India’s credit market is no longer organised primarily around a bank lending directly to a borrower. Banks remain the largest source of credit, but the institutions originating, distributing, funding and ultimately holding loans are increasingly different from one another. The shift is most visible in smaller-ticket retail lending, MSME finance, gold loans, infrastructure credit and private credit.
The change matters because access to finance shapes how households consume, how small businesses invest, how infrastructure projects are funded and how risk moves through the financial system. Data cited in the Economic Times report shows that banks accounted for roughly 72% of outstanding systemic credit in FY25. Yet in several segments, non-bank financial companies and fintech lenders now account for a much larger share of new loan originations than their overall balance-sheet presence might suggest.
This is not, according to the evidence cited by the report, a straightforward replacement of banks by non-bank lenders. ICRA’s assessment is that the shift is complementary. The bank share of overall domestic credit has declined by only around 200 to 300 basis points over the past decade. What is changing more rapidly is the division of labour within the credit ecosystem: NBFCs and fintechs may find the customer, assess the borrower and originate the loan, while banks and other investors provide some of the capital or acquire the resulting asset.
The strongest evidence of this change appears in retail lending. Data from CRIF High Mark, cited by economist Mitali Nikore, shows that NBFCs’ share of retail loan originations by value increased from 20.7% in the fourth quarter of FY24 to 31.6% in the fourth quarter of FY26. By volume, NBFCs accounted for around 49% of retail loan originations in Q4 FY26. The difference between the value and volume shares reflects the smaller average ticket sizes of many loans originated by non-bank lenders.
That distinction is important. A lender that handles a large number of small loans can have a significant presence in borrowers’ lives without holding a proportionate share of total credit outstanding. NBFCs accounted for more than 91% of personal-loan originations by volume and over 86% of consumer-durable loan originations in the period covered by the report. NBFC-fintechs accounted for around 90% of personal-loan originations below ₹1 lakh by volume. More than 65% of borrowers in that segment were below 35 years of age.
The distribution of these loans also shows how the credit market is reaching beyond the largest urban centres. More than half of two-wheeler loan originations were outside the top 100 cities. The pattern suggests that non-bank lenders are competing in segments where speed, small-ticket underwriting and distribution may be more important than the scale and branch networks associated with traditional banking.
For banks, the challenge is therefore not simply to protect their existing loan books. It is to serve borrowers who may have irregular incomes, limited conventional credit histories or financing needs too small to fit easily into older operating models. Vijay Mani, partner and banking and capital markets leader at Deloitte India, said banks would need to use technology, data and artificial intelligence to serve smaller businesses and borrowers where NBFCs may have an advantage in underwriting and distribution.
The same question is visible in the MSME sector, where the gap between digital participation and formal borrowing remains large. The report, citing a SIDBI-CRISIL assessment, puts India’s MSME credit gap at around ₹30 lakh crore, equivalent to roughly 24% of total credit demand. More than 90% of MSMEs accept digital payments, but only 18% had availed themselves of a digital loan, according to the analysis cited.
This gap creates space for lenders that can use transaction records and other forms of alternative data to assess smaller enterprises. It also shows why the expansion of digital payments should not be treated as equivalent to financial access. A business may be digitally active while still lacking a formal loan relationship. The next stage of competition will depend on whether lenders can convert that digital activity into responsible and affordable credit without confusing data availability with repayment capacity.
Gold lending provides another example of a market where both banks and NBFCs are expanding. Tata Capital entered gold lending through the acquisition of an 88.6% stake in Yogloans, which has more than 160 branches and a loan book of over ₹700 crore. Godrej Capital acquired the gold-loan business of Kanakadurga Finance, with a portfolio of around ₹280 crore, and has set a target of building a ₹5,000 crore gold-loan book by 2031. Aditya Birla Capital is also establishing a dedicated gold-loan business with plans for around 1,000 branches.
The growth of non-bank participation does not mean banks are withdrawing from gold loans. Wright Research data cited in the report shows that banks’ share of the gold-loan market increased from 30.6% in 2020 to 50.3% in 2025. Both categories of lenders have been able to expand as the market has grown. Higher gold prices have also increased the value of collateral available to borrowers, although growth in the value of outstanding portfolios does not necessarily represent an equivalent increase in new borrowers.
At the larger end of the market, private credit is becoming another source of finance for companies and projects that may not fit conventional bank lending structures. Moody’s Ratings said India’s private-credit market doubled over five years to around $25 billion in assets under management at the end of 2025, while annual transaction value crossed $11 billion in 2025. The market has expanded beyond distressed financing to include refinancing, expansion capital and customised finance for financially stable companies.
Real estate accounted for about 40% of private-credit value, with infrastructure and utilities among the other large sectors. That composition gives private credit a direct connection to the built environment. It can provide capital for assets and companies that require structured or flexible financing, while also introducing a funding channel that remains small relative to bank lending. S&P Global estimated India’s private-credit assets under management at $25 billion to $30 billion as of March 2025, equivalent to about 1.2% of the corporate lending sector.
Infrastructure finance is also becoming more diversified. Nikore’s analysis shows that banks’ share of infrastructure credit fell from 50% in March 2020 to 42% in March 2025. Infrastructure-focused NBFCs grew their books by 11% in FY25, compared with 1% growth for banks. The figures do not establish that banks are leaving infrastructure finance. They indicate that specialised non-bank institutions are taking a larger role in a sector where project characteristics, tenure and risk assessment may require dedicated lending models.
The shift is also visible in microfinance, although the numbers require caution. Bank microfinance portfolios fell 28.5% year on year to ₹83,080 crore in June 2026, with the bank share declining from around 33% to 25%. The NBFC-MFI share rose from around 39% to 44%. The report notes that portfolio reclassification contributed to the change, making it difficult to interpret the figures as a simple transfer of borrowers from banks to NBFCs.
Behind these developments is a financial system in which lending roles are increasingly distributed. Deloitte estimates that around 35% to 40% of NBFC funding comes from banks. Bank credit to NBFCs increased 26% in FY26 after earlier regulatory risk-weight changes were reversed, according to the analysis cited. Securitisation adds another layer: loans originated by NBFCs can be packaged and sold to banks and other investors, meaning the institution that serves the borrower may not be the institution that ultimately funds or holds the loan.
Securitisation volumes reached a record ₹2.55 lakh crore in FY26, according to Nikore’s analysis. For borrowers, the practical implication is that a single loan may involve a fintech that generates the customer, an NBFC that originates it, a bank that provides funding and another investor that eventually holds the asset. The customer-facing lender and the source of capital may therefore be different parts of the same financing chain.
The expansion of formal credit shows the scale of the opportunity. The share of consumers with access to formal credit rose from 35% in March 2017 to 74% in March 2026, according to the analysis cited by the report. A larger formal-credit population gives banks, NBFCs, fintechs and private-credit providers more room to compete. It also makes the quality of underwriting, transparency of pricing and allocation of responsibility across the lending chain more consequential.
The evidence supports a more precise description of India’s lending transition. The country is not moving from a bank-led system to a non-bank-led system in one sweeping shift. Instead, a larger credit market is being assembled through partnerships and competition among institutions with different strengths. NBFCs and fintechs are gaining ground in high-volume, smaller-ticket and specialised segments; private credit is expanding in corporate and infrastructure finance; and banks remain central as lenders, funders and buyers of securitised assets.
What remains uncertain is how durable each segment’s growth will be, how much reflects new borrowers rather than portfolio transfers, and how risks will be managed when origination, funding and asset ownership are separated. Those questions will become more important as formal credit reaches more households and businesses. For now, the clearest finding is that the institution named on a loan is increasingly only one part of the system behind it.
