Why NBFCs Are Poised to Outpace Banks in Loan Growth – Morgan Stanley’s Latest Prediction
The Indian lending ecosystem is undergoing a massive shift, and recent insights from Morgan Stanley are a strong signal of what lies ahead. According to their latest report (June 2025), Non-Banking Financial Companies (NBFCs) in India are expected to grow their loan books by 19% year-on-year, outpacing scheduled commercial banks. This isn’t just a prediction — it’s a reflection of how India’s borrowing behavior is evolving. Whether it’s MSMEs in small towns or first-time entrepreneurs in semi-urban regions, borrowers are moving towards faster, more accessible credit. And NBFCs are stepping in to meet that demand — more flexibly than traditional banks.
Key Highlights from the Morgan Stanley Report
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- NBFCs are set to outperform banks in loan growth by nearly 19% YoY.
- This surge is expected in Q1 FY26 and is driven by rising credit demand across the country.
- Retail loans are the primary growth driver.
- Sectors like personal loans, SME finance, and used vehicle loans are showing strong momentum, especially in Tier-2 and Tier-3 cities.
- NBFCs are leveraging technology for rapid growth.
- Fintech partnerships, digital onboarding, and faster approval mechanisms are helping NBFCs scale faster and reach more customers.
Why MSMEs Prefer NBFCs for Business Loans in India
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Unlike banks that follow a one-size-fits-all model, NBFCs often create borrower-centric plans. This flexibility — especially in repayment tenures and documentation — is a huge advantage for small business owners. Many NBFCs offer business loans without collateral, which is ideal for first-time entrepreneurs.
Reach Beyond Metro Cities
NBFCs are more visible and approachable in small towns. In areas where formal banking penetration is still catching up, NBFCs have already built strong grassroots networks. They are helping MSMEs access fast business loans in Tier-2 and Tier-3 cities with ease.
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Speed & Simplicity
For a local kirana store owner or a small manufacturer, waiting weeks for loan approval isn’t feasible. NBFCs, thanks to minimal documentation and tech adoption, often approve loans within 48–72 hours. Digital loan approval processes are becoming a norm among NBFCs.
Focus on Self-Employed Segment
Traditional banks still hesitate when it comes to funding self-employed or informal sector businesses. NBFCs have understood and embraced this market. For example, many NBFCs are funding electric vehicle loans, solar installations, and small shop renovations — things banks still tread cautiously on.
NBFC Loan Eligibility for MSMEs
Eligibility criteria for business loans from NBFCs typically include:
- 6–12 months of business bank statements
- GST registration and recent filings
- Basic KYC documents
- Business registration proof (if available)
- No need for collateral in many cases
These criteria make NBFCs more accessible for businesses without strong formal financial history.
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Real-World Example
Let’s say an MSME owner in Patna wants a ₹15 lakh working capital loan to restock inventory during the festive season. A bank may demand detailed financial history, 3 years of ITRs, and collateral. Meanwhile, an NBFC may offer the same loan using bank statements, GST filings, and customer business references — disbursing the loan in 3–5 days.
This real difference in approach is what’s fuelling the NBFC wave in India — as Morgan Stanley rightly highlights.
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What Borrowers Should Take From This
If you’re planning to raise funds for business growth, expansion, or operational needs, this report should act as a signal to explore non-traditional channels — not to avoid banks, but to widen your scope. NBFCs might offer better terms, quicker disbursals, or more suited products.
In short, this is the right time to diversify how you look at funding.
NKB Kredit’s Perspective
At NKB Kredit, we don’t lend — we guide. Our job is to connect businesses with the right lender, whether it’s a nationalized bank, a private bank, or an NBFC. The insights from Morgan Stanley confirm what we’ve already seen on the ground — NBFCs are more active and responsive to certain segments, especially MSMEs, service providers, and new-age startups.
Our advisory approach ensures:
- You get access to multiple lenders based on your profile
- Your documentation is structured and optimized
- You don’t just “apply” for a loan — you get matched with the most likely to approve lender
- You save time, effort, and confusion by letting experts handle your fund-raising journey
In this growing and competitive credit market, having an experienced advisor gives you an edge. And that’s exactly what we’re here for.
Explore more about our services at nkbkredit.com
Frequently Asked Questions - FAQs
Yes, many NBFCs offer unsecured business loans, especially for MSMEs and first-time borrowers. They rely more on business performance, GST filings, and bank statements than on traditional collateral.
Depending on the profile and documentation, NBFCs can approve and disburse loans within few days, much faster than traditional banks.
Basic eligibility includes 6–12 months of business banking history, GST registration, PAN, Aadhaar, and sometimes a basic business registration. Many NBFCs also accept alternative documents and informal income proof.
NBFCs are often more flexible, faster, and approachable for small businesses, especially in Tier-2 and Tier-3 cities. However, interest rates may vary, so comparing options is important.
Yes, NBFCs are known to support the self-employed sector, including shopkeepers, freelancers, and informal businesses — often without demanding lengthy ITRs or collaterals.