Subheadline: Non-bank lenders are taking a larger role in smaller retail loans, MSME finance, gold lending and infrastructure credit, but banks remain central to the funding chain.
Standfirst: India’s lending market is becoming more diverse, not because banks are disappearing, but because NBFCs, fintech firms, private-credit funds and other financial institutions are occupying different parts of the credit chain. Data cited in the supplied analysis shows non-bank lenders gaining ground in smaller-ticket personal loans, consumer durables, gold loans and some specialised segments. At the same time, banks still accounted for roughly 72% of outstanding systemic credit in FY25 and continue to fund NBFCs, purchase securitised loans and serve as major providers of capital. The deeper change is therefore structural: more borrowers are encountering lenders outside traditional bank branches, while the underlying money may still flow through banks and institutional investors. This analysis examines what the shift reveals about formal credit access, MSME financing, urban and infrastructure lending, and the limits of treating lender diversification as a simple transfer of market share.
India’s credit market is not undergoing a clean replacement of banks by non-bank lenders. It is being reorganised around a more distributed model in which banks, NBFCs, fintech companies, private-credit funds and investors perform different functions.
The distinction matters because the lender visible to a borrower may not be the institution ultimately providing or holding the money. An NBFC may originate a loan, a fintech company may acquire the customer, a bank may supply funding and another investor may later hold the asset through securitisation. For borrowers, this can look like a new lending market. For the financial system, it is a redistribution of origination, underwriting, distribution and funding roles.
The evidence cited in the supplied report points to a clear expansion of non-bank participation in selected segments. According to data from CRIF High Mark cited by economist Mitali Nikore, NBFCs’ share of retail loan originations by value rose 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 value and volume indicates the smaller average ticket size of many loans originated by NBFCs.
The trend is strongest in retail categories where speed, convenience and distribution can be as important as the lending institution’s brand. 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 analysis. NBFC-fintech firms 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.
These figures describe origination, not necessarily the total outstanding stock of loans. They also do not establish that banks have lost the same borrowers. ICRA’s analysis, as cited in the report, found that banks’ share of overall domestic credit had declined by only around 200 to 300 basis points over the past decade. Sachin Sachdeva, vice-president and co-group head for financial-sector ratings at ICRA, described the diversification as complementary rather than a broad replacement of banks.
That qualification is central to understanding the market. Puja Abhishek Singh, CEO of Manipal Fintech, said the change was less about credit moving away from banks and more about different institutions taking on different parts of the lending chain. For a borrower, the practical consequences may nevertheless be substantial. Online comparison, digital documentation and faster qualification can reduce dependence on a customer’s existing bank or the nearest branch.
The shift also reflects where conventional lending systems have historically found it harder to serve customers efficiently. Smaller personal loans, consumer-durable finance and loans outside the largest cities can involve high distribution costs and limited conventional documentation. The supplied analysis says more than half of two-wheeler loan originations were outside the top 100 cities. This suggests that non-bank expansion is connected not only to technology but also to the geography of demand.
The same question is visible in the financing of small businesses. India’s MSME credit gap is estimated at around ₹30 lakh crore, equivalent to roughly 24% of total credit demand, according to Nikore’s citation of a SIDBI-CRISIL report. More than 90% of MSMEs accept digital payments, but only 18% had availed themselves of a digital loan. The contrast indicates that digital business activity has expanded faster than formal digital borrowing.
For NBFCs and fintech firms, transaction records, alternative data and digital distribution may help assess smaller enterprises and process applications more quickly. But the existence of a large credit gap does not by itself show that technology will close it. The data supplied in the report establishes a significant unmet financing requirement, while leaving open questions about pricing, repayment capacity, underwriting quality and the ability of lenders to serve businesses through economic cycles.
The implications extend beyond household finance. Infrastructure lending is also seeing a change in institutional composition. 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 indicate a greater role for specialised lenders in a sector where project size, repayment periods and risk structures can differ substantially from ordinary retail credit.
Private credit adds another layer at the corporate end of the market. Moody’s Ratings said India’s private-credit market had 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 moved beyond distressed financing and is increasingly providing refinancing, expansion capital and customised financing to financially stable companies. Real estate accounted for about 40% of private-credit value, with infrastructure and utilities among the other large sectors.
Even after that growth, private credit remains small in relation to bank lending. S&P Global estimated 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. Its importance therefore lies less in immediate scale than in the additional financing structures available to companies and projects that may not fit conventional bank lending models.
Gold lending shows why market-share changes must be read carefully. Tata Capital entered the segment by acquiring 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 set a target of building a ₹5,000 crore gold-loan book by 2031. Aditya Birla Capital is establishing a dedicated gold-loan business with plans for around 1,000 branches.
Yet the expansion of NBFCs in gold lending does not mean banks are losing the market. Wright Research data cited by Nikore shows that banks’ share of the gold-loan market increased from 30.6% in 2020 to 50.3% in 2025. Both banks and non-bank lenders were able to expand as the overall market grew. Higher gold prices can also increase the value of collateral and lift outstanding loan portfolios without representing an equivalent increase in the number of new borrowers.
The funding relationship between banks and NBFCs further complicates any simple bank-versus-NBFC narrative. 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 Nikore’s analysis. Securitisation volumes reached a record ₹2.55 lakh crore in FY26, allowing NBFC-originated loans to be packaged and sold to banks and other investors.
This interdependence means that competition at the customer-facing level can coexist with cooperation in the funding system. A fintech or NBFC may be more visible to a borrower, while a bank remains exposed to the loan through funding, purchase or securitisation. The diversification of origination can therefore increase the number of channels through which credit reaches households, small businesses and projects without eliminating the central role of banks.
Microfinance provides another example of why reported shifts require context. Bank microfinance portfolios fell 28.5% year on year to ₹83,080 crore in June 2026, while the bank share declined from around 33% to 25%. The NBFC-MFI share rose from around 39% to 44%. However, the supplied analysis notes that portfolio reclassification was one factor behind the change, making it difficult to treat the figures as a straightforward transfer of borrowers from banks to NBFCs.
The broadest indicator in the report is the expansion of formal credit access. The share of consumers with access to formal credit rose from 35% in March 2017 to 74% in March 2026, according to Nikore. A larger formal market creates room for more institutions to compete, but it also makes the quality of origination, disclosure, servicing and risk management more consequential.
The central urban and economic question is therefore not whether banks will be replaced. It is whether a more distributed credit system can serve borrowers that conventional channels have struggled to reach while preserving transparency and stability across the funding chain. The available evidence confirms that NBFCs and fintech firms are gaining a larger role in selected lending segments, especially smaller-ticket retail credit. It also confirms that banks remain deeply embedded in the system through direct lending, funding and securitisation.
What remains uncertain is how much of the reported growth represents new formal borrowers, how much reflects institutions sharing existing customers, and how durable the expansion will be across different credit cycles. Those distinctions will matter as India’s credit market grows, as MSMEs seek to close a ₹30 lakh crore financing gap, and as infrastructure and real estate require funding from a wider range of institutions.
