Bank lending to Non-Banking Finance Companies (NBFCs) witnessed an impressive 26% increase in the previous fiscal year, marking the fastest growth in FY26. According to The Economic Times, this surge was primarily driven by the Reserve Bank of India's easing of risk weights, which were first introduced in November 2023. The favorable shift, combined with more lenient regulations and attractively lower lending rates, has propelled a significant surge in NBFC financing. As reported by The Economic Times, the rise in bank lending to NBFCs came after a quiet fiscal period when RBI tightened regulations and generally discouraged banks from lending to NBFCs due to concerns about interconnectedness risks.
In November 2023, the RBI increased risk weights on bank loans to NBFCs by 25 percentage points over and above the risk weight given by external rating agencies, in cases where the risk weight as per external rating of NBFCs is below 100%. According to The Economic Times, risk weights represent the amount of capital lenders must keep aside to cover credit risk from particular loan segments. Higher risk weightage means more capital needs to be set aside by lenders for loans. The RBI also wanted NBFCs to diversify their funding sources as bank lending to this sector became a disproportionate part of NBFC borrowing, increasing systemic risks. As reported by The Economic Times, NBFCs looked toward the bond market and international loan market during that year, which slowed down bank credit growth to the sector.
Bank lending to NBFCs grew just 7% in FY25 to ₹16.4 lakh crore from ₹15.2 lakh crore a year ago, as reported by The Economic Times. However, the latest data shows that total outstanding loans to NBFCs have increased to ₹20.7 lakh crore at the end of March 2026, representing a 26% increase and growing faster than the 16% overall bank credit growth. According to The Economic Times, bank lending to NBFCs will remain one of the fastest growing sectors this year as higher domestic bond yields and expensive foreign borrowings due to global uncertainties will force NBFCs to borrow from their primary funding source.
The Reserve Bank of India has issued new guidelines on April 27, 2026, through 13 Amendment Directions and 1 Repeal Directions, introducing the Treatment of Wilful Defaulters and Large Defaulters) - Amendment Directions, 2026. As per Upstox News Desk, the RBI guidelines emphasize that wilful default identification should be made keeping in view the track record of borrowers and should not be decided on the basis of isolated transactions/incidents. This regulatory update comes alongside the continued growth in bank lending to NBFCs, indicating the central bank's focus on maintaining compliance standards while supporting sector growth.
