IIFL Finance Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

GLOBAL ECONOMY

The global economy maintained steady growth in CY 2025, demonstrating notable resilience despite navigating a complex and evolving macroeconomic landscape marked by geopolitical tensions, shifting trade policies, geo-economic fragmentation, elevated public debt levels, volatile commodity markets and divergent monetary policy trajectories across major economies.

Amid these headwinds, the global growth trajectory was underpinned by increasingly adaptive supply chains, sustained private sector investments and an accommodative monetary stance by major central banks, which collectively enabled economies to absorb external shocks and maintain stability. Reflectingthis resilience, the International Monetary Fund (IMF) estimates global growth at 3.3% for CY 2025, even as momentum remained uneven across regions.

 

INFLATION TRAJECTORY AND MONETARY POLICY

A sustained disinflationary trend has been among the defining macroeconomic developments of the current period. Global headline inflation is estimated at 4.1% in CY 2025 and is projected to moderate to 3.8% in CY 2026 and further to 3.4% in CY 2027. These projections remain broadly consistent with the forecasts published by IMF in October 2025, reflecting a gradual convergence towards central bank targets across major economies, albeit at varying speeds across geographies.

In the United States, inflationary pressures have demonstrated greater persistence relative to other advanced economies. As the pass-through impact of higher tariffs gradually unfolds, US core inflation is expected to ease back toward the Federal Reserve’s 2% target by 2027. Across other advanced economies, inflation steadily towards target levels, supported by easing energy prices and moderating demand conditions.

Major central banks have responded with differentiated policy stances calibrated to their respective inflation and growth dynamics. This divergence in monetary policy trajectories carries implications for capital flows, currency valuations and broader global financial conditions, necessitating continued vigilance from policymakers and market participants alike.

 

REGIONAL GROWTH DYNAMICS

Growth trend across the global economy from CY 2025 till 2027 is going to witness a notable regional divergence, shaped by the interplay of fiscal policy capacity, structural conditions and external demand dynamics. Advanced economies are projected to expand at 1.8% in CY 2026 and 1.7% in CY 2027 a measured trajectory reflecting fiscal support offset by structural headwinds and demographic constraints in several major markets.

The United States is forecast to grow at 2.4% in CY 2026, supported by fiscal stimulus measures and a favorable policy rate environment, with growth moderating to 2.0% in CY 2027 as near-term tailwinds dissipate. Other advanced economies are expected to record comparatively subdued growth, constrained by energy price legacies, manufacturing sector pressures and unresolved structural challenges.

Emerging market and developing economies (EMDEs) are likely to sustain comparatively stronger aggregate growth, with output expanding at 4.2% in CY 2026 and 4.1% in CY 2027. Regional growth in the Middle East and Central Asia is estimated to accelerate from 3.7% in CY 2025 to 4.0% in CY 2027, supported by higher hydrocarbon output and ongoing economic diversification. The overall EMDE outlook remains constructive, is albeitprogressing subjectmore to global trade developments, commodity price movements and prevailing financial market conditions.

 

KEY RISKS AND UNCERTAINTIES

The overall risk balance for the global economy remains tilted to the downside. A confluence of interconnected structural and policy-driven risk factors has the potential to disrupt the current trajectory of measured global stability.

Trade policy volatility: Ongoing disputes around export controls, critical supply chains and trade framework realignments continue to create uncertainty, with potential escalations posing risks of supply disruptions and inflationary pressures

Fiscal and financial stability risks: Elevated sovereign debt, widening fiscal deficits and increasing participation of price-sensitive investors in debt markets raise the risk of abrupt yield movements and potential macro financial instability Geopolitical tensions: Persistent conflicts and emerging geopolitical fault lines could disrupt trade routes, trigger commodity price volatility and destabilize global supply chains AI-driven investment and valuation risk: If anticipated productivity gains from AI prove overstated, it could dampen investor sentiment, leading to a decline in capital allocation towards the high-tech sector and reduced enterprise spending on AI adoption. This may also trigger a prolonged correction in equity markets, particularly given the concentration of recent valuation gains in a limited set of technology

 

OUTLOOK

Looking ahead, the IMF projects global growth at 3.3% in CY 2026 and 3.2% in CY 2027, indicating a broadly stable yet cautious outlook amid ongoing structural and policy uncertainties. Sustaining this trajectory will require credible fiscal consolidation, preservation independence, continued structural reforms and constructive resolution of trade tensions, alongside investments that enhance productivity, labour market adaptability and long-term economic resilience. Further, AI-led investments could provide an incremental uplift to economic activity and, if supported by faster adoption translating into tangible productivity gains and stronger business dynamism, may help anchor a more sustainable growth trajectory over the medium term.

 

INDIAN ECONOMY OVERVIEW

India has cemented its position as the world’s fastest-growing major economy for the fourth consecutive year, even as the global environment has remained fragile with elevated geopolitical tensions, trade fragmentation and financial market vulnerabilities. The country’s macroeconomic fundamentals a healthy banking system, robust credit intermediation, ample foreign exchange reserves and a comfortable current account balance have provided the resilience required to navigate external headwinds effectively. The First Advance Estimates project real GDP growth and GVA growth for FY 2025-26 at 7.4% and 7.3%, respectively, underscoring the sustained momentum of the economy.

On the demand side, Private Final Consumption Expenditure (PFCE) grew 7.0% in FY 2025-26, accounting for 61.5% of GDP, the highest since FY 2011-12, supported by low inflation, stable employment and improving purchasing power. Gross

Fixed Capital Formation (GFCF) expanded 7.8%, with its share steady at 30% of GDP, driven by continued public capex and a revival in private investment. The services sector remained the key growth driver, with GVA rising 9.3% in H1 FY 2025-26 and an estimated 9.1% for the full year.

 

SECTORAL GROWTH AND INFRASTRUCTURE MOMENTUM

India’s sectoral growth momentum strengthened in FY 2025 26, supported by steady industrial expansion and robust services sector performance. Industry GVA growth improved from 5.9% in FY 2024 25 to 6.2% in FY 2025 26, reflecting a recovery in manufacturing and construction activity. Notably, manufacturing GVA expanded by 7.72% in Q1 and further accelerated to 9.13% in Q2, indicating improving industrial capacity utilization and strengthening domestic demand.

The services sector continued to remain the primary engine of growth, with its growth rate rising from 7.2% in FY 2024 25 to 9.1% in FY 2025 26. Its share in Gross Value Added (GVA) reached a historic high of 56.4% in FY 2025 26 (First Advance Estimates) and accounted for 53.6% of GDP in H1 FY 2025 26. The strong performance was supported by resilient domestic demand and steady expansion in trade, transport, communication and other service activities, alongside stable services export growth.

 

EXTERNAL SECTOR AND TRADE RESILIENCE

India’s trade sector navigated a challenging global environment marked by geopolitical tensions, rising protectionism, supply chain disruptions, and tariff measures, including the imposition of 50% tariffs by the United States on certain Indian goods. Despite these headwinds, India demonstrated resilience through proactive trade diplomacy, accelerating FTA negotiations with the European Union and the GCC bloc, and advancing discussions with the United States to enhance market access and supply chain integration.

 

US$ 790.86 Billion

Largest Cumulative export between April–February

 

5.79%

Y-o-Y cumulative growth

 

US$ 387.93 Billion

Services sector export between April February

 

10.23%

YoY services sector export growth between April– February

 

Sources: Press Release: Press Information Bureau Sources: Press Note Details: Press Information Bureau

INDIA’S MACROECONOMIC STRENGTH AND FINANCIAL STABILITY

Despite a challenging global environment marked by geopolitical tensions and trade protectionism, India continued to demonstrate strong economic resilience supported by stable macroeconomic fundamentals and effective policy measures.

India’s foreign exchange reserves reached US$ 701.4 Billion as of January 16, 2026, providing around 11 months of import cover, while the current account deficit remained moderate at about 1.3% of GDP in Q2 FY 2025-26. Strong services exports and remittance inflows stability, with India remaining the world’s largest recipient of remittances, recording inflowsof US$ 135.4 Billion in FY 2024-25. asset A significant quality of scheduled commercial banks (SCBs) with Gross NPAs declining to 2.2% and Net NPAs to 0.5% in September

2025, having reached a multi-decadal low level and record low level, respectively. As of December 31, 2025 the year-on-year growth in outstanding credit by SCBs increased to 14.5% compared to 11.2% in December 2024. Financial inclusion also advanced significantly, with PMJDY enabling 55.02 Crores bank accounts by March 2025, while the number of unique equity investors crossed 12 Crores in September 2025, reflecting deeper participation in India’s financial ecosystem. Meanwhile, PLI schemes across 14 sectors have attracted over Rs 2 Lakhs Crores in investments, generating incremental production exceeding Rs 18.7 Lakhs Crores and over 12.6 Lakhs jobs as of September 2025.

 

US$ 701.4 Billion

India’s foreign exchange reserves as of January 2026

 

2.2% & 0.5%

Gross NPAs & Net NNPA of scheduled commercial banks

 

14.5%

Growth in gross bank credit

 

INFLATION AND MONETARY POLICY

Indias macroeconomic environment remained exceptionally supportive during FY 2025 26, as inflationary pressures eased materially. The country recorded its lowest average headline inflation with average headline Consumer Price Index (CPI) inflation standing at 1.7% supportedexternal during April December 2025. This marked decline was primarily attributable to broad-based disinflation in food and fuel prices, which collectively account for 52.7% of the CPI basket. Among major Emerging Market and Developing Economies (EMDEs), India registered one of the most significant reductions in headline inflation between 2024 and 2025 a decline of approximately 1.8 percentage points thereby enhancing real household purchasing power, supporting consumption demand and providing policy flexibility to monetary authorities. Monetary policy in FY 2025 26 was characterized by a decisive yet calibrated easing cycle, as the Reserve Bank of Indias Monetary Policy Committee responded to declining inflationary pressures by progressively reducing the policy repo rate to approximately 5.25% creating expanded headroom for credit growth and improved transmission across the financial system. Complementing this rate action, the Cash Reserve Ratio (CRR) was reduced to 3%, injecting durable liquidity into the banking system and reinforcing the conditions necessary for sustained lending activity and broader economic momentum.

 

1.7%

Average headline CPI inflation during April December 2025

 

5.25%

Repo rate (February 2026)

 

3%

Cash Reserve Ratio (CRR)

 

CAPITAL EXPENDITURE

Public capital expenditure has emerged as a key pillar of India’s growth strategy, supporting infrastructure expansion, industrial capacity creation and long-term productivity gains.

The Government of India has significantly increased its capital outlay over the past few years, rising nearly 4.2 times from Rs 2.63 Lakhs Crores in FY 2017-18 to Rs 11.21 Lakhs Crores in FY 2025-26 (Budget Estimates), reflecting a strong commitment towards infrastructure-led development. The effective capital expenditure of the Central Government has also strengthened, increasing from an average of 2.7% of GDP in the pre-pandemic period to about 3.9% post-pandemic and further to around 4% of GDP in FY 2024-25, reinforcing the role of public investment in driving economic momentum. In addition, initiatives such as the Special Assistance to States for Capital Expenditure (SASCI) have encouraged states to sustain capital spending at around

2.4% of GDP, thereby strengthening overall public investment across the economy.

Looking ahead, the Union Budget FY 2026 27 proposes to increase public capital expenditure further to Rs 12.2 Lakhs Crores, highlighting the Government’s continued emphasis on infrastructure development, crowding-in private investment and enhancing productive capacity across sectors.

 

FIRST QUARTER PERFORMANCE (APRIL–JUNE 2025)

In Q1 FY 2025 26, India’s economic activity maintained strong momentum, with real GDP estimated to grow by 7.8%, compared with 6.5% in Q1 FY 2024 25. Real GDP at constant prices rose to Rs 47.89 Lakhs Crores, up from Rs 44.42

Lakhs Crores in the corresponding period of the previous year. Real GDP measures the economy’s output after removing the effects of inflation.

Manufacturing activity rose by 7.7%, while the construction sector grew by 7.6%, reflecting continued strength in industrial and infrastructure-led activity. The services sector continued to anchor India’s economic expansion, registering a 9.3% growth, supported by strong performance in financial services, trade, transport and public administration. On the demand side, private consumption remained stable with 7% growth, while gross fixed capital formation expanded by 7.8%, reflecting improving investment sentiment. Government expenditure also rebounded, rising 7.4%, marking a recovery from the contraction witnessed in the previous year.

 

SECOND QUARTER PERFORMANCE (JULY–SEPTEMBER 2025)

India’s economic momentum accelerated in Q2 FY 2025 26, with real GDP growth estimated at 8.2%, surpassing the RBI’s projections and significantly higher than the 5.6% growth recorded in Q2 FY 2024 25, reflecting a strong rebound in economic activity. Combined with 7.8% growth in Q1, this resulted in 8.0% expansion in H1 FY 2025 26. Inflation eased sharply, with CPI declining to 0.25% in October 2025, the lowest year-on-year inflation in the current CPI series. Industrial output also remained robust, with the Index of Industrial Production (IIP) growing 4.0% in September 2025, supported by 4.8% growth in manufacturing.

India’s external sector remained resilient during April October 2025, with cumulative exports (merchandise and services) rising 4.84% to US$ 491.80 Billion, compared with US$ 469.11 Billion a year earlier. Services exports continued to drive growth; expanding 9.75% to US$ 237.55 Billion, highlighting India’s strengthening global competitiveness in computer and business services.

 

THIRD QUARTER PERFORMANCE (OCTOBER–DECEMBER 2025)

India’s economic growth remained robust in Q3 FY 2025 26 (October December), reflecting sustained momentum in domestic economic activity. Real GDP at constant prices is estimated at Rs 84.54 Lakhs Crores, registering a growth of 7.8% during the quarter. This marks a continued strengthening of economic performance compared with

7.4% growth in Q3 FY 2024 25 and 7.1% in Q3 FY 2023 24, highlighting the resilience of the Indian economy amid global uncertainties.

Industrial activity emerged as a key driver during the quarter, with manufacturing output expanding at a double-digit pace of over 13%, supported by improving demand conditions and strengthening production activity.

 

OUTLOOK

India’s medium- to long-term economic outlook remains robust, supported by strong macroeconomic fundamentals, sustained policy support and the Viksit Bharat 2047 vision, which targets a GDP of US$ 30 40 trillion by 2047 through sustained growth, productivity enhancement and structural transformation. In the near term, growth momentum is expected to remain resilient, driven by strong domestic demand, rising investment activity, continued public capital expenditure and improving private sector participation, with real GDP projected at 6.8 7.2% in FY 2026 27. Structural drivers such as rapid digitalization, expanding infrastructure, financial inclusion and a favorable demographic profile are expected growth. While the outlook remains exposed to global risks including geopolitical tensions, trade uncertainties and financial market volatility, India’s strong domestic fundamentals, prudent macroeconomic management and reform-oriented policy framework position it well to sustain growth momentum and advance towards its long-term development aspirations.

 

INDUSTRY OVERVIEW

THE NBFC INDUSTRY

OVERVIEW

Non-Banking Financial Companies (NBFCs) continue to serve as critical enablers within India’s financial ecosystem, expanding access to formal credit across a wide spectrum of borrowers particularly Micro, Small and Medium Enterprises (MSMEs), self-employed individuals, women entrepreneurs, marginalized and vulnerable populace and first-time home buyers. By deepening credit penetration in underserved and underbanked regions, NBFCs play a transformative role in advancing financial inclusion and economic participation.

Over time, the sector has evolved into a diversified and resilient financial intermediary, with a strong presence across key segments such as housing finance, MSME lending, and microfinance. Its competitive advantage lies in its granular understanding of customer segments, agile underwriting frameworks, and ability to deliver faster credit decisions, enabling NBFCs to effectively cater to diverse borrower profiles across urban and rural India.

 

PERFORMANCE

The NBFC sector remained resilient during FY 2025 26, andsupported by strong capital buffers, stable profitability improving asset quality. As of September 2025, capital adequacy (CRAR) stood at ~24.9%, while net interest margins were(NIM) remained robust at ~4.9%. Profitability healthy, with return on assets (RoA) at ~2.5%, alongside a moderation in GNPA levels to ~2.9%, reflecting improving portfolio quality. Credit growth remained steady, supported by improving funding conditions and rising retail lending, while credit costs continued to trend downward.

Gold loans have emerged as the most buoyant category, supported by elevated gold prices and strong demand for secured credit. Meanwhile, vehicle finance (VF) and personal/consumer lending (PL/CL) segments have witnessed improved traction, aided by policy-driven consumption triggers such as GST rate rationalization, which has accelerated discretionary spending. On the other hand, wholesale and infrastructure lending segments have maintained relatively stable growth of ~10 12%, reflecting a cautious approach amid evolving credit dynamics.

Funding dynamics also showed notable improvement, with bank lending to NBFCs regaining strong momentum. Outstanding bank credit reached Rs 19.0 Lakhs Crores in January 2026, with accelerated growth of ~17.8% YoY, compared to 8.2% in the previous year. This rebound reflects renewed lender confidence and opportunistic borrowings by corporates following earlier regulatory headwinds, further strengthening liquidity conditions for the sector.

As per CRISIL, the assets under management (AUM) of NBFCs could grow a steady 18-19% in FY 2026-27, driven by whetted consumption demand, and cross the Rs 50 Lakhs Crores mark by March 2027.

Supportive policy actions especially in the context of incrementalthe rationalization and reduction of GST rates along with a benign inflation environment, are expected to keep retail credit demand resilient across asset classes. That said, variations in risk assessment approaches and access to funding would lead to differing growth trajectories across companies and asset segments.

Gold loans are set to outperform other segments. This growth will be driven by continued formalization of the market, migration from unorganized players, elevated gold prices, and increasing interest from NBFCs entering the space.

While underlying end-user demand for housing remains structurally strong, heightened competition especially from public sector banks in the prime segment is likely to weigh on growth. Additionally, a potential slowdown in residential real estate sales (by value) across the top seven cities could temper fresh disbursements. The loan against property

(LAP) or secured MSME segment is expected to normalize yet remain robust. However, lenders are likely to remain cautious in the smaller-ticket segment due to an uptick in early-stage delinquencies. Vehicle finance is projected to maintain stable growth over FY 2025-26 and FY 2026-27. GST rate reductions have boosted vehicle sales, particularly in the passenger car segment, and this traction is likely to persist. A growing consumer tilt toward premium vehicles, along with rising momentum in used-vehicle financing, will further support AUM expansion, even as competition from banks remains intense in the new vehicle space.

 

18–19%

NBFC AUM growth in FY 2025 26

 

Gold loans could outperform

Other asset classes

From a funding standpoint, NBFCs are increasingly adopting diversified and capital-efficient funding strategies, including securitization and co-lending structures. This shift is particularly significant requirements of Rs 4.1 4.3 trillion expected in FY 2026 27 (over and above refinancing needs), to support sustained credit growth.

 

Sources: Financial Stability Report, Reserve Bank of India, December 2025

 

Sources: ICRA an Affiliate of Moodys

Sources: AUM to tick up steadily for NBFCs, cross Rs 50 Lakhs Crores next

Sources: Bank lending to NBFCs climbs to record high - Banking & Finance News  The Financial Express Sources:1772619479_Credit Offtake Accelerates in Jan 2026.pdf

ASSET QUALITY

The asset quality of NBFCs remained stable and resilient during FY 2025 26, supported by strong capital buffers, prudent underwriting practices and improving operating performance. Capital adequacy continued to remain robust, providing a comfortable cushion against potential credit stress.

Asset quality trends showed gradual improvement, with the

GNPA ratio declining to ~2.9%, reflecting better portfolio performance. However, the Reserve Bank of India has flagged a rise in fresh slippages and write-offs, indicating emerging stress in certain segments.

Early stress indicators present a mixed but improving trend. Movement in SMA-2 accounts moderated, with the roll-forward rate declining to ~13.4%, indicating a lower transition of stressed accounts into NPAs. At the same time, the rollback and cure rate remained healthy at ~21.3%, reflecting improved collection efficiencies and borrower repayment behavior. This is further supported by declining delinquency levels (31 180 dpd) over successive periods, signaling normalization in early-stage stress.

Overall, the sector is demonstrating improving asset quality dynamics, while maintaining a cautious and risk-calibrated approach, supported by a strategic shift toward secured lending and strengthened risk management frameworks.

NBFCs maintained comfortable liquidity buffers in FY 2025 26, supported by strong balance sheets, diversified funding sources and prudent asset-liability management. As per the

Reserve Bank of India Financial Stability Report (December 2025), liquidity coverage remains adequate, with most large NBFCs maintaining buffers well above regulatory thresholds. Total borrowings accounted for ~68.7% of the funding mix, while equity stood at ~22.4% as of September 2025. Bank borrowings, though dominant, moderated to ~28.3%, while debentures increased to ~22.2%, indicating a gradual shift toward market-based funding. Commercial paper remained limited at ~2.0%, reflecting a cautious approach to short-term borrowings.

Asset-liability profiles remained stable, with short-term liabilities at ~25% and long-term assets at ~60%, indicating manageable maturity mismatches. RBI stress tests further highlight sector resilience, with only a small proportion of NBFCs facing liquidity pressures even under severe scenarios.

Overall, NBFCs demonstrated strong liquidity resilience and improved funding diversification, positioning the sector well to support sustained credit growth while effectively managing liquidity risks.

The securitization market maintained steady momentum in FY 2025 26, with volumes rising ~5% year-on-year to

~ Rs 1.87 LakhsCrores firstnine months, compared to the

~Rs 1.78 Lakhs Crores in the corresponding period last year, largely driven by sustained originations by NBFCs despite limited activity from banks.

In the third quarter, volumes stood at ~Rs 63,000 Crores, broadly in line with the previous year. However, the composition shifted significantly, with negligible participation from banks unlike last year offset by increased NBFC activity. NBFC originations grew strongly by ~35% year-on-year in Q3, supported by robust volumes in gold and vehicle loan pools. Consequently, NBFCs accounted for ~97% of total retail securitization volumes during the quarter, compared to

~71% in the same period last year.

The market also saw a broadening of the originator base, with ~200 originators in the first nine months of FY 2025 26 versus ~150 in the previous year, predominantly led by NBFCs. Overall, securitization continues to serve as a key funding and liquidity management tool for NBFCs

 

~ Rs 1.87 Lakhs Crores

Securitization market volume

 

~5%

Securitization market volume growth

 

OUTLOOK

The outlook for the NBFC sector remains strong and structurally positive, supported by robust credit demand, increasing financialization and favorable macroeconomic conditions. Growth is expected to transition toward sustainable, quality-led expansion. The NBFC-Retail segment is expected to maintain healthy momentum, growing at 17 19% in FY 2025 26 and 16 18% in FY 2026 27, with overall AUM projected to expand at ~18 19%, crossing Rs 50 Lakhs Crores by March 2027, driven by sustained consumption demand and policy support.

Supportive factors such as GST rationalization and benign inflation are expected to further strengthen retail credit demand. At the same time, improving funding diversification and enhanced risk frameworkspositionNBFCstocapitalize to previously underserved on emerging opportunities across segments.

Profitability is expected to remain robust, with RoA at ~2.3 2.5%, supported by a favorable shift toward secured lending, stable margins and improved operating efficiencies. Overall, the sector is well-positioned for resilient and sustainable growth, backed by stronger balance sheets, disciplined risk management and a diversified funding profile, enabling NBFCs to effectively capture India’s long-term credit opportunity.

 

~ Rs 1.87 Lakhs Crores

Projected growth rate of NBFCs in FY 2026 27 AUM crossing

Rs 50 Lakhs Crores by March 2027

 

Sources: NBFC growth may moderate as gold loan boom untenable: ICRA - Banking & Finance News  The Financial Express

Sources: AUM to tick up steadily for NBFCs, cross Rs 50 Lakhs Crores next fiscal

Sources: https://www.icra.in/Research/ViewResearchReport/6759

PESTEL ANALYSIS FOR NBFC SECTOR IN INDIA

POLITICAL

POLICY-LED FINANCIAL INCLUSION AND CREDIT DEEPENING

The NBFC sector continues to benefit from a supportive policy ecosystem that is accelerating financial inclusion and expanding credit access.

Expansion of priority sector lending norms continues to channel credit towards underserved segments Targeted MSME support programs are enhancing access to formal financing for small businesses Digital public infrastructure including Aadhaar, UPI and the Account Aggregator framework has strengthened credit delivery, efficiency and reach

 

ENABLING POLICY FRAMEWORK STRENGTHENING LAST-MILE CREDIT DELIVERY

Public policy initiatives focused on broadening financial access most notably the Pradhan Mantri Jan Dhan Yojana (PMJDY) which is one of the world’s largest financial inclusion initiatives and the Pradhan Mantri Mudra Yojana have created a favorable operating environment for NBFCs. Complementary programs such as the Pradhan Mantri Awas Yojana (PMAY) and the Stand-Up India Scheme have further strengthened credit penetration by supporting affordable housing and promoting entrepreneurship among underserved segments, including women and SC/ST borrowers.

By significantly expanding the formal banking network and enabling credit flow these programs have positioned NBFCs as critical enablers in last-mile credit delivery.

 

PMJDY

One of the world’s largest financial inclusion initiatives

 

57.91 Crores beneficiaries banked under PMJDY (till December 2025)

 

REFINED RISK-WEIGHT NORMS TO ENHANCE CAPITAL EFFICIENCY

The Reserve Bank of India has proposed revised risk-weight guidelines for NBFCs’ infrastructure exposures, aimed at aligning capital requirements more closely with actual credit risk. Under the draft framework, lower risk weights may be assigned to well-performing, operational projects with strong repayment track records. This calibrated approach is expected to optimize capital allocation, reduce funding costs for established infrastructure assets, and encourage prudent credit deployment within the sector.

 

ECONOMIC

STABLE GROWTH MOMENTUM WITH ANCHORED INFLATION

India’s macroeconomic environment remains supportive, with real GDP growth estimated at 7.4% in FY 2025-26 and inflation remaining well within the RBI’s tolerance band. Retail inflation averaged a low 1.7% during April December

2025, supported by easing food and fuel prices and improved supply-side dynamics. These trends, alongside stable consumption growth, reflect a balanced macroeconomic backdrop conducive to sustained credit expansion.

 

STABLE AND CALIBRATED MONETARY POLICY

The RBI has maintained a balanced policy stance, holding the repo rate at 5.25%, thereby anchoring inflation within the target range while ensuring adequate liquidity to support credit growth and overall economic stability.

 

5.25%

Current repo rate

 

STRONG CREDIT GROWTH MOMENTUM SUPPORTED BY GST REFORMS

The NBFC sector is poised to sustain healthy expansion, supported by improved liquidity conditions and the positive impact of GST rationalization. These GST rate cuts are expected to further stimulate credit demand across segments, reinforcing growth prospects for both NBFCs and the broader financial system.

 

SOCIAL

RISING RETAIL CREDIT DEMAND DRIVING INCLUSIVE GROWTH

A growing middle class and rapid urbanization are fueling demand for retail credit across housing, consumption and small business segments. In this evolving landscape, NBFCs play a pivotal role by extending credit access to emerging entrepreneurs, women and youth, thereby fostering financial inclusion and supporting broad-based, inclusive economic development.

 

STRENGTHENING CO-LENDING TO BRIDGE MSME CREDIT GAP

A parliamentary standing committee has recommended expanding bank NBFC co-lending arrangements to address the formal credit gap faced by MSMEs. This move is expected to improve credit accessibility; lower borrowing costs, and strengthen financial inclusion across the small business ecosystem.

 

EXPANDING CONSUMER CREDIT LANDSCAPE DRIVEN BY INCOME GROWTH

Rising income levels and shifting consumption preferences are reshaping India’s credit ecosystem, particularly across urban and semi-urban markets. As households increasingly seek financing for discretionary spending and asset creation, NBFCs have emerged as key enablers by delivering customized lending solutions across personal finance, mobility and consumer purchases. This evolving demand is not only supporting consumption-led growth but also enabling greater financial mobility across emerging income segments.

 

TECHNOLOGY

DIGITAL TECHNOLOGIES ENHANCING CREDIT DECISIONING AND OPERATIONAL EFFICIENCY

The adoption of advanced technologies such as Artificial Intelligence (AI) and Robotic Process Automation (RPA) is transforming credit assessment within NBFCs. These capabilities enable real-time, data-driven decision-making, replacing traditional manual and judgement-intensive underwriting processes with faster and more consistent evaluations. As a result, technologically enabled NBFCs are better positioned to deliver instant approvals, enhance customer experience, ensure uniform application of credit policies, and achieve meaningful cost efficiencies strengthening their competitive differentiation against peers and traditional banking institutions.

 

CYBERSECURITY AND DATA PROTECTION TECHNOLOGIES

With increasing digital adoption, NBFCs are strengthening cybersecurity frameworks to protect customer data and ensure secure operations. Institutions are leveraging AI-based fraud detection systems to identify risks in real time, while implementing encryption and multi-factor authentication to safeguard sensitive information.

At the same time, NBFCs are aligning with evolving data privacy regulations and digital lending guidelines, enhancing compliance, operational resilience and customer trust in a technology-driven ecosystem.

 

DIGITAL LENDING PLATFORMS (END-TO-END AUTOMATION)

NBFCs are increasingly adopting end-to-end digital lending platforms, including advanced loan origination systems

(LOS) and loan management systems (LMS), to streamline operations and enhance customer experience. These platforms enable paperless onboarding and faster loan approvals, significantly improving turnaround times. By reducing operational costs and enabling scalable customer acquisition, digital lending is also expanding NBFCs’ reach into Tier II, Tier III and rural markets, strengthening financial inclusion and supporting sustainable growth.

 

ENVIRONMENTAL

INDIA’S GREEN FINANCE MARKET

Green finance refers to funding directed toward environmentally sustainable projects, including renewable energy, clean mobility and climate-resilient infrastructure.

India’s green finance market is gaining strong momentum, supported by policy initiatives and rising ESG adoption. Market data indicate US$ 55.9 Billion in sustainable debt, along with US$ 800 Billion in corporate climate commitments through 2034, reflecting long-term investment intent. The market is expected to grow further supported by capacity additions of renewable energy, reinforcing India’s transition toward a low-carbon economy.

 

US$ 55.9 Billion

Sustainable Debt Issuances in H1 2025

 

GREEN LOAN PRODUCTS

Green loans are credit facilities designed to finance environmentally sustainable activities, including energy-efficient housing, electric vehicles and renewable energy projects. NBFCs are increasingly expanding green lending portfolios, supported by rising ESG awareness and regulatory encouragement.

The Reserve Bank of India estimates that Rs 85.6 trillion of investment will be required by 2030 to enable industries to meet climate-related commitments, highlighting a productssignificant are thus emerging as a key enabler of sustainable growth and climate transition.

Rs 85.6 trillion

Cumulative total expenditure for adapting to climate change in

India by the year 2030

 

ENERGY EFFICIENCY AND SUSTAINABILITY FOCUS FOR NBFC INDUSTRY

Energy efficiency and sustainability in NBFCs involve integrating ESG principles into lending and operations, while promoting financing for eco-friendly projects. NBFCs are increasingly focusing on green portfolios, digital processes to reduce carbon footprint, and responsible lending practices. This shift not only aligns with regulatory and investor expectations but also supports long-term value creation and sustainable growth.

 

LEGAL

STRENGTHENING REGULATORY OVERSIGHT THROUGH SBR FRAMEWORK

The regulatory landscape for NBFCs has evolved significantly, with the Reserve Bank of India introducing measures to enhance risk management, governance and financial stability. The implementation of the Scale-Based Regulation (SBR) framework has enabled differentiated supervision based on size and systemic importance, thereby strengthening oversight of larger and systemically important

NBFCs.

 

TIGHTENING NORMS FOR UNSECURED AND DIGITAL LENDING

During FY 2025 26, regulatory actions focused on tightening norms for unsecured lending, including higher risk weights, to address concerns around borrower overleveraging and asset quality. In addition, the RBI strengthened digital lending guidelines, emphasizing transparency, data privacy, fair practices and enhanced customer protection in an increasingly digital lending environment.

 

ENHANCING TRANSPARENCY AND MANAGING SYSTEMIC RISKS

The regulator also introduced measures to limit NBFC exposure to Alternative Investment Funds (AIFs) and strengthened disclosure requirements to improve transparency. These initiatives are aimed at reducing systemic risks and ensuring prudent capital allocation, thereby fostering a more resilient, disciplined and well-regulated NBFC ecosystem.

 

HOUSING FINANCE

The housing industry in India has witnessed steady growth and deepening financialization, underscoring its increasing significance within the broader economic landscape. The expansion of housing finance has played a pivotal role in driving sectoral growth, with the aggregate loan portfolio of Housing Finance Companies (HFCs) rising at a CAGR of ~5% to Rs 9.6 Lakhs Crores as of 31 March, 2025, compared to Rs 7.9 Lakhs Crores in March 2021.

Access to housing finance in the increase in housing loans to GDP to ~11% in FY 2024 25 from 8% in FY 2014 15, as per the Economic Survey 2025 26. This has been complemented by a significant in outstanding individual housing loans, which have more than tripled to Rs 37 Lakhs Crores over from Rs 10 Lakhs Crores the past decade, indicating stronger credit penetration and formalization of the housing market.

Overall, the industry continues to benefit from increasing affordability, policy support and rising demand for home ownership, positioning it as a key driver of economic growth and urban development in India.

Rs 9.6 Lakhs Crores

HFC loan portfolio till FY 2024-25

 

~5% CAGR growth

in HFC portfolio between FY2020-21 till FY2027-25)

Rs 37 Lakhs Crores

Outstanding individual housing loans

 

3.7x growth

in housing loans over the past decade

 

KEY GOVERNMENT INITIATIVES

Government initiatives have played a pivotal role in strengthening India’s housing financeecosystem, enabling wider access to affordable housing and accelerating sectoral growth. Flagship programs such as the Pradhan

Mantri Awas Yojana (PMAY), including its urban and rural components, along with schemes like the Credit Linked

Subsidy Scheme (CLSS) and the Affordable Rental Housing Complexes (ARHC) initiative, have significantly improved housing affordability and credit access.

 

PRADHAN MANTRI AWAS YOJANA – URBAN 2.0 (PMAY-U 2.0)

Approved by the Union Cabinet in June 2024 and launched on September 1, 2024, Pradhan Mantri Awas Yojana Urban (PMAY-U) 2.0 marks a significant step forward in India’s urban housing agenda. The scheme aims to address the housing needs of 1 Crores urban economically weaker and middle-income families over a five-year period, with a total investment outlay of Rs 10 Lakhs Crores. The government has committed central assistance of Rs 2.30 Lakhs Crores, underscoring its continued focus on improving housing affordability and accelerating urban development.

 

KEY DEVELOPMENTS:

125.15 Lakhs

Houses Sanctioned facility involving

 

97.3 Lakhs in HFC portfolio between FY2020-21 till FY2027-25)

Rs 8.74 Lakhs Crores in housing loans over the past decade

 

Sources: PMAY (U)

SWAMIH FUND (SPECIAL WINDOW FOR AFFORDABLE AND MID-INCOME HOUSING)

Launched in November 2019, the SWAMIH Investment Fund is a Government-backed initiative aimed at providing last-mile financing to stalled housing projects, with support from the Department of Economic Affairs, Ministry of Finance. As of December 15, 2025, the fund has enabled the delivery of approximately 61,000 homes across 110 projects, including over 7,000 units in the rehabilitation and Economically Weaker Sections (EWS) category. It has unlocked over Rs 37,400 Crores of capital across 127 projects nationwide, covering more than 90 Million sq. ft. of development area, with 44% focused on LIG and MIG housing. Building on this progress, the Union Budget 2025 26 announced SWAMIH Fund-2, a Rs 15,000 Crores blended finance government, banks and private investors, aimed at expediting the completion of an additional 1 Lakhs housing units.

 

INTEREST SUBSIDY SCHEME

Under the Interest Subsidy Scheme (ISS) vertical of PMAY-U

2.0, subsidy is provided on home loans sanctioned and disbursed on 01.09.2024 or after to eligible beneficiaries of EWS/LIG/MIG segments for purchase/repurchase/ construction of houses. Households belonging to EWS, LIG and MIG categories, with an annual income of up to Rs 3 Lakhs, Rs 6 Lakhs and Rs 9 Lakhs, respectively will be eligible to avail the benefit of the Scheme.

 

NATIONAL HOUSING BANK (NHB)

NHB is the apex financial institution for housing finance in India, operating under the Ministry of Finance. It was set up to promote a sound, sustainable and inclusive housing finance system, while strengthening the institutional framework for housing finance across the country.

NHB plays a pivotal role in developing the housing finance ecosystem by providing refinance support to banks and credit housing finance availability and lowering borrowing costs for homebuyers. It also undertakes supervision of housingfinanceinstitutions, promotes affordable housing initiatives, and facilitates securitization and long-term funding mechanisms, enabling deeper credit penetration and overall sectoral growth.

 

HOUSING AND URBAN DEVELOPMENT CORPORATION (HUDCO)

HUDCO is a government-owned financial institution that provides long-term finance for housing and urban infrastructure development. With a focus on social and economic infrastructure, HUDCO supports state governments, housing boards and urban development agencies by funding affordable housing projects, urban amenities and large-scale infrastructure, thereby strengthening the supply side of the housing ecosystem.

 

OUTLOOK sustained momentum (ICRA The outlook for India’s housing finance sector remains strong and growth-oriented, underpinned by favorable demographics, rising urbanization and increasing home ownership aspirations. The individual housing finance market, currently valued at Rs 33 Lakhs Crores, is expected to grow at a CAGR of 15 16% between FY 2025 30, reaching Rs 77 81 Lakhs Crores, as per CareEdge Ratings.

Growth will be supported by structural drivers such as government incentives, improved affordability, and continued expansion of residential real estate activity. The sustained momentum in housing demand, particularly across mid-income and affordable segments, is expected to drive credit uptake.

The sector is well positioned to benefit from deepening financialization, stable policy support and robust end-user demand, reinforcing its role as a key contributor to India’s long-term economic growth.

 

Sources: Indias housing finance market poised to more than double in next 6 years: Report, ETBFSI

Sources: 1773306493_Affordable Housing Finance, projecting steady growth. pdf

Sources: Housing finance market to grow at 15-16% CAGR through 2029-30:

CareEdge - The Economic Times

GOLD LOANS

The gold loan industry in India is a key pillar of the retail-lending ecosystem, anchored in the country’s strong cultural affinity for gold as a store of value. Historically dominated by unorganized lenders, the market has undergone rapid formalization and institutionalization, with banks and NBFCs expanding their footprint through competitive offerings, faster turnaround times and deeper geographic reach.

In recent years, the industry has witnessed accelerated growth and is driven by rising gold prices, growing credit demand and increasing preference for secured lending products. Gold loans have emerged as a convenient and reliable financing solution, particularly for MSMEs and underserved segments, due to their collateral-backed nature, minimal documentation and quick disbursal.

 

PERFORMANCE HIGHLIGHTS

The gold loan industry delivered strong and broad-based growth in FY 2025 26, supported by favorable gold prices, rising credit demand and increased participation from banks and NBFCs. Gold loans continued to grow by far the fastest among all major sectors followed by the priority-housing sector, the Reserve Bank of India’s report on sectoral deployment of bank credit showed.

The organized gold loan market is expected to reach

~Rs 15 Lakhs Crores by FY 2026, ahead of earlier estimates, estimates). During reflecting the year under review, Disbursement activity remained exceptionally strong. Gold loan disbursements surged 94% YoY to Rs 8.16 Lakhs Crores between October to December 2025, compared to Rs 4.23 Lakhs Crores in the corresponding period last year (Equifax Retail Insights report). This surge was driven by borrowers increasingly preferring gold-backed loans over other credit options, particularly for business and working capital needs.

As per the report, across lender categories, public sector banks recorded a 71.24% YoY growth in disbursements to Rs 3.75 Lakhs Crores, while private sector banks grew by 65.75% YoY to Rs 1.21 Lakhs Crores. NBFCs witnessed the sharpest growth, with disbursements surging 189% YoY to Rs 2.5 Lakhs Crores, nearly tripling during the 3rd quarter of FY 2025-26. Public sector banks remained the largest contributors, accounting for ~46% of total disbursements.

Rs 8.16 Lakhs Crores

Gold loan disbursements in Q3 FY 2025-26 registering 94% YoY growth

 

~ Rs 15 Lakhs Crores

Estimated market size of organized gold loan Gold loan in

FY 2025-26

 

189% YoY surge

NBFCs’ disbursement growth in Q3 FY 2025-26

 

94%

Gold loan disbursements growth in Q3 FY 2025-26

 

KEY GROWTH DRIVERS

Favorable gold prices

Rising gold prices enhance collateral value, enabling higher loan eligibility and driving increased borrower demand.

 

• Strong MSME demand

Gold loans have become a preferred financing option for MSMEs due to ease of access, minimal documentation and quick disbursal.

 

• Supportive regulatory environment

Policy measures such as LTV relaxations and favorable interest rate regimes have supported growth and improved accessibility.

 

Low penetration and market expansion

Despite large gold reserves, the organized gold loan market remains underpenetrated, with expansion into rural and semi-urban markets unlocking new growth avenues.

 

RBI GOLD LOAN DIRECTIONS 2025

The RBI’s 2025 Directions introduce a calibrated and borrower-centric framework for gold loans, strengthening transparency, compliance and risk management across the sector. Under the revised norms, consumption gold loans up to Rs 2.5 Lakhs can have an LTV of up to 85% (earlier 75%), loans between Rs 2.5 5 Lakhs are capped at 80%, and loans above Rs 5 Lakhs at 75%. This tiered approach enhances credit access for small-ticket borrowers, particularly in rural and semi-urban areas, while maintaining tighter controls on higher-value loans.

The Directions also tighten bullet repayment structures, mandating closure within 12 months (consumption loans) and requiring LTV calculation based on the total repayment due at maturity rather than the disbursed amount, thereby addressing monitoring gaps and preventing LTV breaches. To enhance operational transparency, borrowers must be present during gold valuation, and any surplus from auctions must be returned within seven working days. Similarly, pledged gold must be released within seven days of loan closure, with penalties of Rs 5,000 per day for delays.

The reforms are expected to significantly influence lending strategies. While higher LTVs will support growth in small-ticket loans, large-ticket loans especially under bullet repayment may face constraints. For loans above Rs 5 Lakhs, lenders may need to limit initial LTV to ~63% 64% under stable gold prices and interest rates of 17% 18%. This could prompt borrowers to pledge additional gold or opt for shorter tenures, while lenders may increasingly shift towards

EMI-based structures, albeit with some yield compression. Overall, the framework balances growth with prudential lending, while strengthening borrower protection through clear rules on LTV tiers, repayment structures, auctions and collateral release.

 

OUTLOOK

The gold loan market, valued at US$ 3.8 Billion in 2025, is anticipated to expand to US$ 5.2 Billion by 2034, registering a CAGR of 3.61%, reflecting a steady growth trajectory supported by strong structural drivers. The outlook for the sector remains structurally positive, supported by multiple long-term growth drivers. Foremost, rising gold prices continue to enhance the collateral value of pledged assets, enabling borrowers to access higher loan amounts and driving portfolio expansion for lenders. Additionally, a structural shift towards secured lending, particularly amid tighter conditions in unsecured credit segments, is encouraging both retail borrowers and small businesses to increasingly opt for gold-backed financing.

 

MICRO,SMALL,ANDMEDIUMENTERPRISES (MSME)

Micro, Small and Medium Enterprises (MSMEs), often termed the "engine of growth"; continue to play a pivotal role in India’s economic development through employment generation, manufacturing expansion, regional balance and wealth distribution. The sector contributes ~31.1% to GDP, ~35.4% to manufacturing output and ~48.58% to exports (Union Budget 2026-27). With over 7.47 Crores enterprises employing over 32.82 Crores persons, the MSME sector holds its position as the second-largest employer after agriculture. Formalization has accelerated, with 7.30 Crores+ enterprises registered between July 2020 and December 2025, reflecting increasing integration into the formal economy.

 

~31.1%

MSME contribution to GDP

 

~48.58%

in MSME contribution to exports

 

7.30 Crores+

Enterprises registered between July 2020 and December 2025

 

ANNOUNCEMENTS UNDER UNION BUDGET 2026

The Union Budget 2026 27 places strong emphasis on strengthening the MSME ecosystem through thevisionof is expected "Building Champion MSMEs for a Global India" aligned with three key Kartavyas:

 

Accelerate and sustain economic growth

 

Fulfill aspirations and build capacity

 

Ensure equitable access to resources and opportunities

In line with this vision, the Government has introduced a comprehensive three-pronged strategy aimed at improving access to capital, enhancing liquidity and strengthening access to professional and managerial expertise within the

MSME sector:

Equity Support: A dedicated Rs 10,000 Crores SME Growth

Fund has been proposed to nurture high-potential enterprises and create future global champions.

Additionally, the Self-Reliant India (SRI) Fund will be augmented with a Rs 2,000 Crores top-up. Since inception till November 30, 2025, the SRI Fund has supported 682 MSMEs with investments amounting to Rs 15,442 Crores, strengthening access to risk capital.

Liquidity Support: To address working capital constraints, more than Rs 7 Lakhs Crores of funding has been enabled through the TReDS platform, facilitating faster receivables financing and improving cash flow cycles for MSMEs. Professional Support: The introduction of the ‘Corporate Mitras’ initiative aims to develop a support ecosystem in Tier-II and Tier-III cities, providing MSMEs with access to affordable professional and compliance-related services, thereby enhancing operational efficiency and governance standards. Further, the budget has undertaken a structural revision of

MSME classification norms, with increase in investment limits and turnover thresholds across micro, small and tomedium enterprises. This reclassification enable business scalability while allowing enterprises to retain MSME benefits for a longer growth cycle.

Reflecting the Government’s sustained focus, budgetary allocation for the MSME sector has witnessed a steady increase, rising from Rs 7.01 Thousand Crores in FY 2019-20 to Rs 24.56 Thousand Crores in FY 2026-27, underscoring continued policy support towards fostering a resilient and globally competitive MSME landscape.

 

GOVERNMENT SCHEMES DRIVING MSME GROWTH PRIME MINISTER’S EMPLOYMENT GENERATION PROGRAM (PMEGP)

PMEGP continues to support micro-entrepreneurs through margin money subsidies on bank loans, with an expanded scope and higher project cost limits. Since inception (FY 2008 09) till December 2025, the scheme has assisted 10.71 Lakhs+ enterprises with subsidy disbursement of Rs 29,249.43 Crores, generating employment for over87 Lakhs individuals, thereby strengthening grassroots entrepreneurship.

 

10.71 Lakhs+ enterprises

Benefited from the scheme

 

87 Lakhs individuals

Employment generated

 

MSME CHAMPIONS SCHEME

The MSME Champions Scheme is designed to enhance competitiveness and foster excellence through its three key components ZED (Zero Defect Zero Effect), LEAN (productivity improvement) and Innovative (incubation, design and IPR support). The scheme has witnessed strong adoption, with a total of 2,71,373 MSMEs registered under the MSME Sustainable (ZED) Certification Scheme, of which 1,92,689 enterprises have been certified, along with 32,077 MSMEs enrolled under the Lean Scheme, collectively driving improvements in efficiency, quality and innovation.

 

2,71,373

MSMEs registered under MSME Sustainable (ZED)

 

32,077

MSMEs enrolled under the Lean Scheme

 

CREDIT GUARANTEE SCHEME FOR MSES (CGTMSE)

The CGTMSE has significantly improved credit accessibility by providing collateral-free loans to MSMEs. Celebrating 25 years in 2025, the scheme has crossed 1 Crores guarantees since inception, with 29.03 Lakhs guarantees worth Rs 3.77 Lakhs Crores approved from 1 January till 30 November,

2025. The guaranteed cover has been enhanced to Rs 10

Crores from Rs 5 Crores, with additional benefits extended to enterprises promoted by transgender entrepreneurs.

 

29.03 Lakhs

Guarantees approved from 1 January till November 30, 2025

 

1 Crores guarantees

Crossed since inception (August 2000)

 

PM VISHWAKARMA SCHEME

Launched in September 2023, the PM Vishwakarma Scheme provides holistic support to artisans and craftspeople across 18 trades who work with their hands and tools. Under the scheme, 20 Lakhs+ artisans are being imparted training and banking support and 7.7 Lakhs beneficiaries completed basic skill training in 2025. As of December 1, 2025, 30 Lakhs beneficiaries have been registered, with 23.09 Lakhs trained, while Rs 2,257 Crores has been sanctioned to 2.62 Lakhs beneficiaries and 6.7 Lakhs individuals digitally enabled, promoting traditional skills and financial inclusion.

 

30 Lakhs+

Beneficiaries registered

Rs 2,257 Crores

Sanctioned under this scheme

 

ONDC AND TEAM INITIATIVE

The Open Network for Digital Commerce (ONDC), along with the TEAM (Trade Enablement and Marketing) Initiative, is enabling MSMEs to integrate into formal digital commerce ecosystems. With a target of onboarding 5 Lakhs MSMEs, these initiatives are enhancing market access, improving supply chain participation and significantly reducing transaction costs.

 

OUTLOOK

The MSME sector outlook remains strong supported by increasing formalization, digital adoption and sustained policy support. With over 7 Crores enterprises integrated into formal platforms, access to credit, markets and government schemes is improving. Initiatives such as ONDC, TReDS and credit guarantee schemes are expected to enhance liquidity and strengthen market linkages, while growing participation in global value chains will support export growth.

Going forward, targeted measures under Union Budget 2026 27, including enhanced funding support and revised classification norms, are expected to drive scalability and competitiveness. Despite challenges such as cost pressures and compliance requirements, ongoing reforms and digitalization efforts position the sector for steady growth, reinforcing its role in employment generation and economic expansion.

 

Sources: Press Release: Press Information Bureau Sources: Press Release: Press Information Bureau

MICRO FINANCE SECTOR

The microfinance sector in India has emerged as a cornerstone of financial inclusion, enabling access to credit and essential financial services for underserved populations, particularly women, small farmers and micro-entrepreneurs across rural and semi-urban regions. It continues to play a pivotal role in driving socio-economic development by empowering low-income households, rural enterprises and women-led businesses. As of June 30, 2025 the sector has established a widespread footprint across over 36 States/ UTs and 721 districts, serving approximately 7.5 Crores unique clients and reinforcing its significance in bridging the formal credit gap.

 

https://mfinindia.org/assets/upload_image/news/pdf/Micrometer%20Q1%20

FY%2025-26%20Press%20Release.pdf

PERFORMANCE DURING 2025-26

Following a phase of strong expansion through FY 2023-24, the microfinance sector witnessed a sustained moderation during FY 2025-26 reflecting a shift towards prudent lending and portfolio recalibration. Industry data indicate that the Gross Loan Portfolio (GLP) declined from approximately Rs 3.53 Lakhs Crores as of June 2025 to around Rs 3.39 Lakhs Crores by September 2025, and further to Rs 3.14 Lakhs Crores by December 2025, marking an overall year-on-year contraction of about 18.3%. This decline was primarily driven by tighter underwriting norms, cautious disbursement strategies and the gradual run-down of legacy portfolios amid evolving risk dynamics.

The microfinance sector witnessed a calibrated moderation in credit during H1 FY 2025-26 with overall credit declining by 9.3%, marking the sixth consecutive quarter of portfolio rationalization. This phase reflects towards strengthening asset quality and enhancing portfolio resilience. The sector also saw a reduction of 78 Lakhs in active borrowers, indicative of a more selective and disciplined customer acquisition approach.

Bank credit, which accounts for 47.7% of the total credit outstanding to the sector, moderated by 10.6% during the same period, aligning with a broader industry-wide focus on prudent lending, risk recalibration and sustainable growth.

 

Sources: India Microfinance: Indias Microfinance Sector Experiences 18.3% Decline; NBFC-MFIs Dominate Market Share, ETBFSI

Despite this contraction, NBFC-MFIs continued to retain their leadership position within the microfinance ecosystem, accounting for a 42.1% market share with an outstanding portfolio of Rs 1,32,418 Crores. Banks emerged as the second-largest segment with a 26.7% share, while Small Finance Banks (SFBs) and NBFCs contributed 17.5% and 12.5%, respectively, underscoring a diversified institutional presence in the sector.

 

ASSET QUALITY AND PORTFOLIO AT RISK (PAR)

A key highlight of the sector during the year has been the broad-based improvement in portfolio quality. For NBFC-MFIs, the PAR (1 180 days) declined sharply to 3.9% as of

 

DISBURSEMENT TREND AND FUNDING

The financial performance of NBFC-MFIs during Q3 FY 2025 26 demonstrated underlying resilience, characterized by robust growth in loan disbursements and a meaningful uptick in debt funding, predominantly sourced from banks. This performance was delivered notwithstanding a contraction in the industry’s aggregate loan portfolio, underscoring the sector’s ability to sustain credit momentum and funding access amid a challenging operating environment.

 

NBFC-MFIs disbursed Rs 27,537 Crores during the quarter, registering a 23.8% year-on-year growth, supported by an increase in the average loan ticket size to Rs 57,576

The sector received Rs 21,020 Crores in debt funding, marking a robust 55.3% year-on-year growth Banks accounted for 73.2% of the total debt funding received by the sector, underscoring their dominant role in supporting NBFC-MFIs’ funding requirements

 

Sources: India Microfinance: Indias MFIs Dominate Market Share, ETBFSI

December 2025, compared to 8.7% in the corresponding period of the previous year, reflecting enhanced underwriting standards, tighter credit discipline and improved collection efficiencies across the industry.

 

REGULATORY & SRO MEASURES

The microfinance industry continues under a tightened regulatory regime. In early 2025, the RBI reduced risk-weights on bank loans to micro-borrowers by 25 percentage points

(to 100%). Moreover, the Microfinance Industry Network (MFIN) pressed ahead with self-regulatory "guardrails": from April 2025 it deferred a cap of 3 MFIs per borrower, but has set loan caps (Rs 2 Lakhs per borrower) and lender-count limits (3 per borrower) to curb over-indebtedness

 

Sources: Mint 26-2-25

Sources: MFIN defers capping lenders to each borrower by three months, other covenants come into effect

DIGITAL AND FINTECH PUSH

Digital finance is transforming micro lending. MFIs and banks are rapidly adopting mobile disbursements and

UPI-based collections (often via biometric smartcards) to improve efficiency. For instance, MFIN reports most member MFIs now achieve 100% cashless disbursement in villages..3%Decline;NBFC-

In May 2025 RBI introduced new Digital Lending Directions requiring up-front disclosure of APR and instituting a "cooling off" period, which will apply to digital microloans too, boosting transparency.

 

OUTLOOK

The outlook for the Indian microfinance sector remains positive, with the Gross Loan Portfolio (GLP) expected to reach Rs 5 Lakhs Crores by FY 2026-27, driven by enhanced regulatory oversight, digital innovation and alignment with developmental priorities such as financial inclusion, rural entrepreneurship and women’s economic empowerment. The ongoing phase of portfolio rationalization is likely to support further asset quality normalization, while easing funding constraints for large players should improve liquidity and enable gradual credit expansion. Reflecting improving sector fundamentals, credit rating agencies have revised their outlook to stable, anticipating a recovery in loan growth once the current deleveraging cycle stabilizes.

Going forward continued government support and the increasing adoption of digital technologies, including digital payments and AI-based credit scoring, are expected to underpin the sector’s recovery and long-term growth. https://www.brickworkratings.com/Research/Microfinance_Sector_ In_India_28May2025.pdf

KEY REGULATORY UPDATES FOR FY 2025-26

On February 13, 2026, the Reserve Bank of India issued the Reserve Bank of India (Non-Banking Financial Companies Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026, to strengthen the prudential treatment of Default Loss Guarantee (DLG) arrangements.

The amendment aims to ensure consistency in the application of provisioning principles, particularly in the context of digital lending and co-lending structures where

DLG arrangements have been permitted under specified conditions.

The revised framework allows NBFCs to consider DLG arrangements while determining provisions under the

Expected Credit Loss (ECL) framework, subject to compliance with Indian Accounting Standards and the condition that such guarantees are integral to the loan contract. It also mandates enhanced disclosure requirements and requires

NBFCs to dynamically recompute provisioning levels upon invocation of DLG, reflecting the reduction in guarantee cover.

These measures are expected to improve transparency, ensure prudent provisioning and strengthen risk recognition across NBFC portfolio.

 

Sources: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/

NT210A019EC76862F41828FE709EB5E102922.PDF

On January 14, 2026, the Reserve Bank of India introduced the Reserve Bank of India (Non-Banking Financial Companies Internal Ombudsman) Directions, 2026, aimed at strengthening the internal grievance redressal framework within NBFCs. These Directions seek to ensure timely and impartial resolution of customer complaints by mandating an independent review mechanism through the Internal Ombudsman before complaints are rejected, thereby reinforcing fairness, transparency and accountability in customer service practices. The Directions require eligible NBFCs to appoint an Internal Ombudsman and, where necessary, a Deputy Internal Ombudsman, supported by a structured complaint management system with automated escalation of partially resolved or rejected complaints. The framework emphasises board-level oversight, root cause analysis of complaints, and adherence to definedtimelines for resolution, while also integrating supervisory review by the RBI. Collectively, these measures are expected to enhance customer protection, improve grievance handling efficiency and strengthen trust in the NBFC ecosystem On January 5, 2026, the Reserve Bank of India issued the Reserve Bank of India (Non-Banking Financial Companies Credit Risk Management) Amendment Directions, 2026, introducing a strengthened regulatory framework for lending to related parties. The amendments seek to enhance governance, transparency and risk discipline by clearly defining related parties and establishing structured oversight mechanisms, including the constitution of Board-level or committee-driven approval processes for such exposures.

The revised Directions mandate NBFCs to incorporate detailed provisions within their credit policies, including exposure limits, materiality thresholds and safeguards such as recusal of interested parties in decision-making. They also require periodic monitoring, internal audit reviews and enhanced reporting of related party exposures, alongside strict enforcement provisions for non-compliance. By reinforcing controls around related party transactions, the framework aims to mitigate conflict of interest risks, strengthen credit governance and promote prudent lending practices across the NBFC sector.

 

Sources: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/

NT179E8A0C46758CC48778CD80D7D52D1463A.PDF

RBI vide press release dated November 28, 2025 issued 244 Master Directions consolidating the instructions currently administered by the Department of Regulation (DoR) on an ‘as-is’ basis.

Under this consolidation effort, instructions contained in approximately 3,500 directions, circulars, and guidelines, were consolidated into 238 Master Directions, across 11 types of regulated entities. For this purpose, the 11 types of regulated entities identified are:

(a) Commercial Banks;

(b) Small Finance Banks;

(c) Payments Banks;

(d) Local Area Banks;

(e) Regional Rural Banks;

(f) Urban Co-operative Banks;

(g) Rural Co-operative Banks;

(h) All India Financial Institutions;

(i) Non-Banking Financial Companies;

(j) Asset Reconstruction Companies; and

(k) Credit Information Companies. Instructions contained in remaining directions / circulars were identified as obsolete and marked for repeal.

 

SECTORAL OPPORTUNITIES AND THREATS

OPPORTUNITIES	THREATS
Deepening financial inclusion, with to NBFCs continuing serve underpenetrated segments such as MSMEs, rural borrowers and informal income groups	Liquidity and funding constraints, with high dependence on market borrowings and bank funding
Niche product innovation around EV financing, healthcare loans, supply-chain finance, among others	Asset quality pressures, given relatively riskier borrower segments
Digital transformation and AI-led underwriting, leading to improved turnaround time, lower costs and enhanced risk assessment capabilities	Enhanced RBI oversight and stricter compliance norms are increasing operational costs and constraining aggressive growth strategies
Co-lending and partnerships with banks, providing NBFCs with access to low-cost funding and banks with expanding reach in priority sectors	High exposure to specific sectors (e.g., infrastructure, MSMEs) and strong interlinkages with banks can amplify systemic vulnerabilities
e creating ar Industryconsolidationandscalebenefits stronger, well-capitalized players with improved governance and operational efficiencies shares	Increasing competition from banks, fintechs and well- capitalized NBFCs may pressurize margins and market

 

COMPANY OVERVIEW

ABOUT US

IIFL Finance Limited (hereinafter referred to as ‘IIFL Finance’ or ‘the Company’), is a leading retail-focused non-banking financial company headquartered in Mumbai. Marking 30 years of its corporate journey, the Company has evolved into a diversified financial services platform, delivering comprehensive and customer-centric lending solutions to underserved and emerging segments across India. Anchored in a secured, retail-led lending strategy, IIFL

Finance has built a resilient and scalable business model, with gold loans and mortgages forming the core of its portfolio. Along with its subsidiaries IIFL Home Finance Limited and IIFL Samasta Finance Limited the Company offers a wide spectrum of products, focusing majorly on home loans, gold loans, business loans, supply chain finance and microfinance loans,. This calibrated shift towards collateral-backed lending has strengthened portfolio quality while ensuring consistent and sustainable growth.

As of March 31, 2026, the Company’s consolidated Loan Assets Under Management stood at Rs 1,08,180 Crores, reflecting robust growth momentum driven by its focused strategy and disciplined execution. The Company’s operating model is further reinforced by a capital-efficient, asset-light framework, supported through strong co-lending partnerships, direct assignment, and securitisation structures, enabling optimal capital utilization and enhanced returns.

IIFL Finance’s expansive phygital distribution network of 4,829 branches, complemented by advanced digital capabilities, enables last mile reach across geographies.

Serving over 4.6 Million customers, the Company continues to bridge credit gaps and drive financial inclusion across all product segments.

Operational excellence is driven by an AI-led ecosystem, embedded across underwriting, fraud detection, collections, and customer engagement. This technology-driven approach, combined with strengthened governance and risk frameworks, has resulted in improved asset quality, with

Gross NPA at 1.5% and Net NPA at 0.7%, supported by a robust provision coverage ratio of 93%. The Company continues to maintain a strong financial profile, with Return on Assets at 2.4% and Return on Equity at 13.1%, alongside a well-capitalized balance sheet (Computed Consolidated CRAR of 25.3%) and healthy liquidity of Rs 6,638 Crores. These indicators underscore its prudent capital management and focus on long-term value creation.

Founded by first-generation entrepreneurs Mr. Nirmal Jain and Mr. R. Venkataraman, IIFL Finance is backed by leading global institutional investors. Guided by the principles of integrity, transparency, and responsible lending, the Company remains committed to empowering individuals and small businesses key drivers of India’s economic progress.

With a strong leadership team, a technology-driven operating model, and a clear strategic roadmap centred on secured lending and capital efficiency, IIFL Finance is well-positioned to deliver sustainable growth, superior asset quality, and enduring stakeholder value.

 

FINANCIAL PERFORMANCE AND OPERATIONAL REVIEW

Building on a strategic reset and renewed focus on core strengths, IIFL Finance Limited, translated its calibrated shift towards secured, retail-focused lending into improved financial and operational outcomes. Backed by disciplined execution, enhanced risk management, and a capital-efficient operating model, the Company delivered robust growth in AUM, profitability and asset quality.

 

Assets Under Management and portfolio composition

The consolidated Loan Assets Under Management (AUM) stood at Rs 1,08,180 Crores as of March 31, 2026, registering a robust growth of 38% over the previous year. The portfolio mix underwent a significant with secured lending segments emerging as the key growth drivers.

Gold loans became the largest contributor to the portfolio, with an AUM of Rs 52,581 Crores, accounting for approximately 49% of the total Loan AUM, reflecting strong growth momentum and improved demand dynamics. Home loans followed with an AUM of Rs 32,125 Crores, contributing around 30% of the total Loan AUM, maintaining stability and supported by prudent underwriting practices and continued focus on affordable housing. MSME loans stood at Rs 10,349 Crores, contributing nearly 10% of the total Loan AUM, with a strategic shift towards secured lending improving the overall risk profile of the portfolio. The microfinance segment stood at Rs 9,143 Crores, accounting for approximately 8% of the total Loan AUM, with gradual stabilization observed during the year.

Overall, the core portfolio continued to be dominated by secured assets, reinforcing the Company’s focus on lower-risk, collateral-backed lending and long-term portfolio resilience

 

Asset quality and risk management

The Company witnessed a meaningful improvement in asset quality during the year, driven by tighter underwriting standards, focused recovery efforts, and a strategic shift towards secured lending. Gross NPA (GNPA) improved to 1.5% from 2.2% in the previous year, while Net NPA (NNPA) declined to 0.7% from 1.0%, reflecting strengthened credit discipline and improved portfolio quality. This improvement was supported by stabilization in the microfinance segment and a calibrated reduction in higher-risk unsecured exposures.

The provision coverage ratio improved to 93%, providing a strong buffer against potential credit risks. The higher provisioning cushion, along with improved asset quality metrics, underscores the Company’s conservative risk approach and strengthened balance sheet resilience.

Overall, the improvement in asset quality indicators reflects the effectiveness of the Company’s enhanced risk management framework, prudent underwriting practices, and sustained recovery efforts, positioning the loan book for more stable and sustainable growth going forward.

 

Liquidity and capital position

IIFL Finance maintained a strong liquidity position during the year, with a liquidity buffer of Rs 6,638 Crores as of March 31, 2026, indicating a strengthened liquidity profile financial flexibility. This provides adequate cover for near-term liabilities while supporting future growth requirements. The Company continued to maintain a positive Asset-

Liability Management (ALM) profile across maturity buckets, ensuring financial stability and prudent balance sheet management.

Aligned with its capital-efficient growth strategy, the

Company continued to scale its co-lending and off-book portfolio. As of March 31, 2026, off-book assets, including co-lending and direct assignment, accounted for approximately

35% of total AUM, compared to around 30% in FY 2024-25 reflecting a steady increase in capital-light growth initiatives.

Cumulative co-lending originations have exceeded Rs 50,000 Crores, with a strong track record of minimal losses in co- andimproved lent portfolios, underscoring the robustness of underwriting and partnership frameworks. This expansion highlights the Company’s ability to optimize capital utilization while maintaining asset quality.

Capital adequacy remained robust, with computed consolidated CRAR (Computed) at 25.3%, The Company continues to have a conservative leverage approach, even as the balance sheet scaled meaningfully during the year, supported by increased off-book exposures and diversified funding sources.

 

Loan growth and portfolio trends

Loan growth witnessed a strong revival during the year, with consolidated Loan AUM increasing to Rs 1,08,180 Crores, registering a 38% YoY growth, compared to Rs 78,341 Crores in FY 2024-25. This recovery was driven by a strategic shift towards secured lending.

 

Gold loans surged to Rs 52,581 Crores, compared to Rs 21,022 Crores in FY 2024 25, registering a ~150% YoY growth, and emerging as the primary growth driver

 

Home loans stood at Rs 32,125 Crores, up from Rs 31,588 Crores in FY 2024 25, reflecting a ~2% YoY growth, indicating a phase of consolidation supported by sustained demand in affordable housing

 

MSME loans AUM stands at Rs 10,349 Crores (versus Rs 9,294 Crores in FY 2024 25), reflecting increase, reflecting exposure and a strategic shift towards secured MSME lending

 

Microfinance portfolio stood at Rs 9,143 Crores, compared to Rs 9,859 Crores in FY 2024 25, reflecting ~7% YoY decline

 

Advancing AI-led operations

Scaled AI-led capabilities across core operations to enhance productivity, risk management, and customer engagement.

The AI-driven lead generation engine is contributing a pipeline of approximately Rs 1,000 Crores per month, improving sourcing efficiency and conversion rates. In collections, AI-enabled agentic calling systems have supported recoveries of ~Rs 450 Crores, accelerating resolution cycles. AI tools have been embedded at the branch level, with ~48% branches taking decisions based on AI/analytics. In risk management, AI-powered image fraud detection systems flagged ~1,895 loans for field audit, strengthening controls and reducing fraud risk. Additionally, the Company has deployed multilingual AI-based customer interfaces across 22 languages, enhancing accessibility and customer experience across diverse geographies.

These initiatives reflect the Company’s continued focus on leveraging advanced analytics and automation to drive operational efficiency, improve credit outcomes, and support scalable growth.

Rs 1,000 Crores+ Monthly Pipeline a 11% YoY

Intelligent leadcalibratedreductioninunsecured engine driving higher conversions

Rs 450 Crores Collections Enabled

Advanced calling systems improving recovery efficiency

 

1,895 Loans Flagged

Image analytics strengthening fraud detection

 

22 Languages Supported

Advanced calling systems improving recovery efficiency

 

48% Branches

taking decisions based on AI/analytics

 

DETAILS OF SIGNIFICANT CHANGES IN KEY RATIOS (CONSOLIDATED BUSINESS)

Ratios	March ’26 (FY 2025–26)	March ’25 (FY 2024-25)	Variance	Reason for change
Debt Equity Ratio	4.43	3.66	21.04%	Increase in debt equity ratio is mainly attributable to higher borrowings to support business growth.
Total Debts to Total Assets	0.78	0.75	4.00%	Marginal increase driven by higher leverage in the balance sheet, reflecting expanded lending operations funded through borrowings.
Operating Profit Margin (%)	31.06%	27.34%	13.61%	With the robust growth in AUM the profit margins showed improvement
Net Profit Margin (%)	13.58%	5.65%	140.35%	Net Profit margin increased in line with the AUM growth
GNPA (%)	1.50%	2.23%	(32.74%)	GNPA% improved significantly on account of improved recoveries and lower slippages in unsecured loans
NNPA (%)	0.70%	1.05%	(33.33%)	Same as above
Provision Coverage Ratio (%)	93.0%	99.99%	(6.99%)	PCR has moderated as the portfolio mix has shifted from unsecured to secured assets, which attracts lower provision requirements.
CRAR (%) (Standalone)	17.84%	18.48%	(3.46%)	Marginal decrease is majorly due to growth in risk-weighted assets (loan book expansion).
LCR (%)(Standalone)(Q4)	207.17%	180.62%	14.70%	Improved liquidity
Return on Equity (RoE %)	13.1%	3.4%	285.29%.	Increase is attributable to higher profits during the

 

Disclosure of accounting treatment

The Company’s financial statements were prepared without deviation from the treatments prescribed in any of the Indian Accounting Standards (Ind AS)

 

GOLD LOANS

Business Overview

IIFL Finance Limited’s Gold Loan vertical offers short-tenor, secured loans against household gold jewellery, catering primarily to individuals, small traders, and self-employed customers for needs such as working capital, consumption, and emergency funding. The product is characterised by quick disbursement, minimal documentation, and flexible repayment options, making it an accessible and reliable source of credit, particularly for customers in semi-urban and rural markets.

The business is supported by a wide branch-led distribution network enabling deep market penetration and strong customer reach. Leveraging this extensive footprint, along with digital and AI-enabled valuation and underwriting processes, the Company ensures faster turnaround times, improved operational efficiency, and enhanced customer experience.

 

Key Highlights – Gold Loan Segment

AUM at Rs 52,581 Crores, ~49% of total AUM Recorded ~150% YoY growth, emerging as the largest business segment

 

Strong recovery post regulatory restrictions, with rapid scale-up in disbursements

 

High-yield, short-tenor portfolio, enabling faster asset turnover

 

Maintained strong asset quality, supported by fully secured lending Extensive branch-led distribution network driving customer acquisition

 

Leveraged digital and AI-led valuation tools for faster processing and improved efficiency

 

Strong presence in semi-urban and rural markets, enhancing financial inclusion

 

AFFORDABLE HOME LOANS

Business overview

IIFL Finance Limited, through its subsidiary, IIFL Home

Finance Limited, offers a comprehensive suite of housing finance solutions, including loans for home purchase, construction, and renovation. It also provides mortgage-backed loans to MSMEs against residential and commercial properties for purposes such as working capital, business expansion, and asset acquisition, along with financing for affordable housing projects.

The Company has built a strong pan-India distribution network across Tier 1 suburbs and Tier 2, 3, and 4 cities, enabling deep reach into underserved markets. It primarily caters to first-time homebuyers and customers from the EWS and LIG segments. Aligned with the Government’s ‘Housing for All’ initiative, the

Company continues to support affordable housing through targeted financing solutions. Leveraging digital capabilities and streamlined processes, including faster approvals and minimal documentation, ensures efficient disbursement and enhanced customer experience.

 

Key Highlights Affordable Home Loan Segment

AUM stood at Rs 32,125 Crores, reflecting stable performance and sustained demand in the affordable housing segment

 

Continued focus on first-time homebuyers, primarily catering to EWS and LIG segments Strong presence across Tier 2, Tier 3, and Tier 4 cities, enabling deeper penetration into underserved markets Product suite includes home purchase, construction, renovation, and affordable housing project finance

 

Supported self-employed and informal income segment customers, enhancing financial inclusion Continued alignment with the Government’s ‘Housing for All’ initiative, including support under PMAY-linked schemes Leveraged digital onboarding and faster approval processes, improving turnaround time and customer experience

 

Maintained prudent underwriting standards, ensuring portfolio stability and asset quality

 

MSME LOANS

Business Overview

During FY 2025-26, the Company consolidated its MSME franchise around Secured MSME lending, which now constitutes 78% of the total MSME portfolio and recorded healthy growth of 24% year-on-year. The Unsecured MSME and Supply Chain Finance books are being calibrated lower in a measured manner. Going forward, the Company will continue to deepen the Secured MSME franchise leveraging branch-led distribution, co-lending partnerships with banks and AI-enabled credit and collection capabilities to deliver capital-efficient, resilient and sustainable growth.

The Secured MSME franchise operates across three complementary channels: Emerging & Affordable LAP for self-employed borrowers in the Economically Weaker

Section and Lower Income Group categories; mid-sized LAP for emerging-market MSMEs; and Small MSME LAP for graduating microfinance Asset quality in the Secured MSME portfolio remained stable throughout the year.

 

Key Highlights – MSME Loans

Loan AUM at Rs 10,349 Crores (versus Rs 9,294 Crores in FY 2024 25), reflecting a 11% YoY increase. Secured MSME became the dominant part of the MSME portfolio, rising to Rs 8,093 Crores and contributing 78% of total MSME AUM as of March 31, 2026, The Company will strengthen its Secured MSME franchise through distribution, co-lending and AI-led capabilities to drive sustainable, capital-efficient growth.

 

MICROFINANCE

Business Overview

IIFL Finance Limited, through its subsidiary IIFL Samasta Finance Limited, offers microfinance solutions to low-income households, primarily women borrowers, to support income generation, livelihood enhancement, and financial inclusion. The Company provides group-based lending products, including income-generating loans, top-up loans, and other need-based credit solutions, designed to meet the working capital and consumption needs of underserved communities.

The business operates through a well-established branch-led distribution network across rural and semi-urban geographies, enabling last-mile connectivity and strong customer engagement. As of March 31, 2026, the microfinance portfolio stood at_9,143 Crores, compared to Rs 9,859 Crores in the previous year, reflecting a ~7% YoY decline amid a cautious and calibrated lending approach following sectoral stress.

During the year, the segment witnessed stabilization and improvement in asset quality, supported by tighter underwriting, disciplined collections, and enhanced field-level monitoring. With a continued focus on responsible lending, customer-centric product design, and operational discipline, the microfinance business remains aligned with the Company’s objective of driving financial inclusion while maintaining portfolio quality and sustainability.

 

Key Highlights Microfinance

AUM at Rs 9,143 Crores (versus Rs 9,859 Crores in FY 2024-25), reflecting a ~7% YoY decline amid calibrated growth

Focus on women borrowers and low-income households, supporting livelihood and income generation Operates through a strong rural and semi-urban branch network

 

Stabilization in asset quality, supported by improved collections and underwriting

 

Continued emphasis financialinclusion and responsible lending practices

 

RISK MANAGEMENT AND GOVERNANCE

IIFL Finance Limited has embedded a robust and forward-looking risk management framework that underpins its strategic and operational decision-making. During FY 2025 26, the Company further strengthened its risk governance architecture through disciplined portfolio rebalancing, enhanced underwriting standards and technology-led monitoring systems. With a calibrated shift towards secured lending and a sharper focus on asset quality, the Company has reinforced its ability to manage risks proactively while sustaining stable and scalable growth.

KEY RISK MANAGEMENT AND GOVERNANCE INITIATIVES

Strategic Portfolio Rebalancing