NBFCs Overtake Housing as the Biggest Driver of Bank Credit: What RBI's Latest Data Reveals

Research period: 24–31 October 2026
Primary development: RBI's September 2026 sectoral deployment of bank credit data, published on 30 October, followed by reporting on the sharp increase in bank lending to NBFCs on 31 October.

Indian Banks Increase Lending to NBFCs: What Is Driving the Shift?

Indian banks are directing an increasing share of their incremental lending towards non-banking financial companies (NBFCs), making non-bank lenders an important driver of credit expansion during the first half of FY2027.

According to the Reserve Bank of India's (RBI) Sectoral Deployment of Bank Credit release dated 30 October 2026, non-food bank credit grew by 19.1% year-on-year as of 30 September 2026, compared with 11.2% in the corresponding period of the previous year.

The development received further attention following a report published by The Times of India on 31 October. According to the report, bank advances to NBFCs increased by ₹1.8 lakh crore between 31 March and 30 September 2026, exceeding the ₹1.4 lakh crore increase in housing loans over the same period. Reserve Bank of India

The figures highlight an important change in the distribution of bank credit. NBFCs are increasingly significant recipients of bank financing, alongside traditional corporate and retail borrowers.

For banks, this creates an important counterparty exposure. For NBFCs, it provides an additional channel to finance lending operations. For businesses, it has implications for the availability of credit through non-bank financial institutions.

The development also brings greater attention to how banks and NBFCs manage credit risk, liquidity and balance-sheet exposure.

Key Numbers: What Does the Latest RBI Data Show?

The RBI's September 2026 data and the accompanying sectoral breakdown reported by The Times of India provide a picture of the changing credit landscape.

Key Numbers: What Does the Latest RBI Data Show?

The RBI's September 2026 data and the accompanying sectoral breakdown reported by The Times of India provide a picture of the changing credit landscape.

The ₹22.5 lakh crore figure represents bank advances to NBFCs, not the total loan book of India's NBFC sector. The 41.8% growth rate and the first-half incremental lending figures are from the newspaper's detailed reporting of the RBI data. The Times of India

Credit Growth Across Major Sectors

The RBI also reported strong growth across several other segments.

The growth rates were higher than those recorded in the corresponding period of the previous year.

Within the services sector, NBFCs, trade, commercial real estate, transport operators and professional services were among the important contributors.

The industry segment also recorded stronger credit expansion, with large and medium industries showing accelerated growth. Reserve Bank of India

Why Are NBFCs Becoming a Major Driver of Bank Credit?

NBFCs occupy an important position in India's financial system.

They provide financing across several segments, including vehicle finance, business loans, consumer credit, affordable housing, infrastructure and other specialised lending categories.

Unlike banks, NBFCs generally do not rely on customer deposits in the same manner. Their financing structures can include bank borrowings, debentures, commercial paper, securitisation and other market-based funding arrangements, depending on their regulatory category and eligibility.

Bank borrowing is therefore an important component of the funding structure for many NBFCs.

The increase in bank advances to NBFCs indicates that non-bank lenders are receiving a greater volume of credit from scheduled commercial banks.

There are several financial considerations behind this relationship.

1. Banks Provide an Additional Source of Funding to NBFCs

Bank facilities allow NBFCs to finance their lending operations without relying exclusively on capital-market instruments or other funding channels.

This can support their ability to expand loan portfolios, meet existing financing commitments and manage refinancing requirements.

However, the actual use of bank borrowing depends on the NBFC's funding strategy and the terms of its facilities.

2. NBFCs Serve Different Borrower Segments

NBFCs often operate in borrower categories where specialised underwriting, distribution networks and sector-specific expertise are important.

For example, some NBFCs focus on small businesses, vehicle finance, affordable housing or equipment financing.

The growth in bank lending to NBFCs therefore matters beyond the financial sector itself. It can influence the financing capacity of institutions that serve businesses and individuals across different parts of the economy.

3. Credit Demand Is Expanding Beyond Traditional Retail Lending

The RBI data also indicates that the increase in bank credit is not limited to housing or personal loans.

Services-sector credit grew by 28.3% year-on-year, while industrial credit expanded by 19.5%.

This points to stronger borrowing activity across business and services segments.

For corporate lenders and finance teams, the distribution of credit is an important indicator of where financing demand is emerging.

What Does This Mean for the Banking Sector?

The growing exposure of banks to NBFCs makes the relationship between the two segments increasingly important.

When a bank finances an NBFC, it is taking exposure to another financial institution. The credit assessment therefore needs to consider the NBFC's financial strength, asset quality, liquidity and ability to meet its obligations.

The bank's exposure is not identical to the individual loans that the NBFC subsequently provides to its customers.

Nevertheless, the underlying quality of the NBFC's lending portfolio can affect its earnings, liquidity and repayment capacity.

Key Areas Banks Need to Monitor

1. Asset Quality of NBFCs

Banks need to understand the quality of the underlying loan portfolios of their NBFC borrowers.

Rising delinquencies, defaults or higher credit costs can affect profitability and cash generation.

2. Capital Adequacy

An NBFC expanding its loan book needs an appropriate capital base to support growth and absorb potential losses.

Rapid balance-sheet expansion without adequate capital support can increase financial risk.

3. Liquidity Position

Banks should assess whether the NBFC has sufficient liquidity to meet its obligations, particularly when its borrowings and loan maturities have different repayment schedules.

4. Funding Concentration

Dependence on a limited number of banks or funding channels can create refinancing vulnerability.

Diversification across lenders and funding instruments can provide greater flexibility.

5. Asset-Liability Management

An NBFC must ensure that the maturity profile of its assets is appropriately supported by its liabilities.

A mismatch between the timing of loan collections and borrowing repayments can create liquidity pressure even when the underlying loan book is performing reasonably well.

The increase in bank lending to NBFCs therefore makes counterparty assessment and exposure monitoring particularly relevant.

What Does This Mean for NBFCs?

For NBFCs, increased bank lending can create opportunities to expand their financing activities.

However, greater access to borrowing also brings additional financial obligations.

The ability to deploy funds profitably while maintaining liquidity and asset quality remains important.

NBFC management teams should focus on the following areas.

1. Maintain Sustainable Loan Book Growth

Growth in assets under management should be supported by adequate capital, collection infrastructure and underwriting standards.

Rapid expansion is not necessarily positive if it comes with weaker borrower selection or rising delinquencies.

2. Monitor Leverage and Capitalisation

An NBFC's borrowing capacity depends partly on its capital structure and financial risk profile.

Management should assess the relationship between borrowings, net worth, capital adequacy and the expected growth of its loan portfolio.

3. Diversify Funding Sources

Banks may be an important source of finance, but excessive dependence on a narrow group of lenders can create concentration risk.

NBFCs should evaluate an appropriate mix of bank facilities, NCDs, commercial paper, securitisation and other permitted funding channels.

4. Strengthen Liquidity Planning

The ability to meet near-term obligations is particularly important for lenders with significant wholesale borrowings.

Management should maintain updated cash-flow forecasts, repayment schedules, liquidity buffers and stress scenarios.

5. Maintain Strong Financial Disclosures

Financial information should clearly present the company's borrowings, asset quality, capital position, liquidity and contingent obligations.

This is relevant not only for banks but also for rating agencies and other financial stakeholders.

What Does the Development Mean for Indian Businesses and MSMEs?

The increase in bank lending to NBFCs can have implications for businesses that depend on non-bank lenders for financing.

NBFCs play an important role in extending credit to businesses that may have specialised or relatively smaller financing requirements.

A stronger funding position among NBFCs can potentially support their lending capacity.

However, it does not automatically mean that every business will receive easier access to credit or more favourable financing terms.

The availability of financing continues to depend on the borrower's credit profile, sector exposure, repayment capacity, lender policies and prevailing market conditions.

What Should Business Owners and CFOs Focus On?

1. Maintain Updated Financial Information

Companies should have readily available financial statements, provisional results, bank statements and management information reports.

2. Monitor Working Capital Requirements

Receivables, inventory and creditor cycles influence how much external funding a business needs.

A clear understanding of the working capital cycle helps management plan borrowing requirements more effectively.

3. Understand Existing Debt Obligations

Finance teams should maintain a consolidated schedule of bank loans, NBFC borrowings, NCDs, guarantees and other financial commitments.

4. Demonstrate Debt-Servicing Capacity

Revenue growth is important, but lenders and rating agencies also examine cash flow, interest coverage, repayment schedules and liquidity.

5. Evaluate Financing Alternatives

Businesses should understand the suitability of bank loans, NBFC facilities and other debt instruments based on their funding requirements and financial position.

A company with a clear financial picture is better prepared to engage with lenders and evaluate its available financing options.

The Credit Rating Perspective: Why the Bank-NBFC Relationship Matters

The latest credit data also highlights an important aspect of credit rating assessments.

A rating exercise involving an NBFC is different from one involving a manufacturing company or an infrastructure developer.

For an NBFC, the assessment generally places significant emphasis on:

• Capital adequacy and leverage.

• Asset quality and collection efficiency.

• Credit costs and profitability.

• Funding profile and lender concentration.

• Liquidity and asset-liability management.

• Risk-management systems and underwriting standards.

• Management quality and corporate governance.

The increasing volume of bank lending to NBFCs makes these factors particularly relevant because banks are exposed to the financial strength of the institutions they fund.

For corporate borrowers, the assessment focuses on a different combination of factors, including business risk, operating performance, cash generation, debt levels, liquidity and management quality.

The broader principle remains the same: the ability to meet financial obligations is central to credit assessment.

A growing loan book or increasing borrowing capacity does not, by itself, establish stronger creditworthiness. The quality of assets, capital structure and sustainability of cash flows remain important.

What Should Businesses and Lenders Watch in the Coming Quarters?

The September 2026 data provides a useful snapshot of credit expansion. However, the sustainability of this growth will be important.

The following indicators deserve attention:

The coming quarters will help establish whether the increase in lending is supported by sustainable credit demand and disciplined underwriting.

For banks and NBFCs, maintaining a balance between growth and financial resilience will remain important.

The Bigger Picture: Credit Growth Must Be Supported by Credit Quality

The RBI's September 2026 data highlights the growing importance of NBFCs in India's credit ecosystem.

Banks added ₹16.1 lakh crore in non-food credit during the first half of FY2027, with advances to NBFCs increasing by ₹1.8 lakh crore, according to the reported breakdown.

At the same time, the strong growth in services and industrial credit indicates that financing demand is expanding across several parts of the economy.

For lenders, the opportunity lies in supporting this demand while maintaining appropriate risk controls.

For NBFCs, the priority is to ensure that access to bank financing translates into sustainable lending growth rather than excessive balance-sheet expansion.

For businesses, the development reinforces the importance of maintaining financial discipline, transparent reporting and a clear understanding of debt-servicing capacity.

Credit expansion creates opportunities, but sustainable credit quality determines how well those opportunities can be supported over time.

How FinMen Advisors Can Help

Whether a business is seeking bank facilities, NBFC financing or preparing for a credit rating assessment, understanding its financial position is an important part of the process.

FinMen Advisors and Consultants Private Limited provides Credit Rating Advisory services to businesses across industries.

Our support includes helping companies understand relevant credit assessment factors, organise financial information, analyse debt structures and prepare for engagement with independent credit rating agencies.

If your company is planning to raise debt or preparing for a credit rating exercise, a structured understanding of its financial and business profile is a useful starting point.

Connect with FinMen Advisors to prepare for your credit rating assessment and get the rating your business deserves.

Sources and Further Reading

1. Primary source: Reserve Bank of India

Sectoral Deployment of Bank Credit, September 2026, published 30 October 2026

The official release provides sector-wise bank credit growth, including non-food credit, agriculture, industry, services and personal loans.

2. Detailed reporting: The Times of India

NBFCs Overtake Housing as Biggest Driver of Bank Credit, published 31 October 2026

Provides the breakdown of incremental bank lending to NBFCs and housing, along with outstanding credit figures across sectors.

3. Additional industry context: ICRA

ICRA's FY2027 bank and non-bank credit growth outlook, published 27 October 2026

ICRA's outlook provides a forward-looking perspective on credit expansion across banks and non-bank lenders.

Disclaimer

This article is for general informational and educational purposes only and does not constitute financial, investment, lending or credit-rating advice. The figures are based on publicly available RBI data and financial journalism. Credit ratings are assigned independently by SEBI-registered credit rating agencies based on their respective methodologies and available information. FinMen Advisors and Consultants Private Limited provides Credit Rating Advisory services and does not issue, influence or guarantee any credit rating outcome.