Your next loan may have a non-bank name on it

Banks have long been the largest source of credit in the country. They still are. Yet in several retail and specialised segments, non-bank lenders are gaining ground.

Banks accounted for roughly 72% of outstanding systemic credit in FY25, according to economist Mitali Nikore, citing CRISIL Intelligence's June 2025 report on India's loans and financial services industry.

Also Read: Gold loans, consumer durables drive NBFC credit growth to 14.9% in July


More recent data points to a shift in some parts of the retail credit market. Data from credit bureau CRIF High Mark cited by Nikore shows that NBFCs' share of retail loan originations by value rose from 20.7% in Q4 FY24 to 31.6% in Q4 FY26.

“India’s credit ecosystem is gradually diversifying,” said Sachin Sachdeva, Vice President and Co-Group Head, Financial Sector Ratings at ICRA.

ICRA, however, sees the shift as complementary rather than a broad replacement of banks. Its analysis shows that the bank share of overall domestic credit has declined by only around 200-300 basis points over the past decade.

Follow the new borrower

The change is particularly visible in smaller-ticket retail lending.

According to CRIF High Mark data cited by Nikore, 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 (Q4 FY26).

Additionally, NBFCs accounted for around 49% of retail loan originations by volume in Q4 FY26, according to Nikore, compared with 31.6% by value. The gap reflects the smaller average ticket sizes of many loans originated by NBFCs.

Also Read: Gold lending industry to witness nearly 28% CAGR over FY26-28E: Motilal Oswal Report

The trend is particularly pronounced in smaller personal loans. NBFC-fintechs accounted for around 90% of personal-loan originations below ₹1 lakh by volume in Q4 FY26, according to Nikore. More than 65% of borrowers in that segment were below 35 years of age.

More than half of two-wheeler loan originations were also outside the top 100 cities.

For borrowers, the change can be simple to see: the lender offering the loan may increasingly be an NBFC or fintech rather than a traditional bank.

But that does not necessarily mean a bank has lost that customer.

Vijay Mani, Partner and Banking and Capital Markets Leader at Deloitte India, said the test for banks will be their ability to use technology, data and AI to serve smaller businesses and borrowers where NBFCs may have an advantage in underwriting and distribution.

Deloitte's assessment also points to gaps in formal credit access for MSMEs and the need for deeper debt markets and more efficient capital allocation as India's financing requirements grow.

The ₹30 lakh crore opportunity

Small businesses are one area where the battle for borrowers could become more important.

Nikore, citing a SIDBI-CRISIL report, says that India’s MSME credit gap – the financing businesses need but cannot access – is around ₹30 lakh crore, equivalent to roughly 24% of total credit demand. More than 90% of MSMEs accept digital payments, according to the analysis, but only 18% had availed themselves of a digital loan.

That leaves a large pool of businesses that are digitally active but may not yet be borrowing through formal digital channels.

For NBFCs and fintech lenders, technology and alternative data can make it easier to assess smaller borrowers and process loans faster.

But the distinction between serving new borrowers and taking borrowers away from banks remains important.

Mani has highlighted the need to broaden formal financing channels for MSMEs. Deloitte's broader assessment of India's financial-services sector also points to formal credit gaps as an opportunity for lenders as the economy expands.

Gold becomes another battleground

Gold lending offers another example of how competition is spreading.

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 setting up a dedicated gold-loan business with plans for around 1,000 branches.

The expansion comes as gold-backed lending grows rapidly. Data cited by Nikore shows strong growth in gold-loan lending during FY26, while higher gold prices have increased the value of collateral available to borrowers.

The growing presence of NBFCs in gold lending does not by itself show that banks are losing the market. According to Wright Research data cited by Nikore, banks' share of the gold-loan market increased from 30.6% in 2020 to 50.3% in 2025.

Both banks and non-bank lenders, therefore, have been able to expand as the gold-loan market has grown.

Higher gold prices can also lift the value of outstanding gold-loan portfolios because the collateral itself becomes more valuable. Portfolio growth does not necessarily translate one-for-one into an increase in new borrowers.

Private credit moves into the mainstream

At the corporate end of the market, private credit is providing another alternative to conventional bank financing.

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 also evolved beyond distressed financing. Moody's said private credit has increasingly become a source of funding for financially stable companies seeking refinancing, expansion capital and customised financing.

Real estate accounted for about 40% of private-credit value, with infrastructure and utilities among the other large sectors, according to Moody's.

But private credit remains small relative to bank lending. S&P Global estimated India's private-credit assets under management (AUM) at $25 billion-$30 billion as of March 2025, equivalent to about 1.2% of the corporate lending sector.

The bank may still be behind your loan

An NBFC may originate a loan and a fintech company may bring the customer, but some of the funding can still come from a bank.

Deloitte estimates that around 35-40% of NBFC funding comes from banks, according to the analysis provided. Bank credit to NBFCs also increased 26% in FY26 after earlier regulatory risk-weight changes were reversed, according to Nikore's analysis.

Securitisation adds another link. Loans originated by NBFCs can be packaged and sold to banks and other investors, allowing the institution that originates the loan to be different from the institution ultimately funding or holding it.

Securitisation volumes reached a record ₹2.55 lakh crore in FY26, according to Nikore's analysis.

So, for a borrower, the journey from application to funding may now involve several institutions. An NBFC may originate the loan, a fintech company may bring in the customer, a bank may provide funding and another investor may eventually hold the asset.

Where the shift is visible

The diversification is also appearing in infrastructure finance.

Nikore's analysis shows banks' share of infrastructure credit fell from 50% in March 2020 to 42% in March 2025, while infrastructure-focused NBFCs grew their books 11% in FY25 compared with 1% growth for banks.

Microfinance has also seen changes in lender composition. 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%, while the NBFC-MFI share rose from around 39% to 44%.

But this shift needs some qualification. Reclassification of portfolios is one factor behind the change, making it difficult to treat the numbers as a straightforward transfer of borrowers from banks to NBFCs.

At the same time, formal access to credit has expanded. According to Nikore the share of consumers with access to formal credit rose from 35% in March 2017 to 74% in March 2026.

That expansion is giving more lenders room to compete for borrowers who were once outside the formal credit system.