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Informist, Monday, Dec. 29, 2025

 

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--RBI report: NBFCs' gross NPA ratio fell to 2.9% Mar 31 vs 3.5% YoY 
--RBI report: NBFCs' net NPA ratio fell to 1.0% as on Mar 31 
--RBI report: NBFCs' gross, net NPA ratios unch at Sept-end from Mar-end 
--RBI report: NBFCs' credit growth 19.4% FY25 vs 18.7% FY24 
--RBI report: NBFCs' loans and advances INR 52.06 tln Sept 30, up 20.5% YoY 
--RBI report: NBFCs well capitalised, asset quality improved FY25 
--RBI report: NBFCs should continue diversification of funding sources 
--RBI report: NBFCs must be vigilant about emerging cyber, tech challenges 

 

MUMBAI –  Non-banking financial companies recorded an improvement in their asset quality and remained well capitalised at the end of March 2025, the Reserve Bank of India said Monday. The non-bank lenders' gross non-performing assets ratio dropped to 2.9% at end of March from 3.5% a year ago, the central bank said in its 'Trend and Progress of Banking in India 2024-25 (Apr-Mar)' report. The NBFCs' net NPA ratio fell to 1.0% as on Mar. 31.

 

At the end of September, gross non-performing asset ratio and net non-performing asset ratio of NBFCs were broadly unchanged from March end, the report said. Asset quality worsened in agriculture, transport, retail trade, housing loans, consumer durables, and credit card receivables, but improved in industry, commercial real estate, vehicle loans, and gold-backed advances segments. The asset quality of all classification of NBFCs barring non-banking financial company-microfinance institutions has improved. NBFC-MFIs showed a deterioration in asset quality with gross NPA ratio increasing to 4.1% at the end of March.

 

As per the regulatory requirement, NBFCs need to maintain provisions for standard assets, sub-standard assets, loss assets and doubtful assets. Provisions made by NBFCs, represented by provision coverage ratio, stood at 66.6% at the end of March.   

 

On the asset side, loans and advances grew 19.4% by the end of March 2025, with upper-layer NBFCs recording higher growth than NBFC-middle layer. Unsecured lending by NBFCs rose largely due to base effect, while the growth of secured lending moderated during the same period. This moderation was primarily driven by NBFC-middle layer, whose secured credit growth dropped to 15.8% at March end from nearly 30% a year ago. The non-banking lender's loans and advances were INR 52.06 billion as of Sept. 30, up nearly 21% on year.

 

According to RBI, industry and retail segments accounted for 81.1% of total credit extended by NBFCs at the end of March, followed by services at 15.4%. Credit to services segment recorded a significant increase of 29.8%, followed by industry and retail loans exhibiting double-digit growth during the same period. 

 

When it came to resource mobilation, NBFCs mobilised resources from both banks and markets. "There has been a modicum of diversification of sources of funding by NBFCs in recent years, mainly towards borrowings from foreign sources along with loan sales and securitisation," the RBI said. Bank borrowings and debentures have continued to be the predominant source of funding for NBFCs. The combined share of these sources, however, has declined marginally to 72.9% at September end from 74.2% reported in March 2024. Also, both secured and unsecured borrowings by NBFCs rose sharply at March end, and unsecured borrowings rose on the back of rising issuance of commercial papers and inter-corporate borrowing.  

 

On the asset liability profile, NBFCs maintained a net positive liquidity position at March end, reflecting an overall comfortable liquidity position for the sector. "Liquidity mismatch is a key indicator of the liquidity position of NBFCs, the RBI said in the report. "Within the 30 or 31 days bucket, NBFCs had more than 100% positive mismatch as a share of total outflows at March end indicative of sufficient high-quality liquid assets buffers to manage stress," the report said. 

 

On financial performance front, the non-banking lenders derived 93.2% of income from fund-based sources like interest income and investment earnings, while the remaining was from fee-based sources. "There was a moderation in total income growth of NBFCs at the end of March due to deceleration in interest income growth," the RBI said. "Expenditure recorded an increase due to higher interest expenses, provisioning for NPAs, and write-offs of bad debts. Deceleration in income along with an increase in expenditure led to a higher cost to-income ratio and contraction in net profits."

 

According to the RBI report, at the end of March, 25% of NBFCs' total assets were exposed to sensitive sectors. NBFCs' exposure to real estate increased over time, reaching a share of 26.8% of the total exposure to sensitive sectors during the same period. To reduce the cost of financing by NBFCs to high quality infrastructure projects, it was proposed to reduce the risk weights applicable on these projects. 

 

Share of housing finance companies, which are also classified as NBFCs, in total credit to the housing sector fell to 18.8% at the end of March. In FY25, the total assets of housing finance companies increased little over 16%, primarily driven by a surge in loans and advances, which accounted for 90.7% of total assets. "Rising urbanisation and demand for home ownership has sustained the growth in housing loans," the RBI said.

 

Going forward, the microfinance loan performance needs close monitoring, the RBI said in the report. Regulatory moves to restore lower risk weights for bank-NBFC lending, along with easing of monetary policy, is helping NBFCs to expand their footprint, the central bank said. NBFCs should diversify funding sources, balance growth with sound practices, and ensure inclusive growth and stability. "They need to be vigilant about emerging technological and cyber challenges, besides promptly addressing customer grievances," the RBI said.  End

 

Reported by Vaishali Tyagi

Edited by Tanima Banerjee

 

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