Whalesbook
New Borrowers in India: NBFCs Lead, But Lenders Pick Wisely
Non-banking financial companies (NBFCs) continue to lead in bringing India's new-to-credit individuals onto their books, holding over 60% of total accounts. Reports show NBFCs serve customer groups that traditional banks, with stricter lending rules, often find too costly. India's population actively using credit has grown to around 29 crore, with 4.4 crore new borrowers. However, these new borrowers now make up a smaller portion of total loans originated. Their share has dropped from 23.5% to 17.8% over the four years leading up to February 2026, showing lenders are becoming more selective. This adjustment comes as the TransUnion CIBIL bureau noted a dip in the new-to-credit (NTC) borrower share to 16% in the June 2025 quarter, down from 18% a year earlier, due to a cautious approach by lenders.
Growth Driven by Women and Rural Markets
Favorable demographic trends are shaping the new borrower landscape. Women's participation in first-time borrowing has grown significantly, increasing their share to 41% from 33% over the past five years. Semi-urban and rural markets now account for over half of originations in key loan categories, showing a wider geographical reach. Consumer durable loans remain the most common first loan type, making up 32% of accounts. Gold and two-wheeler loans together account for about 60% of first-time borrower accounts. Notably, 67% of these new borrowers moved into low-risk credit categories within one year, showing improved repayment behavior. Younger borrowers, aged 30 and under, are key to new credit entry and the growth of unsecured loans, though early signs of repayment stress are appearing in this group.
Competition, Regulation, and NBFCs
NBFCs operate in a dynamic market with evolving regulations. Banks benefit from cheaper funding through deposits, allowing them lower lending rates and dominance in corporate lending. NBFCs, relying more on borrowing from markets, often charge higher interest rates. While banks have taken back market share in corporate lending, NBFCs still lead in certain retail and MSME sectors, particularly for smaller loans, where they hold a 45% market share compared to banks' 26%. NBFCs are expected to grow faster than banks, with their retail segment projected to expand at 16-18% annually, outpacing traditional banks. The Reserve Bank of India (RBI) is refining regulations through a framework designed to strengthen the sector. A reversal of risk-weight hikes has also eased funding costs for NBFCs. However, concerns remain about unsecured consumer loans and the increasing costs NBFCs face when borrowing from markets.
Challenges and Risks for NBFCs
While NBFCs are important for widening credit access, several challenges need attention. The declining share of new borrowers in total loans, even as the population grows, suggests lenders are becoming more selective. This could affect financial inclusion goals. Asset quality is improving overall but shows early stress, particularly among younger borrowers taking unsecured loans. Funding costs are a major challenge, with NBFCs facing higher costs than banks that use deposits. This contributes to their smaller share in corporate lending. The sector faces growing regulatory scrutiny and evolving compliance rules that can impact operations and profits.
Future Growth Prospects
Despite increased selectivity, the new-to-credit segment offers significant growth opportunities, managed by risk assessment. NBFCs are using digital methods and alternative data to reach borrowers missed by traditional credit scoring. Retail lending is a core strength for NBFCs. This segment is set for strong growth, expected to outpace traditional banks. The sector's ability to adapt to regulatory changes and meet specific needs in different areas and groups helps it remain important in India's growing financial system.