India's non-bank financiers are aggressively moving into spaces where banks are treading carefully. Non-bank lenders have outpaced their larger, banking counterparts in vehicle loans, housing, and consumer finance, latest data from the Reserve Bank of India (RBI) showed.
While the RBI has been publishing sectoral credit data for banks for several years, July was the first time it released similar data for non-banks.
Between March-end and May-end, non-banking financial companies (NBFCs) gave housing loans worth ₹13,413 crore, as against ₹13,072 crore extended by banks. The gap was much wider in vehicle and consumer durable segments during these two months. While NBFCs saw their vehicle and consumer durable loans increase by ₹13,840 crore and ₹9,991 crore, respectively, they grew by ₹9,772 crore and ₹944 crore for banks.
One area where banks left non-banks far behind is gold loans. Gold loans at banks were up ₹52,908 crore so far this financial year (up to May-end), whereas NBFCs could lend just ₹19,808 crore in the same period.
The clear retreat by banks is a far cry from their last year's performance. In the first two months of FY26, non-banks were ahead only in consumer durables financing. In gold loans, banks were ahead by miles, as they have been so far in FY27.
“Given the constraints in deposit mobilization, banks seem to be going slow in low-yielding asset segments, such as housing loans,” said Anil Gupta, senior vice-president and co-group head of financial sector ratings, Icra Ltd.
Segments such as housing loans to prime customers and corporate loans to top-rated borrowers carry lower interest rates on account of them being less risky. For instance, home loans at India’s largest lender State Bank of India (SBI) start at 7.25%, going all the way up to 8.55%. The better-rated borrowers are able to avail of loans near the lower end of the band. In comparison, personal loans—an unsecured credit—carries a rate of 10-15% at SBI.
The RBI said that the sectoral credit data for NBFCs is based on a sample of companies in the upper and middle layer and mortgage lenders, with their aggregate credit accounting for about 87% of the system’s non-bank loans. RBI regulations classify NBFCs into four layers based on their size, activity and perceived risks.
However, in overall size, outstanding bank loans of ₹215 trillion are nearly four times those of non-banks.
Analysts said that non-bank lenders' aggressive push into segments such as housing and auto loans is a result of how their businesses are structured.
“The NBFCs are much more focussed on certain segments, whereas banks are present in a lot more product categories. You have auto-focussed non-banks, there are specific mortgage financiers, consumer durable financiers, among others,” said Pratik Shah, partner and national leader, financial services, EY India.
According to Shah, NBFCs have perfected the art of lending to certain people who do not have a strong credit profile but do need access to formal credit. “Another thing is that NBFC vertical heads are more empowered than their counterparts in banks, allowing them to drive more business in their specific segments and almost run them like standalone businesses,” he said.
Satrajit Bhattacharya, executive vice-chairman of affordable housing finance company, People Home Finance, said there are areas where NBFCs can go much deeper than banks.
“For certain customers, NBFCs are the lenders of choice since banks largely look at more prime and salaried customers,” said Bhattacharya, who, before founding the company, was the head of mergers and acquisitions at the erstwhile mortgage lender HDFC Ltd.
Bhattacharya said that the shift of some business from banks to non-banks is also a result of formalization of the credit system, where those that did not have access to credit earlier are now coming to non-banks for loans. “In housing finance, banks are not quite present in the affordable segment and that is one area which is dominated by housing finance companies.”
Analysts also acknowledged that the sector is poised for growth.
“After navigating nearly two-and-a-half years of asset-quality challenges across multiple retail lending segments, NBFCs are entering FY27 with cleaner balance sheets and improving growth visibility,” analysts at Motilal Oswal Financial Services said in a note on Monday.
They said that the key challenge for NBFCs over the past two quarters was not the availability of liquidity, but its price. The impending liquidity influx into the banking system through FCNR(B) deposits could alter this dynamic, these analysts said.