The global Non-Banking Financial Company (NBFC) sector has emerged as a key enabler of inclusive financial services, offering a diverse range of credit, leasing, and investment solutions to underserved and niche segments. The global NBFC market, valued at over USD 850 billion to USD 218 trillion depending on classification and scope, is projected to grow at a compound annual growth rate (CAGR) of 2—7% over the next decade. This growth is largely driven by rapid digitization, increasing demand for consumer and SME credit, and the proliferation of fintech partnerships that enable efficient underwriting and broader customer reach.
Asia-Pacific is at the forefront of this expansion, with countries like India, China, and Indonesia leveraging NBFCs to close credit access gaps in rural and semi-urban regions. In India, NBFCs have outpaced banks in loan growth, supported by colending arrangements and digital lending innovations. However, this expansion has brought increased scrutiny from regulators due to rising systemic interconnectedness, especially with banks and capital markets. Recent data highlights a growing proportion of stressed assets, particularly in segments like microfinance and unsecured retail lending, prompting regulators to emphasize tighter risk controls and provisioning norms.
Globally, regulators such as the Financial Stability Board (FSB) and the International Monetary Fund (IMF) have called for harmonized regulatory standards to address arbitrage opportunities between banks and NBFCs. These bodies have underscored the importance of macroprudential oversight, improved liquidity frameworks, and enhanced stress testing to ensure the stability of the financial system, particularly in the wake of geopolitical uncertainties and fluctuating interest rate environments. While NBFCs continue to demonstrate resilience through capital buffers and innovation, the road ahead will require strategic alignment with regulatory expectations, robust risk governance, and a cautious approach to balance sheet expansion.
Positive government measures to aid economic growth for India
The Union Budget of 2024-25 announced a 17.1% rise in capital expenditure in FY25 at Rs.11.1 lakh crore from Rs. 9.5 lakh crore in fiscal 2024, with infrastructure sectors continued to get the highest allocation (24.5% of total budgetary capex). In a year where the Indian economy is expected to see a cyclical slowdown owing to global slowdown and impact of interest rates and tightening financial conditions on domestic demand, higher capex would support growth in the economy.
MSMEs have received special focus, with initiatives such as the new credit guarantee scheme, offering coverage of up to 100 crore per applicant, increases in the limit for the Tarun category under Mudra loans from Rs 10 lakhs to Rs 20 lakhs. Moreover, Public Banks have taken steps to develop an in-house technology-based underwriting model to assess MSMEs, which will improve credit facilities for these enterprises.
Budgetary support towards rural areas through higher allocation under PM Awas Yojana — Rural (up 70.3% on year) and PM Gram Sadak Yojana (up 11.8% on year), aggregate allocation on major rural schemes like Pradhan Mantri Kisan Samman Nidhi (PM KISAN), Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), PM Gram Sadak Yojana, PM Awas Yojana- Rural to Rs. 2.2 lakh crore, a 12.6% on year increase will support rural employment, income and consumption.
INDUSTRY STRUCTURE—AN OUTLOOK:
The Non-Banking Financial Company (NBFC) sector in India continues to play a pivotal role in deepening financial inclusion and supporting credit delivery to sectors often underserved by traditional banks, such as micro, small, and medium enterprises (MSMEs), rural households, and the informal economy. In FY 2024—25, NBFCs recorded strong credit growth of approximately 20%, outpacing the banking sector and reflecting resilient demand across consumer and small- business segments. This growth has been supported by accommodative monetary policy, RBI-led co-lending frameworks, and the sectors ongoing digital transformation. However, the rapid pace of expansion has also exposed vulnerabilities in asset quality—particularly in microfinance and unsecured loan portfolios—leading to a rise in stressed assets and writeoffs. The Reserve Bank of India (RBI) has continued to strengthen regulatory oversight by tightening liquidity norms, enhancing governance standards, and gradually aligning NBFC regulations with those of commercial banks under the scale-based regulatory framework. Despite these challenges, the Indian NBFC sector remains well-capitalized and agile, with its growth outlook supported by continued demand, innovation in credit delivery, and evolving public-private financing models.
In May 2024, the National Statistical Office (NSO) in its provisional estimate of national income estimated the real GDP to have grown at 8.2% year-on-year in fiscal 2024, while in Q4 FY24, growth was much stronger at 7.8% than 5.9% factored in in the second advance estimates in February 2024. Going forward, CRISIL MI&A expects a moderation in GDP growth rate to 6.8% in Fiscal 2025, largely due to various factors like Governments focus on fiscal consolidation, which is likely to lead to moderation in investments, which is a key factor for economic growth.
Snapshot of the NBFC Sector :
The NBFC sector saw a 20.7% increase in gross advances in March 2025, with significant growth in personal loans and lending to agriculture.
Co-lending partnerships with banks and increased foreign direct investment have diversified funding sources for NBFCs.
Liquidity stock measures for NBFCs have remained stable — the ratio of short-term liability to total assets remained below 25 per cent; long-term assets constitute about two-thirds of assets; and CPs had less than two per cent asset share in total assets.
Sharecapital, reserves and surplus of NBFCs declined during 2024-25 and constituted 28.3 per cent of their total liabilities in March 2025.
Structure of NBFIs under the Reserve Banks Regulation
The RBI categorizes NBFCs based on their asset and liability structures into two main types: deposit-taking NBFCs (NBFCs-D) and non-deposit taking NBFCs (NBFCs-ND). Among the non-deposit taking NBFCs, those with an asset size of ?500 crore or more are designated as systemically important (NBFCs ND-SI), while those with smaller asset sizes fall into a general category of other NBFCs-ND. With the introduction of the scale-based regulation (SBR) framework, NBFCs are further classified into layers to reflect their systemic importance and complexity. Under this structure:
NBFC-BL (Base Layer) includes NBFCs-ND that are not systemically important.
NBFC-ML (Middle Layer) includes both systemically important NBFCs-ND (NBFCs ND-SI) and deposit-taking NBFCs (NBFCs-D).
NBFC-UL (Upper Layer) includes larger and more complex NBFCs that are systemically significant (see Chart 1) Chart 1: Scale-Based Regulation for NBFCs
CHALLENGES FOR INDIAN FINANCE INDUSTRY
The Indian finance sector, a critical engine of the countrys economic growth and development, faces a myriad of challenges amidst its rapid evolution. From traditional banking to fintech innovations, each segment encounters unique hurdles that demand strategic solutions.
1. Non-Performing Assets (NPAs) Crisis: A longstanding challenge plaguing Indian banks is the burden of nonperforming assets. High levels of NPAs weaken banks balance sheets, constrain lending capacity, and pose systemic risks to the financial sector. Resolving this crisis demands robust mechanisms for asset quality recognition, effective loan recovery frameworks, and reforms to enhance corporate governance and risk management practices within financial institutions.
2. Financial Inclusion Disparities: Despite significant strides in expanding financial access, a substantial portion of the Indian population remains underserved or excluded from formal financial services. Addressing this disparity necessitates innovative approaches, leveraging
technology and digital platforms to extend banking services to remote and marginalized communities. Initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) have madenotable progress, but sustained efforts are required to ensure inclusive and equitable financial access for all.
ANNUAL REPORT 2024-25 40
3. Regulatory and Policy Uncertainties: The Indian finance sector operates within a dynamic regulatory environment characterized by evolving policies and frequent regulatory changes. Uncertainties surrounding regulations, tax regimes, and compliance requirements pose challenges for businesses, hindering long-term planning and investment decisions. Achieving regulatory clarity and fostering a stable policy framework are imperative to foster investor confidence and sustain growth in the finance sector.
4. Fintech Disruption and Cyber Security Risks: The rise of fintech innovations has disrupted traditional financial models, offering new avenues for financial services delivery and enhancing customer experiences. However, this digital transformation brings inherent risks, including cybersecurity threats, data privacy concerns, and regulatory compliance challenges. Strengthening cybersecurity infrastructure, promoting collaboration between fintech firms and regulators, and implementing robust regulatory frameworks are essential to harnessing the benefits of fintech while mitigating associated risks.
5. Capital Market Reforms and Investor Confidence: The Indian capital markets play a crucial role in mobilizing funds for economic development and fostering investor participation. Enhancing transparency, corporate governance standards, and regulatory oversight are critical to bolstering investor confidence and attracting both domestic and foreign investment. Moreover, facilitating ease of access, streamlining listing processes, and diversifying investment options can stimulate capital market growth and deepen liquidity.
6. Rural Credit and Agricultural Financing: Agriculture remains the backbone of the Indian economy, with rural credit and agricultural financing playing pivotal roles in sustaining agricultural productivity and rural livelihoods. However, challenges such as limited credit availability, inadequate infrastructure, and vulnerability to climate-related risks impede the effectiveness of agricultural finance. Implementing targeted policies, promoting agricultural insurance mechanisms, and strengthening rural credit institutions are essential to addressing these challenges and supporting agricultural growth.
Opportunities
These NBFCs have also been key in being able to mitigate and manage the spread of risks during times of financial duress and have increasingly become recognized as complementary services to banks. Ongoing stress in public sector banks (PSUs) because of increasing bad debt, lending in rural areas deterioration has provided NBFCs with the opportunity to increase presence. The success of these NBFCs vs. PSUs can be attributed to product lines, lower cost, wider and effective reach, strong risk management capabilities to check and control bad debts, and a better understanding of customer segments versus bank.
RISK AND CONCERNS OF NBFCs
1. Asset Quality Deterioration:
HighNPAs (Non-Performing Assets): NBFCs, particularly those lending to low-income or unsecured segments (e.g. microfinance), often face higher default rates.
Recent RBI data shows NBFC stressed assets rose to 5.9% in March 2025, up from 3.9% in September 2024.
2. Liquidity Risk:
NBFCs typically rely heavily on short-term borrowings (CPs, NCDs), but lend for long-term assets (e.g. real estate, infrastructure), causing asset-liability mismatches (ALM).
The IL & FS crisis (2018) highlighted this structural vulnerability, leading to liquidity crunches across the sector.
3. Funding Concentration:
Many NBFCs depend on banks and mutual funds for funding. Any tightening by banks or withdrawal from mutual funds can create severe liquidity shocks.
As of April 2025, bank lending to NBFCs dropped by 2.9% YoY, showing renewed funding concerns.
4. Regulatory Arbitrage:
NBFCs face lighter regulation than banks, especially on capital adequacy, liquidity coverage, and provisioning norms.
This gives rise to “shadow banking” concerns, where high-risk credit grows outside traditional oversight, increasing systemic risk.
5. Corporate Governance Weaknesses:
Several NBFCs have faced scrutiny over poor internal controls, delayed disclosures, or connected-party lending.Instances like DHFLs fraud exposed loopholes in risk management and auditing frameworks in NBFCs.
6. Overexposure to Risky Sectors:
Many NBFCs are heavily exposed to:
1. Real estate (HFCs)
2. Microfinance
3. Unsecured personal loans
4. Vehicle and SME loans
These sectors are vulnerable to economic downturns, monsoon failures, or demand collapses.
7. Interest Rate Sensitivity:
NBFCs face margin pressure when interest rates rise:
Their cost of borrowing rises quickly
But loan rates are sticky, especially in fixed contracts
This compresses Net Interest Margins (NIM), affecting profitability.
8. Technology and Cybersecurity Risks:
FinTech NBFCs face higher cyber threats, fraud risks, and data privacy issues.
Rapid digitalization without robust IT infrastructure increases operational vulnerabilities.
DETAILS OF SIGNIFICANT CHANGES IN KMPs:
During the year under review following changes in Key Managerial personnel has taken place:
a) Mr. Jitendra Kumar Mishra has been appointed as Independent Director on 05/09/2024 of the Company.
b) Mr. Rajeev Shukla has been appointed as Chief financial Officer on 10/01/2025.
c) Ms. Nisha Kashyap has resigned on 09/01/2025 from the post of Company Secretary & Compliance Officer of the Company.
d) Ms. Shikha Garg was appointed on 10/01/2025 as Company Secretary & Compliance Officer of the Company
(resigned on 16/06/2025).
INTERNAL CONTROL SYSTEMS AND ADEQUACY OF INTERNAL CONTROL:
The Company has instituted adequate internal control systems commensurate with the nature of its business and the size of its operations. This provides a high degree of assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguards for assets, the reliability of financial controls and compliance with applicable laws and regulations. Moreover, the Company continuously upgrades these systems in line with the best available practices. The Board has an Audit Committee with independent directors in majority to maintain the objectivity.
Proper and adequate internal control systems are in place to ensure that all the business dealings are performed on sound business ethics and all assets are protected against loss of unauthorized use or disposition and that the transactions are authorized, recorded and properly reported. The internal control system is designed to ensure that financial and other records are reliable for all purposes.
Based on its evaluation, the Audit Committee has concluded that, as of March 31, 2024, our internal financial controls were adequate and operating effectively.
ANNUAL REPORT 2024-25 42
HUMAN RESOURCES:
The Company regards its human resource as a valuable asset. The Company has a team driven work process with completely flat organization system. This not only help us nurture leaders but also gives us capable and assured colleagues at all levels.
CORPORATE GOVERNANCE:
The Company follows principle of effective Corporate Governance. The endeavor of the Company is not only to comply with regulatory requirements but also to practice Corporate Governance principles that lay emphasis on integrity, transparency and overall accountability.
The Company adheres to most of the recommendations made by the SEBI and incorporated by the Stock Exchanges in the Standard Listing Agreement.
Keeping in view, the current financialposition of the company and exemption from applicability of Corporate Governance Regulations of SEBI (LODR), Regulations, 2015, the company has applied for exemption under Regulation 15 of SEBI (LODR), Regulations, 2015 and intimated to BSE.
COMPLIANCE
Our Compliance function monitors compliance with regulatory requirements laid down by the Securities and Exchange Board of India (SEBI) with respect to portfolio investments and alternative investment funds activities and other business activities. The Compliance function is an interface between us and various regulators and agencies, such as SEBI, the RBI, Companies Act, depositories, Registrar and stock exchanges.
Our compliance team keeps itself updated on new regulatory requirements and communicates the requirements to the relevant functions together with meaningful inputs for implementation. The Compliance team also reviews the implementation status by coordinating with the respective functions.
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
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