Commercial realty lending by NBFCs may retain momentum

Bank and non-bank financing to the sector has already accelerated sharply. Reserve Bank of India data show that NBFC loans to commercial real estate jumped 40.2% year-on-year to Rs 1.20 lakh crore at the end of May 2026, compared with growth of 10.2% in the year-ago period. Bank credit to the sector rose 19% to Rs 6.42 lakh crore, up from 15% growth a year earlier.

The momentum reflects both rising demand for office space and a structural shift in the real estate market. Consolidation among developers and greater financial discipline following the implementation of the Real Estate (Regulation and Development) Act, or RERA, have made lenders more comfortable increasing their exposure. Developers are also refinancing costlier bonds with relatively cheaper bank loans.

“All the big groups are in the market today and bank funding is rising,” said Niranjan Hiranandani, managing director of Hiranandani Group.

GCCs are emerging as a particularly important driver of office demand. According to real estate consultant Colliers India, the number of GCCs in the country is expected to cross 4,000 by 2030, from 2,100 at the end of 2025. In the first half of 2026, GCCs accounted for 46% of total office leasing across Mumbai, Bengaluru, Hyderabad, Delhi-NCR, Pune, Chennai and Kolkata.

“Banks are increasing their exposure as large groups such as the Tatas, Godrej and L&T are in the field, and this trend will continue,” said Promod Kumar Dwivedi, executive director, Bank of India. “RERA provides an added comfort. Banks and NBFCs that burnt their fingers on high-yielding, unsecured loans will see this segment as an opportunity.”

Developers expect organised commercial real estate to maintain its recent annual growth rate of around 12%, supported by demand for Grade-A properties and flexible workspaces.

“Around 20% of the additional space being created is for flexible-office operators such as WeWork and Smartworks. Add to that the huge demand for Grade-A office space, and we expect the momentum to continue,” Hiranandani said.

Office leasing touched a record 83 million square feet in 2025, while the completion of fresh assets also expanded financing opportunities. Construction loans for completed and leased properties are increasingly being converted into lease rental discounting (LRD) facilities, which are backed by rental income.

“2025 was a bumper year for office leasing, and fresh pools of assets were completed. There was a significant increase in banks’ loan books as construction finance was converted into LRD loans,” said Vishal Srivastava, head of corporate finance and managing director at Anarock Capital. “After its IPO, Tata Capital has also started signing larger financing deals.”

Completed office buildings, data centres and logistics properties are attracting lenders because of their high occupancy and predictable cash flows. Lower bond yields and an easing interest-rate cycle have also prompted some real estate companies to refinance existing borrowings.

“Some commercial real estate entities are tapping banks and financial institutions to refinance bonds that are coming due,” said R Srinivasan, vice-president and sector head, financial sector ratings, ICRA.

“Refinancing opportunities after the transition from construction-stage funding also remain healthy, particularly for completed office, data-centre and logistics assets with strong occupancy levels,” he added.

NBFCs, meanwhile, see greater opportunities following the consolidation of the sector around developers with stronger balance sheets and better execution records.

“With RERA, there is much more discipline in the market, while consolidation has resulted in fewer developers with stronger balance sheets and greater efficiency. Lenders are, therefore, becoming more confident about the sector,” said Jairam Sridharan, managing director and chief executive officer, Piramal Finance.

Piramal Finance disbursed Rs 1,200 crore during the June quarter and received repayments of an equivalent amount. “We have seen strong repayments. RERA has ensured that repayments flow through the appropriate accounts, helping builders meet their loan obligations in an orderly manner,” Sridharan said.

Data centres are also broadening the geographical spread of financing demand.

“Funding opportunities are emerging from data centres and office space,” said Vijay Deshwal, chief strategy officer, Aditya Birla Capital. “The demand for data-centre financing is coming not just from Mumbai but from other cities as well. Stronger balance sheets among many SMEs are also generating demand for larger and better office spaces.”

Healthy residential sales and improved developer finances have strengthened the broader real estate cycle, supporting credit demand across both commercial and residential segments. However, banks and NBFCs continue to serve somewhat different parts of the market.

“Banks remain focused on large, well-capitalised developers and relatively lower-risk exposures, while NBFCs have been more active in providing growth capital, structured finance and last-mile funding tailored to individual projects,” said Pratik Shah, national financial services leader, EY India.

The faster growth in NBFC lending is also being driven by mid-sized and regional developers, whose sales and project execution have improved in recent years, he said.

“The sharp increase in NBFC lending to commercial real estate reflects the strong upcycle of the past few years and robust leasing demand from GCCs and data centres. This has been reinforced by the interest-rate easing cycle last year,” said Tirthankar Datta, partner at JSA Advocates and Solicitors.

Vivek Prasad, partner and financial services leader at PwC India, said the pace of lending would also depend on lenders’ underwriting appetite and their internal and regulatory capital requirements.

Banks typically lend to top-tier developers at interest rates of 8-13%, while NBFC rates generally range between 12% and 14%. Alternative investment funds, which take on greater risk, typically charge 16-20%. Unlike banks and NBFCs, AIFs are not barred from financing land purchases.

“Banks have selectively expanded credit to commercial real estate projects with strong cash-flow visibility, supported by healthy leasing and stable income from leased properties,” said Vivek Rathi, national director for research at Knight Frank India.