Bank Credit to NBFCs Surges 41.8% to Rs 22.5 Lakh Crore; NBFCs Account for 18% of Fresh Bank Credit: CareEdge Ratings
Banks added rs 6.6 lakh crore to NBFC credit in one year, around 1.5 times the addition over the preceding three years combined; NBFC share of gross bank credit rises to 9.8%
Bank credit to Non-Banking Financial Companies (NBFCs) grew 41.8% year-on-year to Rs 22.5 lakh crore as of September 30, 2026, marking the fastest annual growth since December 2019, according to CareEdge Ratings. The scale of the expansion is significant, with banks adding rs 6.6 lakh crore of NBFC credit over the past year, approximately 1.5 times the rs 4.4 lakh crore added over the preceding three years combined.
The surge reflects the growing importance of NBFCs in India's formal credit ecosystem. Bank credit to NBFCs has expanded nearly six-fold over the past decade, from rs 3.7 lakh crore in September 2016 to Rs22.5 lakh crore in September 2026, registering a compound annual growth rate (CAGR) of 19.8%, compared with 11.9% for overall bank credit. Consequently, NBFCs' share of gross bank credit has increased to 9.8% in September 2026 from 8.3% a year ago and 4.9% in September 2016.
The changing credit mix is equally noteworthy. Of every Rs 100 added to non-food bank credit in the 12 months to September 2026, approximately Rs18 went to NBFCs, compared with just Rs 3 in the corresponding period last year. NBFCs now account for nearly one-third of bank credit to the services sector and close to half of its incremental credit growth, underscoring their expanding role in credit intermediation.
The acceleration has been supported by a shift in funding preferences, with bond-market borrowing becoming costlier relative to bank loans. Borrowers also appear to have front-loaded funding ahead of the October rate hike, while NBFCs increased borrowings to finance festive-season demand for vehicles, consumer durables and gold loans. This follows a period of moderation after the November 2023 increase in risk weights on bank lending to NBFCs, which was subsequently rolled back in February 2025.
“The sharp increase in bank lending to NBFCs points to a deeper structural shift in how credit is being channelled through India's financial system. Banks are increasingly extending their reach through specialised non-bank lenders, making the NBFC channel an important part of overall credit transmission. However, as this interdependence deepens, the diversification and resilience of funding sources and the quality of underlying credit portfolios will assume greater importance. The coming quarters will help distinguish the underlying strength of this trend from the impact of temporary funding and base effects,” said Vineet Jain, Senior Director – BFSI, CareEdge Ratings.
Looking ahead, CareEdge Ratings expects year-on-year growth in bank credit to NBFCs to moderate as festive-led and front-loaded borrowing normalises and the low-base effect fades from October 2026. However, the absolute level of bank credit to NBFCs is expected to remain higher, with funding concentration emerging as an important area to monitor.
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