NBFCs outpace banks in credit growth in FY25: BCG Report

Economic Times

a day ago

ETMarkets.com Lower interest rates are expected to bring the cost of credit down, likely enabling higher credit demand.
Non-Banking Financial Companies (NBFCs) have significantly outpaced commercial banks in credit growth during Fiscal Year 2025, according to a report by Boston Consulting Group (BCG).
The report reveals that NBFCs recorded a robust 20 per cent credit growth, a substantial margin over the 12 per cent growth observed in the banking sector. This accelerated expansion by NBFCs, particularly driven by the Gold NBFC category.
India's NBFC sector's total net advances mirrored this growth, also increasing by 20 per cent year-on-year to reach Rs24.5 lakh crore. This propelled the overall balance sheet size of the NBFC industry to Rs28.2 lakh crore, marking a 20 per cent rise from the previous fiscal year. Total borrowings by NBFCs also saw a significant uptick of 22 per cent to Rs19.9 lakh crore, reflecting increased funding activity to support their expanding operations.The report also sheds light on other critical aspects of the NBFC sector's health. While overall profitability showed an 8 per cent year-on-year increase in absolute profit for the sector, the Microfinance Institutions (MFI) category faced a sharp decline in Profit After Tax (PAT) by 95 per cent. This contrasts with the broader NBFC trend, where a marginal improvement in the Cost to Income ratio from 36.7 per cent in FY24 to 36.2 per cent in FY25 indicates enhanced operational efficiency.
Asset quality for the NBFC sector improved marginally, with Gross Non-Performing Assets (GNPA) improving by 10 basis points from FY24. However, the MFI category did experience a rise in NPAs, despite the overall sector improvement.Most NBFCs are well-capitalised, meaning they have enough financial reserves to handle potential risks, even if their capital levels saw a slight adjustment from the previous year. Larger and more diverse NBFCs continue to be highly valued in the market. While banks have delivered better overall returns to investors in the last three years, the strong credit growth by NBFCs in FY25 suggests they will continue to play a vital role in India's financial system.
The way NBFCs get their funding is also changing; some are relying more on bank loans, while larger ones are looking more towards public deposits and other funding sources. Additionally, NBFCs are increasingly focusing on providing loans for personal needs and vehicles.