India's Credit Surge Lifts NBFC Giants

BANKINGFINANCE
Whalesbook Logo
AuthorAarav Shah|Published at:
India's Credit Surge Lifts NBFC Giants
Overview

India's credit growth has recovered to approximately 14.5% year-on-year by December 2025, driven by robust retail and MSME demand, festive spending, and improved affordability. This surge is benefiting leading Non-Banking Financial Companies (NBFCs) Bajaj Finance, Shriram Finance, and Muthoot Finance, each leveraging distinct market niches and strategic maneuvers to capitalize on the expanding credit landscape.

1. THE SEAMLESS LINK
The current credit expansion in India, marked by an aggregate credit outstanding growth of nearly 14.5% year-on-year as of December 2025, signals a robust economic recovery [8, 19]. This resurgence, attributed to strong consumer demand, seasonal spending, and enhanced purchasing power, is directly translating into increased business for key NBFCs. These institutions are adeptly navigating the dynamic financial environment, leveraging their specialized portfolios to capture market share and drive earnings growth amidst a supportive macroeconomic backdrop. The sector's outlook for 2026 remains positive, with expectations of continued credit and deposit growth, though potential pressures on net interest margins persist [4].

The Core Catalyst: Sustained Credit Demand

The broader Indian economy is exhibiting resilience, with GDP projections for FY26 at 7.3% and strong high-frequency indicators for December 2025 pointing to sustained demand [19]. This environment is a fertile ground for credit offtake. Bank credit crossed the ₹200 lakh crore milestone by end-December 2025, with an unadjusted year-on-year growth of 14.5% [11]. While adjusted growth is estimated between 11.7% and 12%, the underlying momentum is firm, supported by GST rate cuts, retail lending traction, MSME demand, and revival in lending to NBFCs [11]. The Reserve Bank of India's accommodative monetary policy, with a repo rate cut to 5.25%, has also contributed to lower funding costs for financial institutions [5].

Analytical Deep Dive: NBFC Performance and Valuations

Bajaj Finance: This leading NBFC reported a robust 24% year-on-year AUM growth to ₹462,261 crore by September 2025. Net interest income grew 22% to ₹10,785 crore, and Profit After Tax (PAT) rose 23% to ₹4,948 crore in Q2FY26 [cite:Rewritten News]. However, asset quality saw a slight deterioration, with Gross Non-Performing Assets (GNPA) rising to 1.24% due to MSME portfolio stress. The company has adjusted its FY26 AUM guidance to 22-23%. Bajaj Finance aims for significant improvements in credit costs by FY27 and is pursuing a "FinAI" transformation targeting a 3.2-3.5% share of India's total credit market by FY30 [cite:Rewritten News]. As of January 21, 2026, Bajaj Finance has a market capitalization of approximately ₹5.82 lakh crore and a P/E ratio of 31.37. Its Price-to-Book (P/B) ratio stands at 5.64.

Shriram Finance: Following its merger, Shriram Finance manages an AUM of over ₹281,305 crore, up 15.7% year-on-year. Q2FY26 saw an 11.8% surge in Net Interest Income to ₹5,606.7 crore and an 11.4% rise in PAT to ₹2,071 crore, aided by improved asset quality with GNPA at 4.6% [cite:Rewritten News]. A landmark ₹39,618 crore investment from MUFG for a 20% stake is set to accelerate AUM growth to 18-20% and boost Return on Assets (ROA) [cite:Rewritten News]. Shriram Finance's market cap was approximately ₹1.89 lakh crore as of January 20, 2026, with a P/E ratio of 18.81 and a P/B ratio of 3.06.

Muthoot Finance: India's largest gold financier experienced a remarkable 47% year-on-year AUM growth to ₹132,305 crore for its standalone operations by Q2FY26, with its gold loan portfolio up 45%. PAT surged 87% to ₹2,345 crore, supported by expanded Net Interest Margins to 11.45% and improved GNPA to 2.3% [cite:Rewritten News]. The company upgraded its FY26 gold loan growth forecast to 30-35%. As of January 21, 2026, Muthoot Finance's market capitalization stands at approximately ₹1.57 lakh crore, with a P/E ratio of 21.69 and a P/B ratio of 4.77.

Valuations and Sector Context: Muthoot Finance leads in return ratios (19.6% RoE, 4.7% RoA), followed closely by Bajaj Finance (19.2% RoE, 4.0% RoA) and Shriram Finance (15.6% RoE, 3.0% RoA) [cite:Rewritten News]. Bajaj Finance trades at a higher P/B of 5.6x, reflecting its growth profile, though this is a decline from its historical 5-year median of 8.0x [cite:Rewritten News]. Shriram and Muthoot have seen their valuations re-rated due to strong growth and specific catalysts [cite:Rewritten News]. The banking sector is also poised for stable growth, with credit expanding around 12% in CY2026, although net interest margins face pressure [4, 5]. NBFCs are expected to continue increasing their share of overall credit, often working in tandem with banks in niche segments [2].

Future Outlook

Management at these NBFCs are projecting continued expansion. Bajaj Finance aims for substantial market share growth by FY30, while Shriram Finance leverages its recent foreign investment to boost AUM rates. Muthoot Finance anticipates sustained demand for gold loans due to regulatory shifts and economic conditions. The overall positive credit cycle is expected to maintain balance sheet expansion and earnings visibility for these financial institutions. However, concerns remain regarding potential margin compression in the banking sector and the need for continued prudent risk management in lending portfolios, particularly in unsecured segments [4, 5].

Disclaimer:This content is for educational and informational purposes only and does not constitute investment, financial, or trading advice, nor a recommendation to buy or sell any securities. Readers should consult a SEBI-registered advisor before making investment decisions, as markets involve risk and past performance does not guarantee future results. The publisher and authors accept no liability for any losses. Some content may be AI-generated and may contain errors; accuracy and completeness are not guaranteed. Views expressed do not reflect the publication’s editorial stance.