The great Indian money hunt: Why India's shadow banks are pulling in billions of dollars
Blackstone is negotiating a significant investment in IIFL Finance, indicating rising global interest in non-bank lenders. Recent deals include investments by Carlyle and Advent International in housing finance firms. The demand for credit in Indi...
By ET Online |
The hunt for India's next big financial opportunity is taking global investors beyond banks and into the country's sprawling category of non-bank lenders.
Blackstone is the latest to be in talks to invest around ₹5,000 crore for a 15% stake in IIFL Finance, putting the spotlight on the growing interest of global investors in India’s non-banking financial companies (NBFCs). The proposed investment was reported by The Economic Times, which cited people familiar with the matter.
Manappuram Finance: Bain Capital-linked entities' proposed acquisition of up to 41.66% for around ₹4,385 crore.
Aseem Infrastructure Finance: Acquisition by TPG, GIC and ICICI Bank in a transaction reported to be worth around ₹5,000 crore.
Aadhar Housing Finance: Blackstone-managed entity's acquisition of up to 64.14% from another Blackstone-affiliated fund in July 2025. This was an internal ownership transfer, not a fresh investment in the company.
The attraction lies in the specialised lending businesses these companies operate. Housing financiers such as Aadhar, Nido and Aditya Birla Housing Finance provide exposure to India's affordable and mass-market housing segments, where demand for home loans remains significant.
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Carlyle's investment in Nido included ₹1,500 crore in fresh capital, while Advent's proposed investment in Aditya Birla Housing Finance was structured entirely as a primary capital infusion.
Both would give the lenders additional resources to expand their businesses.
Gold-loan companies such as Manappuram lend against pledged jewellery, giving them physical collateral and established recovery mechanisms.
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Small-business NBFCs cater to borrowers who may lack the credit histories or documentation required by traditional banks, relying on local networks and knowledge of business cash flows to assess repayment capacity.
Infrastructure financiers such as Aseem, meanwhile, offer exposure to long-term funding requirements in sectors such as renewable energy and power transmission.
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The pattern suggests that global investors are favouring established lenders with specialised underwriting capabilities, identifiable customer segments and relatively predictable loan-recovery mechanisms, rather than making indiscriminate bets across the NBFC sector.
Foreign investors are committing billions to BFSI
The investment activity extends beyond private equity.
MUFG agreed to invest $4.4 billion for a 20% stake in Shriram Finance, while SMBC invested $1.6 billion in Yes Bank. Fairfax’s proposed acquisition of a 60.72% stake in IDBI Bank is valued at $5.6 billion, while Emirates NBD has proposed acquiring a 60% stake in RBL Bank for around $3 billion.
Business Standard reported in October that foreign investors had committed more than $20 billion to India’s banking, financial-services and insurance sectors since 2025. The figure covers strategic investments, controlling-stake acquisitions, joint ventures and insurance transactions, and is not limited to private-equity deals.
NBFC deal activity has increased
The increase in financial-sector dealmaking is reflected in industry data.
Equirus Capital, earlier, reported that the number of BFSI deals tripled to 30 in 2025 from 10 in 2024. Banks and NBFCs accounted for M&A and strategic deals worth more than ₹40,000 crore during the year.
CRISIL Intelligence said NBFC mergers and acquisitions tripled in 2025, while private-equity and venture-capital investment in the sector rose around 16% to approximately $5 billion.
CRISIL excluded the $4.4-billion Shriram Finance–MUFG transaction from this calculation because it classified MUFG’s investment as a strategic investment by a financial institution rather than as a PE or VC transaction.
The CRISIL figure also shows that the investment trend is not broad-based across all NBFCs. Equity funding for smaller NBFCs declined 30–35% in 2025 to around $2.8–3 billion.
Smaller lenders faced margin pressure, higher compliance costs and asset-quality deterioration, particularly in microfinance, CRISIL said. Global investors are therefore concentrating on larger lenders with stronger capital, established management teams, specialised underwriting systems and secured or otherwise predictable loan books.
A stronger financial system
The current investment cycle follows several years of stress in India’s banking and NBFC sectors.
The system had faced high bad loans, weak underwriting, capital shortages and a liquidity crisis among non-bank lenders. Since then, banks and NBFCs have strengthened their balance sheets and come under tighter regulatory supervision.
The RBI’s latest financial stability assessment said banks and NBFCs continued to maintain adequate capital and liquidity buffers, while asset quality improved further. It described the NBFC sector as robust, with healthy capital and profitability ratios.
According to RBI data, NBFCs’ total capital adequacy ratio stood at 25.41% in June 2026, while their Tier-I capital ratio stood at 23.58%. Their gross NPA ratio improved to 2.50% from 3.09% a year earlier, while return on assets rose to 3.37%. Net interest margin increased to 5.39%.
These figures make established NBFCs more attractive to institutional investors. Fresh equity can help lenders expand their loan books, raise additional debt, improve credit ratings and reduce funding costs.
Credit demand continues to rise
The investment case is also supported by India’s growing demand for formal credit.
In data published on November 6, the RBI said NBFC credit grew 15.4% year-on-year in September 2026. Retail credit grew faster, at 21.9%, driven by housing loans, loans against gold jewellery and vehicle loans. Credit to agriculture and allied activities grew 17.8%, while credit growth in industry stood at 7.4% and services at 17.3%.
Private consumption grew 7.1% year-on-year in the first quarter of 2026–27, the RBI said. It attributed the growth to rising household purchasing power, lower inflation, stable employment and stronger discretionary spending.
Personal-loan growth stood at 15.7%, while vehicle-loan growth was 17.5%, according to the RBI.
A joint report by the Finance Industry Development Council and TransUnion CIBIL found that NBFCs accounted for 47% of new-to-credit consumer originations as of June 2026. The finding indicates that NBFCs are playing a significant role in bringing first-time borrowers into the formal credit system.
India’s credit market still has room to grow
The RBI said household debt stood at 45.5% of GDP in September 2025. It also said consumption-related loans accounted for nearly half of total household borrowings.
S&P Global Market Intelligence said NBFC credit had grown to more than ₹5,500 lakh crore by March 2026, from ₹2,700 lakh crore five years earlier.
It also found that the top 20 NBFCs had an average net interest margin of 4.92%, compared with 2.91% for State Bank of India and 3.34% for HDFC Bank. S&P said large NBFCs had evolved from niche lenders into important credit intermediaries serving affordable housing, MSMEs, vehicle finance, gold loans and other underserved segments.
Why India?
India offers the scale of a large economy while retaining the credit-growth potential of an emerging market.
The US has a large and mature financial system, while China faces slower growth and structural challenges in areas such as property and local-government finance. India, by contrast, still has a large underserved population, rising incomes, strong domestic consumption and significant room for formal credit to expand.
It would be too broad to describe the US and China as completely saturated or to say that Indonesia lacks comparable potential. A more defensible argument is that India combines a large addressable market with strong domestic demand, increasing formalisation and a still-developing credit system.
Deloitte’s Asia Pacific Private Equity Almanac 2026 found that investors were making fewer but larger bets in India. Financial-services investment value rose 30% in 2025 even as deal volumes fell 15%, indicating a preference for established platforms, control deals and businesses with better visibility on asset quality and regulation.
EY said India attracted $60.7 billion across 1,475 PE/VC deals in 2025, up 8% from the previous year. Financial services was the largest investment sector, ahead of infrastructure, real estate, technology and e-commerce.
