New Delhi

India’s non-banking financial companies (NBFCs) are expected to grow faster than traditional banks over the next decade as lenders increasingly adopt artificial intelligence and expand into new loan segments, according to a report by Nomura.

Banks currently dominate India’s lending system, accounting for more than 70 per cent of total credit as of FY25, while NBFCs hold a significantly smaller share. However, the report forecasts NBFC credit to grow at around 17 per cent annually between FY25 and FY35, compared with about 12 per cent growth for bank lending during the same period.

“We note that AI can help NBFCs identify potential prime customers and bring about more efficiency in high-intensity product segments at a transformative pace. However, we raise caution around the regulatory gap on the matter,” the report said.

India’s lending ecosystem currently has outstanding credit of about Rs 232 trillion (USD 2.6 trillion). Despite this, credit penetration remains relatively low compared with other major economies. Analysts expect the country’s credit-to-GDP ratio to increase over time as access to financing expands.

NBFCs have also diversified their lending portfolios in recent years. Many have moved beyond traditional wholesale lending into retail products such as vehicle loans, consumer durable financing, personal loans and microfinance — segments where demand continues to grow.

Retail credit already accounts for a large portion of NBFC lending and is expected to remain a key driver of growth in the sector.

The report noted that artificial intelligence is becoming a critical tool for financial institutions. Lenders are deploying AI systems for credit underwriting, customer support, sales and marketing, cybersecurity and internal operations, while also using alternative data to identify potential borrowers.

“The India NBFC sector is set to witness a steep rise in competition as many lenders focus on expansion into new products and markets,” the report said, adding that investments in AI engines could bring structural changes to lending processes.

Meanwhile, the Reserve Bank of India has issued recommendations for responsible use of AI in financial services and is expected to develop a regulatory framework as adoption of the technology increases.

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Analysts say that as digital tools reshape lending practices and competition intensifies, NBFCs could play an increasingly important role in expanding credit access in India, particularly for underserved consumers and small businesses.