Tech and policy to drive NBFC growth in 2025

The collaboration between regulators, industry leaders, and fintech innovators will be crucial in shaping the future of India’s financial ecosystem

With India already into 2025, Non-Banking Financial Companies (NBFCs) are positioned at a critical crossroads, fuelled by advancements in digital technology, conducive government policies, and a heightened focus on sustainability. However, experts warn that despite these positive forces, the sector may face challenges that could hinder its growth trajectory this year.

According to a recent Nomura report, the asset under management (AUM) growth that NBFCs experienced in FY23 and FY24 has started to decelerate in FY25. This trend is expected to continue, primarily due to a slowdown in loan disbursements, particularly in unsecured loans such as personal loans, microfinance, and credit cards. Concerns over asset quality and tighter regulatory scrutiny are also contributing to this caution.

The Reserve Bank of India (RBI) further highlighted a key vulnerability for NBFCs: their heavy reliance on banks for funding. The RBI has suggested that diversifying funding sources is crucial for risk mitigation and long-term stability.

Despite these hurdles, NBFC leaders remain optimistic about certain sectors. The Micro, Small, and Medium Enterprises (MSME) sector, a vital part of India's economy, is expected to remain resilient, presenting growth opportunities for NBFCs. Nomura also points to areas like small and medium enterprise loans, loans against property (LAP), and used vehicle financing as segments that are likely to thrive despite broader challenges.

Navin Saini, Chief Business Officer of Arka Fincap, expressed a positive outlook for MSME financing, saying, “The asset quality outlook for MSME financing in India remains cautiously optimistic in the coming year. Lenders who adapt with proactive risk management, leverage technology, and align with government initiatives will be better positioned to maintain healthy portfolios in the evolving MSME landscape."

With digital advancements reshaping the financial services industry, NBFCs are uniquely positioned to meet the rising demand for credit from salaried professionals, MSMEs, and the infrastructure sector, according to Ankit Modi, Managing Director of SalaryOnTime.

The sector's future will also be shaped by a focus on operational efficiency, as pointed out by Vikkas Goyal, founder of Rupee112: “The NBFC sector is at a crossroads, where opportunities are abundant but so are challenges. Stricter compliance norms and asset quality concerns require NBFCs to focus on consolidation and operational efficiency.”

Sustainability is another key driver of growth. The rise of green finance, spurred by the government’s push for electric vehicles (EVs) and sustainability, presents an exciting opportunity. Nehal Gupta, Founder of Accelerated Money For U, noted, "The year 2024 has marked a turning point in green finance, driven by the push for sustainability and India's rapid adoption of electric vehicles."

The real estate sector is also poised for growth in 2025, as borrowers could benefit from stable interest rates and government schemes like PMAY Urban 2.0, which are expected to boost affordable housing projects.

As the NBFC sector navigates these challenges and opportunities, the collaboration between regulators, industry leaders, and fintech innovators will be crucial in shaping the future of India’s financial ecosystem.