The Indian financial system is often praised for its strength, but a closer look at the RBI’s latest Financial Stability Report shows a warning. The report, released today, highlights growing trouble in the non-banking financial sector.
Retail loan stress is rising among non-banking financial companies (NBFCs). While banks still seem stable, NBFCs are experiencing more trouble. Banks report a gross non-performing asset (GNPA) ratio of only 1.2% on retail loans. In contrast, NBFCs have seen their GNPA increase to 3.1%.
The report also shows that retail lending for NBFCs surged sharply. It grew from almost zero in March 2021 to over 35% by late 2022. This fast expansion was mostly in personal loans, consumer finance, and microcredit. The rise suggests a rebound in borrowing after the pandemic, especially from informal or underserved groups. Growth has slowed since then, dropping to 21% by March 2025.
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Data from the RBI shows NBFCs are facing a tough test in retail lending. Banks are becoming more cautious about lending to unsecured and microfinance borrowers. Bank loans to NBFCs grew rapidly—about 9% in March 2021 and over 35% by March 2023. But by March 2025, that growth slowed sharply to just 5.9%. This shows banks are pulling back, scared of risks or facing new rules. It leaves NBFCs more exposed to funding problems.
The difference in loan quality is clear. NBFCs have taken a bigger share of unsecured personal loans and microfinance in recent years. Fintech firms and housing finance companies now make up 84.3% of all personal loans under ₹50,000. But the borrowers in this area have trouble keeping up with repayments. About 10% of these borrowers already missed payments on personal loans. More than two-thirds had three or more active loans when they took out new ones. This points to growing debt and potential financial stress.