Non-banking financial firms (NBFCs) in India are still in a solid position because to strengthening capital buffers, increasing asset quality, and reducing stress in important lending categories. But according to Elara Securities’ analysis of the Reserve Bank of India’s most recent Financial Stability Report (FSR), the fast growth of gold loans, driven by skyrocketing bullion prices, is turning out to be the largest sector that needs careful observation.
Over the past two years, gold loan originations have increased far more quickly than other retail loan categories, according to the broking, with NBFCs driving this growth.
Gold Loans Surpass All Other Retail Credit
One of the fastest-growing retail credit categories, according to Elara, is gold loans. Gold loans currently make up 17.4% of NBFCs’ retail loan portfolios, and system-wide gold loan growth grew at over double the compound annual growth rate (CAGR) of non-housing retail loans during FY24–FY26.
In contrast to the industry’s overall growth of 54.5%, the report said that NBFCs nearly doubled their gold loan books in FY26, showing a 96.5% year-over-year gain.
Thanks to rising gold prices, outstanding gold loans currently make up about 11% of all consumer borrowing. The fact that gold loan originations outpaced outstanding gold loans by about Rs 13 trillion suggests that many borrowers are taking out larger loans against more valuable collateral while rolling over current ones.
Elara thinks risks are still controllable despite the quick growth since lending is still primarily driven by current borrowers. While loan-to-value (LTV) ratios have remained below 60%, the percentage of new credit clients has been steady at about 6%. However, the company warned that ongoing attention is necessary because to the volatility of gold prices.
Enhancement of Asset Quality in All NBFCs
With asset quality improving across all lending categories, the study presents a positive image of the NBFC industry as a whole.
All regulatory layers have seen a decrease in slippage rates, with middle-layer NBFCs seeing the biggest fall at 3% as opposed to 4.8% for upper-layer firms. While the RBI’s Non-Banking Stability Indicator (NBSI) is still below its long-term average, indicating less systemic risk, the combined slippage ratio also decreased.
Additionally, capitalisation is still strong, as seen by the sector’s capital adequacy ratio (CRAR), which is substantially over regulatory norms at roughly 24.6%.
MSME and Microfinance Stress Is Still Declining
Additionally, the broking noted positive developments in microfinance and MSME credit.
Asset quality has improved but NBFC credit growth to MSMEs has slowed annually. The MSME portfolio’s gross non-performing assets (GNPAs) have decreased to 5.4%, with the services sector reporting a lower GNPA ratio of 3.1%.
Early-stage stress has significantly decreased in the microfinance sector. The percentage of loans that were past due between 31 and 180 days decreased to 1.8% in March 2026 from 4.4% six months prior, indicating that borrowers’ repayment habits have improved.
Consumer Credit Continues to Drive Growth
In India, family borrowing is still mostly driven by consumer credit. Elara claims that while consumption loans make up around half of all household borrowings, non-housing retail loans now make up 58.4% of household borrowings, up from 54.9% in FY25.
In terms of consumer credit growth, NBFCs continued to surpass banks, growing their portfolios by 22.5% year over year in FY26—roughly five percentage points more quickly than banks. The GNPA ratio for NBFC consumer loans decreased to 1.1%, slightly less than banks’ 1.2%, indicating an improvement in asset quality. Even though their GNPA ratio also decreased to 1.8%, business loans continued to be the poorest consumer credit category.
Banks Provide NBFCs With More Funding Support
The growing dependence of NBFCs on bank finance is another noteworthy trend noted in the research.
Despite stricter regulatory scrutiny, banks’ share of NBFCs’ total funding mix increased by about two percentage points year over year to 43.5%, indicating ongoing trust in the industry.
In the meantime, NBFCs’ market share has dropped to 30.7% in small-ticket personal loans under Rs 50,000. With a 56.8% market share, fintech companies currently control this industry, however delinquency rates are still high at 6.4% compared to 5.7% for NBFCs.
Outlook for FY27
Stronger asset quality, sound capitalisation, and better borrower profiles, according to Elara Securities, all help to keep systemic risks in the NBFC industry under control.
However, it anticipates that MSME credit and gold loans would continue to be the most important sectors to monitor in FY27, especially if gold prices continue to fluctuate or if general economic conditions shift. Even if the industry’s resilience has greatly increased, regulators will probably continue to closely monitor the rate of growth in gold-backed loans.
