The loan book of non-banking finance companies (NBFCs) in India is expected to grow 15-17 per cent in the financial year 2025-26 (FY26) on GST reforms and improved liquidity conditions, according to rating agency Icra.
Their credit expanded 17 per cent in FY25 and 24 per cent in FY24, respectively.
The recent goods and services tax (GST) rate cuts would support credit expansion for banks and NBFCs in the near term, Icra said in a statement.
Asset quality stress in retail and micro, small & medium enterprises (MSME) segments resulted in slower growth for private sector banks and NBFCs. With improvement in economic activity after GST rate cuts, the growth appetite will improve, which will support the credit offtake, said Icra’s Co-Group Head (financial sector ratings).
Loans to small businesses, and unsecured personal and consumption loans, stand at approximately 34 per cent of the total NBFC credit of ₹35 trillion as of March 2025.
Notwithstanding the expected improvement in the economic activities and outlook on credit growth, Icra said it remains watchful on the asset quality.
The agency noted that lenders have been facing loan quality risks and are susceptible to the uncertainties emerging from the evolving geopolitical conditions.
The evolving macro-economic trends are not expected to have a direct, first-order impact on the lenders. But their target borrower segments, like firms in the textile sector, would be impacted by the overall demand weakness or income shocks emerging from these developments. The employees of these units would have liquidity issues to service their existing debt (microfinance, personal loans, home loans) because of the income shock.
Senior vice-president, Icra said: “We expect the credit cost of NBFCs to go up by nearly 30 basis points, vis-à-vis the previous financial year, with the impact being more pronounced in the non-housing segments.”
While these headwinds remain, the soothing impact of the reducing cost of funds will support their margins and overall earnings for the lenders, the rating agency added.
