The Indian lending story for the next three years seems to have a clear leader emerging – the Non-Banking Financial Company (NBFC) sector. This consensus was cemented by simultaneous reports from JM Financial and Nomura, which project non-bank credit may grow at a blistering 15-17% annually on a compounded basis between FY25 and FY28, significantly outpacing the 13-15% expected for overall systemic credit.
While JM Financial focused on the structural tailwinds ensuring this macro expansion, Nomura cited “multiple levers” for growth and an estimated upside of 16-18% for diversified leaders like Bajaj Finance, Mahindra & Mahindra Financial Services, and Shriram Finance.
The two brokerage firms pointed to NBFCs maintaining credit discipline even as early stress appears in high-growth, smaller-ticket segments. Here is a detailed analysis of why NBFCs may dominate the lending landscape over the next three years.
Factors pushing NBFC ahead of banks
#1 Stronger expansion for non-bank lenders
JM Financial estimates that NBFCs are expected to record 15 to 17% growth over the same period (FY25 and FY28), outpacing banks.
Nomura noted that Bajaj Finance, Mahindra & Mahindra Financial Services and Shriram Finance have “multiple levers” to grow and maintained Buy ratings on all three. The brokerage assigned an estimated upside of 16 to 18%. Cholamandalam Investment and Finance (CIFC) was rated Neutral due to valuations that sit above long-term averages.
Additionally, Nomura said diversification increased average return on asset (ROA) across cycles by 38 basis points for CIFC and 108 basis points for SHFL.
#2 Retail credit growth builds a strong base for NBFCs
Retail credit is expected to reach Rs 122 to 128 lakh crore by FY28, rising from Rs 82 lakh crore in FY24, according to JM Financial. The brokerage expects 14 to 16% growth in retail products over FY25 to FY28.
The report said NBFCs have gained share in home loans, business loans and affordable housing because they serve semi-urban and rural markets more quickly. Turnaround time remains one of the biggest hurdles for banks in smaller-ticket products, which is where NBFCs have built a consistent advantage.
#3: Gold loan growth provides NBFCs with a fast-growing profit pool
JM Financial expects gold loans outstanding to rise from Rs 14.5 lakh crore in FY24 to Rs 21.7 to 22.8 lakh crore by FY28. This works out to 18 to 20% growth.
The brokerage noted that NBFCs carry more weight in new originations than banks because of their doorstep service models, shorter processing times and stronger presence across both urban and rural districts.
Nomura added that Bajaj Finance has grown its share in gold loans to about 5% in FY26 from 2% in FY23, helped by wider branch coverage and better market access.
#4: MSME lending remains the largest opportunity for non-bank lenders
JM Financial estimated India’s MSME credit gap at Rs 117 lakh crore. Within this, the addressable part is around Rs 34 lakh crore. The brokerage expects secured MSME lending to grow 16 to 18% over FY25 to FY28.
The report said NBFCs already command 38% of the secured MSME space, supported by GST data, Udyam registrations and account aggregator systems that offer a more complete view of enterprise-level cash flows. This has been especially useful in the Rs 1 lakh to Rs 2.5 lakh ticket range, where demand continues to rise.
#5: Diversification has allowed NBFCs to manage volatility
Nomura wrote that diversification reduced dependency on cyclical products such as commercial vehicles and tractors. The brokerage pointed out that CIFC expanded into home loans in 2020, consumer-business loans in 2022 and, more recently, gold and consumer durables. SHFL, after the Shriram Transport and Shriram City Union Finance merger, now has around 20% of its book in areas such as MSME, gold and personal loans.
MMFS is also in the early stages of building an SME and mortgage portfolio, while Bajaj Finance operates across mortgages, MSME, consumer loans, rural B2C and gold loans.
#6: Stress pockets have emerged but have not derailed the broader story
Nomura pointed to elevated credit costs in CIFC’s Consumer and Small Enterprise Loan portfolio, mainly due to fintech-originated loans. The brokerage said this trend could continue for another two quarters. CIFC’s SME book has also experienced higher credit costs, leading the lender to exit supply-chain finance.
For Bajaj Finance, Nomura observed slower growth in mortgage, MSME and urban B2C loans. GNPA levels in these segments moved up, and the brokerage expects credit costs to rise to 2.1% in FY26 from earlier internal expectations.
Shriram Finance recorded a rise in gross stage 3 assets in its MSME portfolio in FY26. Even with these concerns, Nomura did not change its stance because demand in core retail segments remains intact.
#7: Banks lose ground where execution speed matters more than pricing
JM Financial said public-sector banks have lowered rates in gold and housing finance but have not displaced NBFCs in loan origination. According to the brokerage, borrowers in these categories place greater value on access, speed and service reliability. This gives NBFCs an advantage that does not erode quickly.
The brokerage also noted that banks have tightened norms for unsecured and micro-enterprise loans, which restricts their growth in the very segments that are expanding the fastest.
Overall, the two brokerage reports point to the NBFC sector as having moved closer to the core of India’s lending system.
While both brokerages expect NBFCs to expand faster than banks, they also pointed to risks that may become more visible as the cycle strengthens. Nomura said growth in some NBFCs has started to rely more heavily on newer segments where underwriting depth is still developing. JM Financial wrote that competition in gold loans and housing has led some lenders to compress yields more than expected, which may affect margin profiles if funding costs rise from current levels. According to the brokerage, early traction in secured MSME loans is encouraging but still in the phase where portfolio seasoning will determine eventual performance.