BFSI summit: Do NBFCs need bank licence to grow, or is it overrated now?

With evolving tech, funding models and regulation, bank licences are no longer the premium growth lever for NBFCs, and strategy, agility matter now, said experts at Business Standard BFSI Summit 2025

Once considered the ultimate gateway to growth and credibility, a banking licence is no longer seen as indispensable for Non-Banking Financial Companies (NBFCs). With the rise of digital lending, diversified funding sources, and evolving regulations, many NBFCs are charting their own course to scale without converting into banks, according to leaders of India’s NBFCs.

 

At Business Standard BFSI Insight Summit 2025 in Mumbai on Wednesday, the representatives of NBFCs highlighted the focus has shifted from chasing a banking licence to strengthening balance sheets, leveraging technology, and expanding customer reach through innovative financial products and partnerships.

Lending market: Has the landscape shifted?

Jairam Sridharan, MD & CEO of Piramal Finance, pointed out that the long-term composition of India’s lending sector has barely budged. "The non-banks have consistently held roughly 25 per cent of lending; banks remain at about 75 per cent. Over 20–25 years, the structure hasn’t changed meaningfully," he said.

   

Sridharan argued that NBFCs have carved out distinct roles, including that of “last-mile connector” and niche lender, operating profitably and distinct from banks. He added that the regulatory gap between large NBFCs and banks has narrowed significantly.

 

“Non-banks have always been a very significant, though not dominant player,” Sridharan said. “This structure has persisted for a very long period and is not inherently risky. NBFCs have a distinct role to play as the last-mile connector, and have built consistently more profitable businesses than banks.”

 

He added that it is no longer appropriate to think of NBFCs as lightly regulated. "Both are now distinct business models, each suited to different kinds of players,” he said.

Governance, not licence, defines strength

For Rajiv Sabharwal, MD & CEO, Tata Capital, the question of needing a banking licence is less about regulation and more about robust governance.

 

“Both models are strong and have delivered. It finally boils down to governance, and if that is strong, the entities thrive,” Sabharwal said. He argued that India’s credit market is large enough for both banks and NBFCs to coexist and grow.

 

He added that large NBFCs today operate under comparable governance and provisioning norms as banks. “On risk provisioning, NBFCs using India's standards are often better placed than banks. The opportunity is equally there, and it is no longer a limitation of model but of execution,” he said.

 

Sabharwal emphasised the importance of diversifying liabilities, from bank borrowings to non-convertible debentures (NCDs), bonds, and external commercial borrowings (ECBs). “If well-governed NBFCs could access public deposits under clear regulatory thresholds, it would further strengthen funding resilience,” he suggested.

Digitisation has narrowed the gap

Sudipta Roy, MD & CEO, L&T Finance, observed that the digital revolution has fundamentally changed how NBFCs operate, eroding banks’ traditional advantages.

 

“With the account aggregator framework and digital credit infrastructure, NBFCs today have access to the same credit history and trade data that only banks once had,” Roy explained. “That 150-200 basis point cost-of-risk advantage for banks has virtually disappeared.”

 

He added that NBFCs’ accounting and disclosure norms are now equally stringent. “Financial disclosures and provisioning standards are tougher for many NBFCs than for banks. The charm of converting into a bank has, to an extent, faded,” Roy said.

 

However, he underlined that if the Reserve Bank of India (RBI) were to allow well-rated upper-layer NBFCs limited access to public deposits, it would provide another low-cost liability source without changing their fundamental model.

NBFCs thrive on agility and last-mile reach

Umesh Revankar, executive vice-chairman, Shriram Finance, reflected on how the NBFC model has matured over the past decade. “Fifteen years ago, NBFCs sought a bank licence mainly because their liability franchise was weak. That has changed,” he said.

 

Revankar pointed out that capital markets have deepened, international borrowing is now possible, and co-lending with banks has expanded rapidly. “There’s no real limitation now on the liability side. The NBFC model is thriving because it’s agile and customer-centric,” he said.

 

He added that NBFCs’ strength lies in reaching unbanked and underbanked segments by offering tailored, doorstep financial solutions. “Banks expect customers to come to them. NBFCs go to the customer,” Revankar said, adding that NBFC credit growth has consistently outpaced banks, often above 20 per cent year-on-year.

 

“The Finance Minister has said NBFCs could eventually account for 50 per cent of credit disbursement in India that reflects how critical this sector has become,” Revankar noted.

When NBFCs set the playbook

Raul Rebello, MD & CEO, Mahindra Finance, highlighted that the distinction between banks and NBFCs is now more philosophical than practical. “While there were once clear playbooks, that arbitrage has narrowed. In fact, banks have borrowed from NBFCs’ models,” he said.

 

He cited vehicle finance, microfinance, and gold loans as categories that NBFCs pioneered, and which banks later adopted. “NBFCs pushed the frontiers of these segments. Today, banks are hunting for customers too,” Rebello added.

 

With India’s credit penetration still low at only around 30 crore out of 80 crore adults have formal credit access, he said both sectors can grow collaboratively. “Co-lending is a model that allows NBFCs’ distribution strength and banks’ balance sheets to meet the country’s massive unserved credit demand,” he said.

The verdict: Licence or legacy?

At the summit, there was broad consensus that the NBFC model is no longer a halfway house to becoming a bank, it is a strong, independent system in its own right.

 

For most leaders, the debate has evolved from “do NBFCs need a bank licence” to “what kind of NBFCs does India need”. As Sridharan summed up, “The structure works, the profitability is consistent, and the economy benefits. Why change?”