NBFC Retail Bad Loans Outlook for FY26

Moody’s Ratings has projected that retail non-performing assets (NPAs) of Non-Banking Financial Companies (NBFCs) in India are likely to rise in FY26 by 20–30 basis points, following years of rapid loan disbursements that have outpaced India’s nominal GDP growth.

Key Highlights:

• Trend of Retail NPAs:
  • NPAs will rise moderately in FY26 but remain below the pandemic peak of over 5% in FY22.
  • The increase is linked to continued credit growth and rising vehicle loan exposure.
• Impact of GST Reforms on Vehicle Loans:
  • Recent GST reforms may spur demand for vehicle loans.
  • Risks include:
    • Decline in collateral values.
    • Lower vehicle utilisation due to increased supply.
    • Potential stress on borrowers’ cash flows.
  • However, loan quality is expected to remain relatively stable due to strong macroeconomic conditions.

Regulatory Measures:

• RBI interventions in FY24:
  • Raised risk weights for unsecured loans and loans from banks to NBFCs.
  • Implemented company-specific supervisory measures to maintain asset quality.