NBFCs vs Bank: NBFCs credit growth hits 20% in FY25; MFIs see 95% profit plunge as sector expands sharply
Non-banking financial companies (NBFCs) outpaced commercial banks in credit growth during fiscal year 2025, clocking a sharp 20% increase compared to the banking sector's 12% rise, according to a report by the Boston Consulting Group (BCG).
The surge was largely driven by the Gold NBFC segment, helping boost the total net advances in the NBFC sector to Rs 24.5 lakh crore. The overall balance sheet of the industry expanded 20% year-on-year to Rs 28.2 lakh crore, while total borrowings rose 22% to Rs 19.9 lakh crore, indicating robust funding activity supporting the sector's aggressive expansion, ANI reported.
Profitability showed mixed trends. While the overall NBFC sector posted an 8% year-on-year increase in absolute profits, the Microfinance Institutions (MFI) category reported a dramatic 95% drop in profit after tax (PAT), suggesting heightened stress in that segment.
Operationally, the sector recorded improved efficiency, with the cost-to-income ratio easing from 36.7% in FY24 to 36.2% in FY25. Asset quality also strengthened slightly, with Gross Non-Performing Assets (GNPA) improving by 10 basis points. However, MFIs again diverged from the broader trend, witnessing a rise in NPAs despite overall sectoral improvement.
Larger and more diversified NBFCs continue to be highly valued in the market.
by Taboola
by Taboola
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While banks have offered better investor returns over the past three years, NBFCs' strong FY25 credit growth underscores their growing importance in India's financial ecosystem.
The funding landscape is also shifting. While many NBFCs continue to rely on bank borrowings, larger ones are tapping public deposits and alternate sources. At the same time, lending is increasingly being directed toward personal consumption and vehicle loans.
Most NBFCs remain well-capitalised, with sufficient reserves to absorb potential shocks, despite marginal capital ratio adjustments over the previous year.
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