongoing stress.

In recent years, NBFCs have become important lenders to Micro, Small, and Medium Enterprises (MSMEs). From fiscal 2021 to 2024, NBFCs recorded a strong 32 per cent compound annual growth rate (CAGR) in credit to this segment. This is much higher than the growth seen in private banks (20.9 per cent) and public sector banks (10.4 per cent).

As highlighted by the report, the NBFCs also dominate the micro loan against property (LAP) market, especially for loans below Rs 1 million, where they hold a 45 per cent market share, far ahead of private banks, which hold just over 25 per cent.

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)