The coming year (2026) will test whether NBFCs can balance fast expansion with rising risks in unsecured loans and higher funding costs.

Can non-banking finance companies keep up their lending pace after two years of sharp expansion? That question is back in focus after a September 2025 report by ICRA forecasted NBFC loan book growth forecast FY26 at 15 to 17 percent.

The estimate comes after 24 percent growth in 2023-24 and 17 percent in 2024-25, with GST cuts and stronger liquidity seen as the big drivers.

Year-Wise NBFC Loan Book Expansion

The latest ICRA report has forecast non-banking finance companies loan expansion in the range of 15 to 17 percent for 2025-26.

This growth is slower than the sharp rise in 2023-24 but steadier compared with 2024-25. According to the report, GST reforms driving NBFC credit growth have created new demand for personal and business loans.

The figures are a reminder that NBFCs have become a critical part of India’s lending system, often catering to smaller borrowers who may not have easy access to banks.

Financial Year	NBFC Loan Growth (%)	Main Trigger
2023-24	24	Post-pandemic demand revival
2024-25	17	Higher base, funding pressure
2025-26 (Forecast)	15-17	GST cuts, better liquidity

The numbers show a clear slowdown from the peak year of 2023-24 but confirm that the sector continues to grow faster than traditional banking.

Read More - Why NBFC Personal Loans Are Beating Bank Offers in 2025

The Impact Of GST Cuts On Lending

GST, or Goods and Services Tax, is a unified tax system applied across goods and services in India. When rates are cut, consumers end up with more disposable income. That extra income often leads to higher spending on items such as household goods, two-wheelers, and housing improvements.

For NBFCs, which provide easy loans for such purchases, this translates into higher credit demand.

The ICRA report cited by DD News in September 2025 stated that bank credit flow is expected to rise to between 19 and 20.5 lakh crore rupees in 2025-26, up from about 18 lakh crore rupees in 2024-25. The rise in overall lending demand is expected to reflect in the NBFC segment as well.

To understand the pressure and opportunities created by this expansion, it is useful to examine how NBFC lending is divided across categories.

Lending Category	Share Of Total Credit	Risk Profile
Small business loans and unsecured personal loans	34%	High demand, higher defaults
Housing and vehicle loans	30%	More stable, lower default
Corporate and infrastructure lending	36%	Limited expansion focus

The table shows that unsecured personal and small business loans remain the highest risk areas. ICRA has already warned of a likely 30 basis point rise in credit costs in 2025-26 compared with 2024-25.

The Indian NBFC Sector Growth Outlook for 2026

Non-banking finance companies are financial institutions that provide credit, but unlike banks they cannot accept demand deposits. They are heavily involved in vehicle loans, housing finance, microfinance, and consumption lending.

The Indian NBFC sector growth outlook for 2026 shows faster growth compared with banks, mainly because of their reach into underserved areas and customer segments.

Earlier reports also show that NBFCs saw strong liquidity in FY24. Some NBFCs or related entities reported deposit or funding growth of over 20 percent in 2023-24. That boost in liquidity is helping NBFCs enter FY26 with stability and better prospects. You can read a related story on LoansJagat: Loan Demand Outlook Shows Signs Of Optimism For Q2 FY26 Onwards: RBI Survey.

Comparing NBFCs with banks shows how differently the two segments are growing.

Institution Type	Growth In 2024-25 (%)	Forecast For 2025-26 (%)	Notes
2a80ff	Around 11	10.4 – 11.3	Conservative lending
2a80ff	17	15 – 17	Faster expansion

This difference highlights the role of NBFCs in meeting demand that banks may hesitate to serve, especially small borrowers and riskier segments.

Learn More - Understanding the Difference Between Secured vs Unsecured Personal Loans

Government And Bank Reactions In The Past

The government and the Reserve Bank of India have often responded to NBFC cycles with regulation or policy support. During stress years, the RBI tightened norms on asset quality and raised risk weights on unsecured lending. In the present cycle, GST reforms have indirectly boosted NBFC lending by stimulating consumption.

The approach is not new. In earlier periods, policy shifts such as liquidity support packages and targeted refinancing helped NBFCs maintain momentum. The difference in 2025-26 is that GST tax cuts, rather than direct financial support, are driving demand.

It is important to map out the challenges that accompany this expected growth.

Challenge	Concern	2025-26 View
Asset quality	Higher defaults in MSME and retail loans	Credit cost rise by 30 bps
Funding	High reliance on bank borrowings	Possible margin pressure
Regulation	RBI’s stricter rules on unsecured loans	May slow certain segments

The sector is therefore balancing expansion against the risk of defaults and rising funding costs.

What NBFC Growth Means for India?

The forecast of 15 to 17 percent loan growth for NBFCs in FY26 is not just about numbers. It shows how Indian credit demand is changing. More small businesses and households are turning to NBFCs for loans to meet their consumption and working capital needs.

While this demand is strong, unsecured lending remains a major risk. Defaults could rise if economic conditions weaken. At the same time, competition between NBFCs and banks will affect lending costs and interest rates. The ability of NBFCs to capture GST-driven demand will depend on how they manage these risks.

Conclusion

The outlook for 2025-26 is both hopeful and cautious. The ICRA forecast shows that the NBFC loan book may grow by 15 to 17 percent in FY26. GST reforms have built the base for more lending, and better liquidity has given NBFCs the strength to expand. At the same time, there are risks such as weak asset quality and higher funding costs.

The growth outlook for the Indian NBFC sector in 2026 is one of slow and careful progress. Non-banking finance companies are still expected to grow faster than banks, but with more checks from regulators.

What is clear is that GST reforms have given fresh energy to NBFC credit growth. How this energy will turn into long-term stability will become clear during the financial year 2025-26.

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