By Nirmal Jain
India’s borrowers told a very different story this year, a story that did not always mirror the global uncertainties or the cautious macro headlines that surrounded us. CY25 was a year of contrasts. While the external environment showed uneven momentum, domestic credit behaviour revealed a shift that was quieter, deeper and more structural. Beneath the surface, a new rhythm emerged in India’s lending landscape, and NBFCs found themselves at the heart of this transition.
One of the most defining features of CY25 was the widening divergence in how different borrower segments responded to the economic cycle. Collateral backed lending, including gold loans, secured MSME credit and affordable housing finance, continued to show resilience. At the same time, parts of microfinance and unsecured lending came under visible pressure, particularly in geographies where household leverage had already been stretched.
Indian credit system
This contrast highlighted that India’s credit system is no longer a single monolithic story. Instead, it is evolving into a set of micro markets, each shaped by its own income dynamics, risk patterns and consumption behaviour. The year demonstrated that India’s credit appetite cannot be understood through broad aggregates alone.
In this environment, the role of NBFCs became more prominent. Their ability to operate closer to the customer, assess contextual risk and respond swiftly to changing credit needs allowed them to step into spaces where formal credit demand was rising.
Growing credit portfolio of NBFCs
Sector wise, NBFCs grew their credit portfolios by close to 20% in FY25, significantly outpacing banks which expanded by 12%. This difference is not merely statistical. It reflects the widening role NBFCs play in meeting the financing needs of households and enterprises that rely on speed, flexibility and local understanding. It also reflects the trust that first time borrowers and small entrepreneurs place in NBFCs, particularly in semi-urban and rural markets where personalised interactions still matter.
Two developments shaped credit conditions meaningfully this year. The first was the shift in monetary policy, with the MPC delivering a measured rate cut after a long phase of stability. The cut did not merely reduce the cost of money, it lifted sentiment in a way that often matters more. For many small businesses and households, even a modest easing in rates can restore confidence to borrow and expand.
The early months following the policy move reflected this change in tone across several lending segments. The second development was GST rationalisation across key consumption categories such as automobiles, air conditioners, televisions and appliances. Improved affordability, combined with the festive season, led to a revival in discretionary purchases.
Much of this demand, especially in tier-II and tier-III markets, was converted into actual buying decisions through NBFC financing, where the sector’s last mile presence and underwriting depth play an important role.
These shifts help explain why CY25 may be viewed as a turning point. The year did not redefine NBFCs. Instead, it revealed how India’s evolving credit needs are aligning with the strengths that NBFCs offer. Gold backed credit supported household liquidity, secured MSME lending allowed entrepreneurs to rebuild balance sheets and consumer financing revitalised demand in several categories.
Meanwhile, banks continued to anchor prime retail and corporate credit. Together, this dual structure supported stability and ensured that credit reached both aspirational and underserved segments.
Looking ahead to CY26, the outlook remains constructive. Industry projections suggest that NBFCs could maintain a loan book growth trajectory of 15 to 17%, supported by softer rate conditions, improving liquidity and continued public investment.
At the same time, the discipline shown by the sector in strengthening underwriting, sharpening collection frameworks and investing in digital credit assessment will remain crucial. The divergences observed in CY25 underscore the need for calibrated strategies that balance opportunity with prudence and combine data with human insight.
India’s economic momentum continues to be anchored in domestic demand, entrepreneurial resilience and a stable policy environment. Within this landscape, NBFCs are well-positioned to broaden the flow of credit and support growth across diverse regions and income segments. CY25 offered a glimpse of what this future may look like. CY26 will determine how sustainably and responsibly the sector can build upon it, and how confidently India’s borrowers continue to shape the next phase of the country’s credit story.
(The writer is Founder and Chairman, IIFL Group)