India's NBFCs in 2025: Navigating Growth and Challenges

As India ushers in 2025, Non-Banking Financial Companies (NBFCs) face a critical juncture, driven by digital advances and government policies. Despite positive trends, reports indicate a slowdown in loan disbursements and regulatory issues. Sector leaders remain optimistic, emphasizing opportunities in MSME and green finance sectors.

India's Non-Banking Financial Companies (NBFCs) are poised at a significant turning point as the nation enters 2025, propelled by technological advancements and favorable government initiatives, according to industry specialists. Despite these encouraging factors, several reports highlight potential obstacles to growth, including a deceleration in loan distribution and persistent regulatory hurdles.

The robust asset under management (AUM) growth observed in previous years shows signs of weakening in FY25, a trend expected to endure, as reported by Nomura. The slowdown is attributed to a decline in unsecured loans such as personal loans, credit cards, and microfinance due to asset quality concerns, and more stringent regulatory supervision. The Reserve Bank of India (RBI) also flagged NBFCs' reliance on banks, recommending a diversification of funding sources to mitigate risks.

Despite 2024's inflationary pressures, geopolitical tensions, and supply chain disruptions, NBFC leaders express cautious optimism for the upcoming year, pointing out opportunities in sectors like MSMEs, NBFCs, and green financing. Nomura remains hopeful about segments such as SME loans, loans against property, and used vehicle financing. Navin Saini, Chief Business Officer at Arka Fincap, emphasized adaptive risk management strategies as vital for maintaining asset quality in the evolving market landscape.

(With inputs from agencies.)