Context:
Bank lending to non-banking financial companies (NBFCs) has continued to decline, despite the RBI’s rollback of stricter risk-weight norms in April 2025. The sector is facing cautious bank sentiment, growing reliance on bond markets, and delinquencies in microfinance and unsecured loan segments.
Sectoral Challenges
Stress in Key Loan Segments
- Microfinance institutions (MFIs) and fintech business loans have seen a rise in delinquencies.
- This has made banks more cautious about lending to NBFCs.
- Unsecured personal and business loans are under close scrutiny.
Slow Transmission of Policy Rates
- Despite a 50-bps repo rate cut in April, many banks (especially PSBs) have not cut MCLR, limiting benefit to NBFCs.
- Private banks have begun to pass on rate cuts.
Funding Pressure on Lower-Rated NBFCs
- NBFCs rated A- to BBB are the worst hit, as they largely depend on banks and large NBFCs for funding.
- These NBFCs are seeing slower disbursements and higher costs.
