India’s non-banking financial companies (NBFCs), excluding microfinance institutions (MFIs), are projected to see credit growth of 13–15 per cent in FY26, with total credit expected to cross Rs 60 trillion, according to analysts from Moody’s Ratings and ICRA. At a media briefing on April 23, Alka Anbarasu, Associate Managing Director at Moody’s Ratings, and Karthik Srinivasan, Senior Vice President at ICRA, said the broader NBFC sector is expected to maintain stable growth despite asset quality stress in the personal loan and MFI segments. While unsecured lending posed headwinds in FY25, Srinivasan noted that the worst may be behind them in terms of asset quality. Lower credit costs, helped by recent interest rate cuts and expectations of more, are likely to support the sector’s recovery, he added. A report presented at the briefing indicated that NBFCs’ return on assets (ROA) could moderate to 2.6–2.8 per cent in FY26, down from over 3 per cent previously. Elevated credit costs in personal loans and MFIs are the main factors behind the expected decline, Srinivasan said. However, segments like home loans and vehicle finance are seen remaining resilient, driven by strong fundamentals and steady demand. Meanwhile, the MFI sector, which had a robust FY24 with high margins and low credit costs, has witnessed a sharp downturn in FY25. Several major players reported losses over the past nine months, pulling sector ROA close to zero, according to Moneycontrol. Anbarasu projected a modest recovery in FY26, with MFI ROA expected to bounce back to 1.2–1.3 per cent, though still below historical highs. She added that the short loan tenures in the sector suggest much of the stress may already be recognised unless macro conditions worsen. To strengthen resilience, the Microfinance Institutions Network (MFIN) has introduced stricter lending norms from April 1, 2025, including tighter credit filters, lower loan limits, and caps on total borrower indebtedness. “These new guardrails will help curb over-leveraging but may slow loan growth in the near term,” Srinivasan said, adding that the current quarter will be critical for MFIs.Image source:Image generated by ChatGPT