Non-Banking Financial Companies See Loan Growth Amid Microfinance Stress

The Reserve Bank of India (RBI) has reported significant growth in the balance sheets of non-banking financial companies (NBFCs) for the fiscal year ending March 2025. This expansion, driven largely by an increase in loans and advances, marks a robust performance even as challenges persist in the microfinance sector. In its recently published report, *Trend and Progress of Banking in India*, the RBI detailed that the total balance sheet of NBFCs rose by 18.9% to ₹61.09 lakh crore in March 2025, up from ₹51.39 lakh crore in March 2024. By September 2025, this figure further increased to ₹65.51 lakh crore, reflecting a 7.2% growth in the current fiscal year.

Profitability among upper-layer NBFCs also showed improvement, with net profits climbing to ₹48,873 crore in March 2025, compared to ₹38,618 crore in March 2024. In the first six months of the current fiscal year, these companies reported a profit of ₹27,019 crore. Despite these gains, overall profits for all NBFCs declined, falling to ₹1.32 lakh crore in FY25 from ₹1.40 lakh crore in FY24.

Asset Quality Enhancements and Challenges in Microfinance

The RBI noted that key financial indicators, including capital adequacy and asset quality, remained strong, although there was some moderation in return on assets. The overall asset quality of the NBFC sector improved during the year, with the gross non-performing asset (GNPA) ratio declining to 2.9% at the end of March 2025, down from 3.5% a year earlier. The net non-performing asset (NNPA) ratio also showed improvement, indicating effective resolution of bad loans and sound provisioning practices.

However, the microfinance segment stood out as a concern. Non-Banking Financial Companies-Micro Finance Institutions (NBFC-MFIs) experienced a significant deterioration in asset quality, with the GNPA ratio surging to 4.1% at the end of March 2025, up from 2.0% the previous year. The NNPA ratio also rose to 1.2% from 0.6%, highlighting ongoing stress within this sector and difficulties in recovery.

Despite these challenges, the RBI reported that by the end of September 2025, the GNPA and NNPA ratios for the entire NBFC sector remained stable compared to March levels. Among larger NBFCs, asset quality trends varied. While the GNPA ratio for upper-layer NBFCs held steady, the NNPA figures worsened due to a reduction in provisions.

Overall, while the growth in loan portfolios has positioned many NBFCs favorably, the persistent issues in the microfinance segment underscore the complexities these financial institutions face as they navigate both growth opportunities and sector-specific challenges.