NBFC AUM growth likely to moderate in FY26 as banks cut funding, says Ind-Ra

Non Banking Finance Corporations’ (NBFC) Assets Under Management (AUM) growth is likely to moderate to 18.5% in FY26, after bank funding to the sector reduced even as the Reserve Bank of India normalised risk weights, according to India Ratings, a credit rating agency. The AUMs increased at a pace of 25% in FY25.

“Ind-Ra has maintained a neutral sector outlook for NBFCs and Stable rating outlook for FY26. The ability of lenders to secure funding for growth will depend on how asset quality progresses in 2HFY26, especially for lenders operating in the unsecured segment,” said Karan Gupta, Head and Director Financial Institutions at Ind-Ra.

NBFCs are also more cautious in lending as they are concerned about asset quality, especially in the microfinance and unsecured business loans. The credit rating agency expects higher-rated NBFCs — those with higher asset quality — to rely on capital market funding and operate in areas with limited competition from banks. This will lead to an increase in margins for them. The asset-quality concerns are, however, not expected to hit profitability as they have already taken the corrective actions. 

The 100-basis-point cut in repo rate has reduced the 10-year government bond yield by 50 basis points to 6.3% in the middle of 2025. This could mean lower borrowing costs for higher-rated NBFCs. 

Unsecured business loans and microfinance segments will face continued asset quality stress, the credit rating agency said,  The repayment behaviour of property backed loan may also be volatility.