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The RBI study showed that NBFCs, including housing finance companies (HFCs), accounted for 12.7 per cent of total financial sector assets at end-March 2025, down from 13.9 per cent at end-March 2020. While NBFCs remain the second-largest segment of India’s financial system after scheduled commercial banks, their relative share has declined over the past five years. At the same time, banks still accounted for 52.3 per cent of financial sector assets at end-March 2025, compared with 58.2 per cent in March 2020.

Despite the shrinking asset share, NBFCs remained a key source of credit for underserved segments and continued to post robust business growth. Total assets of upper-layer and middle-layer NBFCs expanded 19.4 per cent year-on-year (y-o-y) at end-December 2025, driven by a 24 per cent rise in loans and advances. Secured lending, which constitutes nearly three-fourths of total advances, was the primary growth driver.

Retail loans and industry continued to fuel credit growth. Retail loans accounted for 35.9 per cent of total NBFC credit at end-December 2025, while industry represented 45.4 per cent. Within retail lending, loans against gold jewellery remained the standout segment, rising nearly 60 per cent y-o-y as elevated gold prices increased collateral value and borrowing limits. Vehicle loans continued to be the largest retail segment, though growth moderated.

The RBI report also highlighted continued dependence of NBFCs on external borrowing. Borrowings grew 23.3 per cent y-o-y, with bank loans and market instruments such as debentures and commercial paper accounting for more than 77 per cent of funding. The central bank noted that interconnectedness with banks remains an area requiring close monitoring from a systemic risk perspective.

Financial metrics, however, strengthened further. The sector’s gross non-performing asset (GNPA) ratio improved to 2.7 per cent at end-December 2025, while net NPAs fell to 0.9 per cent. Capital buffers remained strong, with the capital-to-risk weighted assets ratio (CRAR) at 25.2 per cent, well above the regulatory requirement of 15 per cent.

The review also found increasing adoption of artificial intelligence and digital technologies by NBFCs. Text analysis of annual reports indicated growing focus on AI-driven customer applications, governance systems, digital infrastructure and data analytics, underlining the sector’s evolving business model.

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