Credit to India’s trade and non-banking financial companies reached ₹34.5 trillion in May 2026, up from ₹9.7 trillion in 2018. This trend highlights a deepening partnership between banks and NBFCs, though banks are becoming more selective about which lenders they fund based on capital strength and asset quality.
The landscape of Indian credit is undergoing a significant shift as trade and non-banking financial companies (NBFCs) emerge as the fastest-growing segments within the banking system. According to recent data, the combined outstanding credit to these two sectors reached ₹34.5 trillion as of May 2026. This is a substantial increase from the ₹9.7 trillion recorded in fiscal year 2018, reflecting how these areas have become essential drivers of overall credit expansion in the country.
Trade Credit Growth Driven by Business Formalization
Credit extended to wholesale and retail trade has grown at a compound annual rate of approximately 14.5% since 2018, reaching ₹13.8 trillion by May 2026. This expansion is largely supported by the formalization of smaller businesses, which have been brought into the banking fold through the implementation of the Goods and Services Tax (GST) and the widespread adoption of digital payment systems. Because these systems provide lenders with better visibility into business cash flows, they are now able to provide credit to small merchants and distributors who were previously considered too risky or difficult to track.
The Changing Relationship Between Banks and NBFCs
Bank lending to NBFCs has seen even faster growth, rising from ₹5 trillion in 2018 to ₹20.7 trillion by May 2026. After facing liquidity challenges in the past, credit growth to NBFCs rebounded strongly, recording a 33.7% year-on-year increase in May 2026 alone. This indicates that banks and NBFCs have moved from a model of direct competition to one of interdependence. NBFCs utilize their specialized distribution networks to reach customers in niche segments like vehicle finance, MSME lending, and affordable housing, while banks provide the necessary low-cost funding to fuel these operations.
Selective Lending and Future Risks
While the growth figures are high, the current environment also signals that banks are becoming more cautious. Because NBFCs rely heavily on bank borrowings, their ability to grow depends on their own balance sheet strength. Banks are increasingly prioritizing lending to NBFCs that maintain high capital buffers, show diversified sources of funding, and demonstrate sound asset quality to prevent potential defaults. For investors, this means that while the sector as a whole is expanding, individual NBFCs with higher debt pressure or weaker asset quality may struggle to secure credit, potentially leading to a divergence in performance between top-tier and smaller, less-established players. Investors may continue to monitor credit rating updates and quarterly margin trends to see which lenders can effectively manage their borrowing costs while maintaining healthy lending books.