NBFCs likely to see rise in non-performing retail loans in FY26: Moody's

Non-banking financial companies' (NBFCs) retail bad loans are likely to continue rising in FY26 by 20-30 basis points, following years of rapid increases in disbursements that have far outpaced India's nominal GDP growth. Yet the figure will remain lower than the peak of more than five per cent reached in fiscal FY22 during the pandemic, said Moody’s Ratings.  The latest goods and services tax (GST) reform could spur demand for vehicle loans, but also increase asset risks because collateral values can decline, and vehicle utilisation can decrease due to increased supply, hurting cash flow for borrowers. Yet the quality of vehicle loans is not likely to deteriorate sharply, underpinned by strong economic conditions. 

Nonperforming retail loans will rise in fiscal 2025-26

    In FY24, the Reserve Bank of India raised risk weights for unsecured loans and for bank loans to NBFCs - their primary source of funding needed for lending, for the calculation of regulatory capital, while implementing company-specific supervisory measures.