India's non-bank lenders seen growing faster than banks as AI transforms lending: Nomura report
New Delhi, March 12
India's non-bank financial companies are expected to expand faster than traditional banks over the coming decade as lenders adopt artificial intelligence and expand into new loan segments, according to a research report by Nomura.
Banks currently dominate India's lending system, accounting for more than 70% of total credit as of FY25, while NBFCs hold a much smaller share. However, Nomura forecasts NBFC credit will grow at roughly 17 per cent annually between FY25 and FY35, compared with about 12 per cent growth for bank lending over the same period.
"We note that AI can help NBFCs identify potential prime customers and bring about more efficiency in high-intensity product segments at a transformative pace. However, we raise caution around the regulatory gap on the matter. We expect the gap between the loan growth of banks vs NBFCs to widen further, with NBFCs recording a 17 per cent CAGR over FY25-35F vs 12 per cent for banks," read the Nomura report.
India's lending ecosystem already totals about Rs 232 trillion (USD 2.6 trillion) in outstanding credit, but credit penetration remains relatively low compared with major economies. Nomura expects India's credit-to-GDP ratio to rise significantly over time as access to financing expands.
NBFCs have increasingly diversified their lending portfolios in recent years, moving beyond traditional wholesale lending into retail products such as vehicle loans, consumer durable financing, personal loans and microfinance, areas where demand remains strong. Retail credit accounts for a large portion of NBFC lending and is expected to remain a key growth driver.
Artificial intelligence is becoming an important tool for lenders. The report says financial institutions are deploying AI systems to improve credit underwriting, customer support, sales and marketing, cybersecurity and internal operations, while using alternative data to identify potential borrowers.
"The India NBFC sector is set to witness a steep rise in competition, as many lenders are now focused on expansion into new products and markets. Investment in and development of AI engines across the sector is increasing and could potentially drive structural transformations in lending processes," the report read.
At the same time, regulators are preparing for wider adoption of the technology. India's central bank has issued recommendations for responsible AI use in financial services and is expected to develop a regulatory framework as implementation increases across the sector.
As competition intensifies and digital tools reshape lending practices, analysts say NBFCs could play a growing role in expanding credit access, particularly among underserved consumers and small businesses.
— ANI
Reader Comments
Faster growth is good, but the report rightly points out the regulatory gap. We need strong safeguards before AI is used to decide who gets a loan. Algorithmic bias is a real concern. RBI must ensure transparency and fairness.
NBFCs are definitely more agile. Got a personal loan processed in hours last month for a medical emergency. Banks would have taken days. If AI can make this even smoother while keeping rates competitive, it's a game-changer.
Interesting analysis. The credit-to-GDP ratio point is key. As an expat working here, I see the potential for growth is massive. Hope this competition drives better products and customer service for everyone.
As someone in tech, the AI adoption part is exciting. Using alternative data for credit scoring can help millions with thin credit files. But we must be careful not to create a digital divide. Not everyone is equally tech-savvy.
My small kirana store got a working capital loan from an NBFC last year. The bank's paperwork was too much. If NBFCs grow and use AI to serve more small businesses like mine, it will be a big boost for the economy. Fingers crossed!
R We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.