NBFCs face funding pressure despite healthy outlook: Crisil Ratings

Crisil flags rising stress in early delinquency buckets, especially in vehicle finance, unsecured MSME loans and the LAP segment

Despite broadly healthy balance sheets and a robust credit demand outlook, non-banking financial companies (NBFCs) are facing a tightened funding environment, Crisil Ratings said on Monday.

 

While large NBFCs continue to access bond markets comfortably, mid-sized and emerging players are increasingly struggling to secure stable, low-cost funding, the rating agency noted during a webinar.

 

In its report, Crisil said NBFCs’ assets under management (AUM) are expected to grow 18–19 per cent in FY26 and FY27, supported by strong consumption demand, and will surpass ₹50 trillion by March 2027.

 

“Despite the rollback in risk weights from April 2025, bank lending to NBFCs is yet to see a pick-up and stood at ₹13.8 trillion as of September 2025—only marginally above year-ago levels,” said Ajit Velonie, senior director, Crisil Ratings.

   

“While larger NBFCs have tapped other funding avenues such as the debt capital market and external commercial borrowings, others have fewer alternatives. The extent of rebound in bank funding will, therefore, be crucial for their growth outlook.”

 

Bank lending to NBFCs, which had risen steadily from ₹5 trillion in March 2018 to ₹12.5 trillion by October 2023, plateaued after a regulatory risk-weight revision disrupted credit flows. Even after the rollback of higher risk weights from April 1, 2025, banks have not resumed aggressive lending, with advances at ₹13.8 trillion in September 2025, only marginally higher than a year earlier.

 

Stronger NBFCs have compensated through bond issuances, but smaller lenders are left with limited options. As a result, securitisation, loan sell-downs, and a sharper focus on funding diversification have become essential, Crisil said. External commercial borrowings have also gained prominence, while housing finance companies (HFCs) are relying more heavily on bond markets.

 

In terms of asset classes, vehicle finance AUM is projected to grow 16–17 per cent over FY26 and FY27. Home loan growth is expected to moderate to 12–13 per cent over the next two years, from 14 per cent last financial year. Growth in loan against property (LAP) and secured MSME lending is forecast to remain strong at 26–27 per cent during this period.

 

The gold loan segment, which accounts for around 6 per cent of NBFC AUM, is expected to continue outperforming, driven by formalisation, high gold prices and increased NBFC participation.

 

On asset quality, Crisil flagged rising stress in early delinquency buckets, especially in vehicle finance, unsecured MSME loans and the LAP segment. Unsecured MSME and small-ticket LAP—among the fastest-growing NBFC loan categories—are showing early signs of vulnerability due to higher borrower leverage and overlaps with microfinance customer profiles.

 

“Vehicle finance and home loans will see steady growth amid intensifying competition. However, NBFCs will adopt risk-calibrated growth in MSME and unsecured lending segments given heightened customer leverage,” said Krishnan Sitaraman, chief ratings officer, Crisil Ratings.

 

For microfinance and unsecured loans, segments where write-offs are structurally high, gross NPA levels are not fully capturing underlying risks. Adjusted delinquency indicators (which include write-offs) remain elevated but are expected to stabilise as lenders recalibrate growth and tighten borrower selection, Crisil said.

 

The microfinance sector is “clearly on the recovery path,” supported by new regulatory guardrails. The proportion of borrowers with four or more microfinance loans has nearly halved—from 15–16 per cent in September 2024 to 9.1 per cent in September 2025—after norms capped borrowers at a maximum of three loans.

 

Loan books originated under the new norms are showing sub-1 per cent NPA levels, and the sector is expected to return to normal growth of 10–15 per cent in FY27, following consecutive years of contraction, the agency added.