NBFCs Set to Surpass India's Growth, Says Mavenark Report

Non-Banking Financial Companies (NBFCs) are going to expand more rapidly than the Indian economy, as a long-term trend that has been operating, according to a new Mavenark Advisors report. These financial companies have been gaining dominance in India's lending market, particularly in areas where the more traditional banks have low penetration.

The report highlights that NBFCs have been recording credit growth higher than India's GDP year on year. This is likely to sustain on the back of improving economic conditions and rising consumer demand. Their ability to reach the unorganised segments, predominantly rural and semi-urban, gives them a huge advantage.

NBFCs differ from regular banks on several counts. While banks have a major share of wholesale lending—giving huge credits to corporates and classes like agriculture and services—NBFCs essentially deal with retail borrowers. They are individuals and small businesses, some of which may be turned down by banks.

As of the end of financial year 2024, retail borrowers got just 34 per cent of total bank credit in India. NBFCs, however, had much greater retail exposure, with nearly 48 per cent of their credit going to individuals. This is a conscious effort by NBFCs to serve people who are generally ignored by mainstream banks—such as low-income, informal workers, or those with bad credit history.

According to the report, NBFCs have witnessed strong and steady growth over the last two decades. Their assets under management (AUM) have increased dramatically, from below Rs 2 trillion during the first decade of the 2000s to a substantial Rs 43 trillion as of FY24. In the short span of FY19-FY24 alone, NBFC credit had increased at a compounded annual growth rate (CAGR) of 12 per cent.

This growth has been driven by various factors—like demand for small-ticket credit, greater access to online platforms, and rising consumer spending. More and more people are taking credit to finance their needs—buying a two-wheeler, school fees, or expanding a small business—and NBFCs have capitalised on that space.

The research also highlights the important role played by NBFCs in fostering financial inclusion. They have high levels of connection in rural and semi-urban areas, where the presence of banks remains minimal. They give loans to customers without formal verification of income or credit history, taking more people into the mainstream of formal finance.

This makes NBFCs central to India's mission to reach financial services across the country. Their ability to assess risk at the grassroots level and offer customised loan products has allowed them to lend to borrowers who otherwise would have been excluded from the credit system.

Looking ahead to FY25, the report projected that the positive momentum for NBFCs would continue. The sector will stay buoyed by the continued pick-up in the Indian economy and sustained momentum for uptake of formal credit.

Overall, NBFCs are likely to remain a crucial part of India's financial system. By targeting individual borrowers and unserved areas, they are not just driving business growth but also covering the financial inclusion gap in the country. As the demand for small, unsecured loans keeps growing, the role of NBFCs will grow in prominence in the future years.