India's NBFCs are projected to grow at 17% annually from FY25-35, outpacing banks' 12% growth, a Nomura report states. This rapid expansion is attributed to the adoption of AI and diversification into new retail loan segments.
India's non-bank financial companies (NBFCs) are expected to expand faster than traditional banks over the coming decade as lenders adopt artificial intelligence and expand into new loan segments, according to a research report by Nomura.
Nomura Forecasts Accelerated NBFC Growth
Banks currently dominate India's lending system, accounting for more than 70% of total credit as of FY25, while NBFCs hold a much smaller share. However, Nomura forecasts NBFC credit will grow at roughly 17 per cent annually between FY25 and FY35, compared with about 12 per cent growth for bank lending over the same period.
"We note that AI can help NBFCs identify potential prime customers and bring about more efficiency in high-intensity product segments at a transformative pace. However, we raise caution around the regulatory gap on the matter. We expect the gap between the loan growth of banks vs NBFCs to widen further, with NBFCs recording a 17 per cent CAGR over FY25-35F vs 12 per cent for banks," read the Nomura report.
India's Growing Lending Ecosystem
India's lending ecosystem already totals about Rs 232 trillion (USD 2.6 trillion) in outstanding credit, but credit penetration remains relatively low compared with major economies. Nomura expects India's credit-to-GDP ratio to rise significantly over time as access to financing expands.
Diversification into Retail Lending
NBFCs have increasingly diversified their lending portfolios in recent years, moving beyond traditional wholesale lending into retail products such as vehicle loans, consumer durable financing, personal loans and microfinance, areas where demand remains strong. Retail credit accounts for a large portion of NBFC lending and is expected to remain a key growth driver.
Artificial Intelligence Driving Transformation
Artificial intelligence is becoming an important tool for lenders. The report says financial institutions are deploying AI systems to improve credit underwriting, customer support, sales and marketing, cybersecurity and internal operations, while using alternative data to identify potential borrowers.
"The India NBFC sector is set to witness a steep rise in competition, as many lenders are now focused on expansion into new products and markets. Investment in and development of AI engines across the sector is increasing and could potentially drive structural transformations in lending processes," the report read.
Regulatory Framework and Future Outlook
At the same time, regulators are preparing for wider adoption of the technology. India's central bank has issued recommendations for responsible AI use in financial services and is expected to develop a regulatory framework as implementation increases across the sector.
As competition intensifies and digital tools reshape lending practices, analysts say NBFCs could play a growing role in expanding credit access, particularly among underserved consumers and small businesses. (ANI)
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