NBFCs return to banks for loans as bond yields stay elevated

Bank credit to NBFCs rises sharply as shadow lenders shift funding sources amid high bond yields, supported by regulatory easing and improved banking liquidity

Bank credit to non-banking financial companies (NBFCs) rose nearly 26.3 per cent YoY to ₹20.65 trillion in March 2026, as shadow banks turned to traditional lenders for their funding needs amid elevated corporate bond yields. This compares with 7.4 per cent growth in the year-ago period, when the outstanding portfolio stood at ₹16.35 trillion.

 

Bank loan growth to the industry segment has picked up, which grew by 15 per cent year on year till March 2026.

 

“In the first quarter there was a jump in bond issuances, after it had become relatively modest. Amid high interest rates and volatility in the bond market, NBFCs are likely to have tapped the bank loan market,” said Karthik Srinivasan, senior vice president, group head – financial sector ratings, ICRA.

 

The RBI has also lowered risk weights for bank loans to NBFCs from April 1, 2025, after raising them in November 2023. This has also encouraged banks to extend loans to non-banks.

 

According to the latest data released by the Reserve Bank of India, bank loans to housing finance companies grew by 15.5 per cent YoY to ₹3.23 trillion, as compared to 0.6 per cent YoY in the year-ago period, while loans to public financial institutions rose sharply to 52.5 per cent YoY to ₹2.29 trillion, as against 7.5 per cent YoY growth last year.

 

Loans against gold jewellery surged 123 per cent year-on-year (YoY) to nearly ₹4.60 trillion in March 2026, as compared to 121 per cent growth in the segment during the same period last year, when the outstanding portfolio stood at ₹2.06 trillion.

 

Overall retail loans grew 16.2 per cent YoY to ₹69.43 trillion in March 2026, compared with 11.7 per cent growth a year ago. Within retail, credit card outstanding growth moderated sharply to 3.5 per cent YoY in March 2026 from 10.6 per cent in the corresponding month last year. Vehicle loans recorded healthy growth of 18.6 per cent YoY, up from 8.6 per cent YoY last year. Housing loan growth, however, remained steady at 11.5 per cent. Credit to housing finance companies rose by 15.5 per cent YoY from 0.6 per cent YoY growth last year.

 

Credit to the services sector grew 19 per cent YoY, compared with 12 per cent growth in the corresponding time period of the previous year, supported by higher lending to segments such as non-banking financial companies (NBFCs) and commercial real estate. 

Loans to trade have grown by 16.2 per cent YoY to ₹1.38 trillion, as compared to growth of 15.6 per cent YoY for the corresponding year-ago period.

 

Aggregate bank credit rose 16.1 per cent YoY as on the fortnight ended March 31, 2026, higher than 11 per cent growth recorded in the corresponding fortnight of the previous year, which ended on April 4, 2025. Food credit expanded nearly 139.4 per cent YoY to ₹70,271 crore, while non-food credit grew 15.9 per cent to ₹212.9 trillion.

 

Credit to industry increased 15 per cent YoY in March, compared with 8.2 per cent growth a year earlier. Credit to micro and small enterprises (MSEs) rose by 33.1 per cent YoY, up from 8.9 per cent, while loans to medium industries grew 21.7 per cent, compared with 18.5 per cent in the same period last year. Credit to large industries saw healthy growth of 8.9 per cent YoY, compared to 6.9 per cent a year ago.

 

Among major industries, outstanding credit to infrastructure grew 9.5 per cent YoY, compared with 2.8 per cent growth a year earlier. Credit to the engineering segment surged 32.2 per cent YoY, up from nearly 22 per cent last year. Loans to the chemicals and chemical products segment grew 14.9 per cent YoY, compared with 7.4 per cent in March 2025.

 

Similarly, credit to petroleum, coal products, and nuclear fuels grew by 32.5 per cent YoY, as against 16.5 per cent YoY growth in the year-ago period.