India’s Non-Banking Financial Companies (NBFCs) are walking a tightrope in 2025, as elevated borrowing costs continue to challenge profitability and liquidity. Yet, amid tightening margins and rising competition, the sector is showing remarkable resilience—backed by digital transformation, robust demand for credit, and diversification into newer lending models.

With repo rates remaining firm and bond yields reflecting global macro uncertainties, borrowing costs for NBFCs have remained significantly above pre-2022 levels. This has squeezed net interest margins (NIMs), especially for smaller NBFCs with limited access to cheaper capital sources.

Demand Remains Strong, Especially in Retail and MSME Segments

Despite the funding pressures, the demand for credit—especially from micro, small, and medium enterprises (MSMEs), personal loans, vehicle financing, and affordable housing—has kept the growth engines running. NBFCs are increasingly leveraging technology, data analytics, and alternate credit scoring models to serve underbanked segments.

Leading players are also building stronger balance sheets by securitizing portfolios, forming co-lending partnerships with banks, and exploring capital market instruments to raise funds more efficiently.

Regulatory Scrutiny Tightens

In recent months, the Reserve Bank of India (RBI) has intensified regulatory oversight on NBFCs, especially those in the upper layer as per the scale-based regulatory framework. The emphasis has been on liquidity management, governance, asset quality, and risk-based capital norms.

These changes, while tightening the operational framework, have also improved investor confidence and pushed the sector toward more structured governance and compliance models.

This has increased the demand for specialized Business Formation & Secretarial Services, as NBFCs—especially emerging ones—look to strengthen corporate governance, ensure timely regulatory filings, and maintain transparent records in line with RBI norms and Companies Act mandates.

Innovation Is Key to Survival

NBFCs are embracing innovation not just in technology but also in product design. Many are launching customized credit products for niche sectors like EV financing, green loans, and education finance. Fintech-NBFC collaborations are on the rise, blending agility with compliance.

Moreover, the growing use of Account Aggregator (AA) frameworks and open banking tools is helping NBFCs make faster, more informed lending decisions while reducing operational risks.

Outlook: A Sector Adapting to the New Normal

While borrowing costs are unlikely to ease significantly in the short term, the NBFC sector is gradually adapting to this higher-for-longer interest rate environment. The focus is shifting toward operational efficiency, risk management, and scalable tech-backed lending.

Industry analysts believe that well-capitalized, digitally forward, and compliant NBFCs will continue to grow at a healthy pace—despite the cost headwinds—by building trust, expanding reach, and leveraging partnerships.

Conclusion

India’s NBFCs are once again proving their ability to adapt and innovate under pressure. Elevated borrowing costs may slow some players, but for those who focus on regulatory readiness, digital agility, and governance excellence—including proper use of Business Formation & Secretarial Services—the growth path remains clear.