NBFCs no longer 'shadow banks', should aim to lift credit disbursal to 50% of commercial banks: FM Sitharaman

In the past five years, NBFC’s fundamentals has been underpinned by strong capital buffers, says FM

India’s non-banking financial institutions (NBFCs) are no longer "shadow banks", as stronger regulation and oversight is the best testimony of their importance in the financial system and the broader economy, Finance Minister Nirmala Sitharaman said today.

"Some systemically significant NBFCs have grown in size and complexity, with governance and compliance standards comparable to banks," Sitharaman said while speaking at the NBFC Conclave 2025 in New Delhi.

The FM mentioned that as of today the total volume of credit disbursed by the NBFCs stand at 24% of the total credit disbursed by commercial banks. "This number can easily go up to 50%," she added.

The Gross Loan advances by NBFCs have grown significantly in the past four years, doubling from Rs 24 lakh crore as of March 2021 to Rs 48 lakh crore as of March 2025, the FM highlighted in her speech. She also said that as of today, there are around 9000 registered NBFCs in the country.

In the past five years, NBFC’s fundamentals has been underpinned by strong capital buffers, robust interest margins and earnings and low levels of impairment, she said.

Asset quality has shown steady recovery since the pandemic, with NBFC sector’s gross NPAs having steadily declined from 6.4% in March 2021 to reach the current level of 3% in March 2025. "Profitability has also improved with Return on Assets improving from 1.11% in March 2021 to 2.4% in March 2025," the FM said.

"A strong, future-ready financial ecosystem requires deep collaboration between NBFCs and banks. The synergy between the two has already delivered notable results, especially through co-lending arrangements," noted the FM, adding that going forward, such partnerships should be institutionalized and scaled.

She also stated that a seamless digital co-lending architecture, common onboarding standards, and interoperable servicing platforms can greatly enhance credit flow to underserved sectors while ensuring risk-sharing and efficiency.

On recent regulatory measures such as the restoration of risk weights on bank lending and the easing of financial conditions, the FM said that these are expected to further improve credit prospects, strengthening the overall funding environment for the sector.

"With the recent RBI measures reducing the costs of funds to the sector, urge NBFCs to pass on the benefits of this reduction onto customers," Sitharaman said.

Road ahead

Sitharaman said that the Government is committed to creating a regulatory environment that supports innovation while ensuring that risks are well managed and customer trust is protected. "To achieve the goals of Viksit Bharat by 2047, both bank and NBFC lending must expand," she said.

As India moves forward, NBFCs will have a key role in meeting the credit needs of the future, including in areas like green initiatives, affordable housing and MSMEs, noted the FM. "By 2047, at least 50% of NBFC credit should be directed towards high-growth, high-impact sectors."

She stated that "collaboration" will be key to achieving these ambitions — whether through partnerships among NBFCs, co-lending arrangements with banks, or integration with financial technology firms to lower intermediation costs. "20% of lending of NBFCs should be on the collaborative framework of co-lending with banks," noted the FM.

Additionally, technology must be a central pillar of the transformation. NBFCs should aim for 100% adoption of digital processes across the entire loan lifecycle. "To enable this, there is a need to develop a minimum common technology standard for all registered NBFCs."