NBFCs Double Loans, But Unsecured Lending Brings New Risks

How did non-banking finance companies (NBFCs) double their loans in just four years? They did it by quickly giving more personal, vehicle, and gold loans, even though there are quiet worries about whether borrowers can repay.

NBFCs gave out ₹24 lakh crore in loans in 2021. By March 2025, that number had grown to ₹48 lakh crore. Finance Minister Nirmala Sitharaman shared this news at a meeting in July 2025. She said NBFCs are no longer “shadow banks” but now play an important role in India’s lending system.

Personal and Vehicle Loans Drive the Surge

NBFCs are giving more loans to regular people, especially workers who often don’t get help from big banks. The Reserve Bank of India’s Financial Stability Report, out in June 2024, said personal loans grew over 32% between September 2022 and September 2023.

Vehicle loans stayed the biggest part of retail loans, hitting nearly ₹47.5 lakh crore in 2024.

This rise isn’t just because more people want loans. It’s also because loans are now easier to get. Many NBFCs are working with fintech companies to give loans quickly, sometimes in just minutes, mainly in cities and smaller towns.

Here’s a breakdown of NBFC credit distribution across key categories:

Loan Type	Advances in 2016 (₹ crore)	Advances in 2024 (₹ crore)
Personal Loans	1,86,200	6,78,000
Vehicle Loans	6,00,120	47,48,390
Consumer Durable Loans	30,360	4,09,570

Despite this growth, industry observers are flagging concerns about the quality of some retail credit portfolios, especially those built on small-ticket unsecured loans.

Unsecured Lending Sees a Sharp Climb

To keep growing, NBFCs are giving more unsecured loans, loans without any security. The FIDC-RBI NBFC Sector Report (December 2024) said unsecured loans made up 30.5% of NBFC lending in FY23, up from 27.6% the year before. At the same time, secured loans slightly fell, showing a clear shift in strategy.

Lending Type	FY22 Share (%)	FY23 Share (%)	Growth Rate (%)
Unsecured Loans	27.6	30.5	28.1
Secured Loans	72.4	69.5	11.5

The risk is clear: if people lose income, they may stop paying back these loans since there’s no asset to claim. While bad loans (NPAs) have dropped to 3% as of March 2025, the rise in small, easy loans could create problems ahead.

The finance minister asked NBFCs to check their customer rules, especially on high interest rates and pushy marketing. She also reminded them to follow the RBI's Fair Practices Code and to avoid any harsh or tricky recovery methods.

Gold and Agriculture Loans Scale Up

Gold-backed loans have also grown fast. Gold loans now make up nearly 60% of all such lending across banks and NBFCs, according to the FIDC-RBI trends report for FY24. This shows that more people are using family gold to get quick, short-term loans.

Farm lending has also jumped. From September 2022 to September 2023, NBFC loans to farmers grew by 43.7%, says the RBI’s June 2024 Financial Stability Report. This includes loans for crops, farm equipment, and storage units.

Loan Segment	Growth (YoY Sep 2022–2023)
Personal Loans	32.50%
Agriculture Loans	43.70%
Business Loans	15.20%

These numbers show that NBFCs are stepping in where banks are not reaching, especially in rural and small-town areas.

New Momentum, But New Risks

In FY25, the total size of NBFCs' balance sheets grew by 20% compared to last year, reaching ₹28.2 lakh crore. Net loans given out (called advances) rose to ₹24.5 lakh crore, as per an industry report by BCG in April 2025.

Experts say loan growth is strong again, but it’s being driven by the number of loans, not higher profits from interest.

At the same time, credit rating agencies and regulators are watching how NBFCs manage their cash. The RBI’s June 2024 report said most big NBFCs still have a healthy liquidity buffer—above 60%. But there’s growing concern that their heavy use of short-term borrowing could cause problems if interest rates rise quickly.

To keep growing safely, the finance minister has advised NBFCs to work more with banks through co-lending. This is when banks and NBFCs give out loans together. Right now, this type of lending makes up only 24% of NBFCs’ total loans.

The government wants to double that number in three years to boost loans in key sectors like farming, small businesses, and housing.

Year	Total Advances (₹ lakh crore)	NBFC Share (%)
FY21	24	—
FY24	48	16.5
FY25 Est.	50+	18.2

This move could also help smaller NBFCs get cheaper funds and share lending risks with bigger banks, making the system stronger for everyone.

Conclusion

NBFCs are no longer seen as just support lenders. At the CIBIL Credit Summit in Mumbai this July, Finance Minister Sitharaman said the government wants NBFCs to give nearly half as much credit as commercial banks in the next five years. This plan aims to meet the needs of people left out of the regular banking system.

But there are warnings too. More unsecured loans, less extra income at home, and borrower stress could cause trouble. Even though asset quality is better and profits have grown, return on assets went from 1.11% in 2021 to 2.4% in 2025; the next stage will need smarter risk checks.

NBFCs have outgrown their “shadow bank” image. But as they expand, they’ll face stronger rules and higher expectations for clean, careful lending.

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