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Author: CS Sachin Kotian
Published in: Taxmann

India’s Non-Banking Financial Company (NBFC) sector continues to play an important role in expanding access to credit across retail, housing, infrastructure, MSME and other segments. In recent quarters, the sector has witnessed a renewed acceleration in credit growth, with retail lending emerging as one of the strongest contributors.

Recent RBI data indicates that NBFC credit growth has strengthened significantly. In August 2026, outstanding NBFC credit increased by 15.8% year-on-year to around ₹60.64 lakh crore, while retail loans grew by approximately 22%, highlighting the increasing importance of retail credit in the NBFC growth story.

Retail Credit: The Primary Growth Engine

Retail lending has become a major component of NBFC portfolios. Housing finance, vehicle finance, consumer credit, personal loans and loans against gold are among the segments contributing to this expansion.

Gold loans, in particular, have recorded exceptionally strong growth, while consumer-focused lending has also gained momentum. This reflects continued demand for convenient and accessible credit, particularly among borrowers who may not always be adequately served by traditional banking channels.

Growth Comes with Greater Responsibility

Rapid credit expansion, however, cannot be viewed in isolation. Sustainable growth requires NBFCs to balance AUM expansion with asset quality, capital adequacy, liquidity and risk management.

The focus is increasingly shifting from simply growing the loan book to building a resilient and well-governed lending business.

Key areas that require continued attention include:

• Credit underwriting and borrower assessment
• Asset quality and early-warning indicators
• Concentration and portfolio risk
• Liquidity and Asset Liability Management (ALM)
• Capital adequacy and Net Owned Fund (NOF) requirements
• Provisioning and IRACP compliance
• Fair lending and customer protection
• KYC, AML and regulatory compliance
• Effective governance and internal controls

The Real Test: Quality of Growth

The next phase of NBFC growth will be determined not merely by how quickly the sector expands, but by how sustainably that growth is achieved.

NBFCs that combine technology-driven underwriting, disciplined risk management, strong governance and regulatory preparedness will be better positioned to scale while protecting portfolio quality.

For the sector as a whole, the objective should therefore move from “growth at any cost” to “profitable, compliant and sustainable growth.”

Conclusion

India’s NBFC sector remains an important pillar of the country’s financial ecosystem. Strong retail credit demand provides significant opportunities, but the sustainability of this growth will depend on prudent underwriting, adequate capital, robust liquidity management and strong regulatory governance.

As the sector expands, risk management and regulatory compliance will be as important as growth itself.

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