The financial environment in India during the latter part of 2025 has been described as having a drastic change in the way non-banking financial companies (NBFCs) are getting access to capital. Bank credit to the NBFC industry has begun to have a sudden revival after a spate of tight liquidity and risk-averse lending, and it has come as a timely buffer in the context of the disproportionate and frequently unstable capital market. The most recent statistics given by the December 2025 NBFC Tracker of India Ratings and Research (Ind-Ra) show that strategic regulatory interventions and a cyclical boom in domestic consumption are the combination that is driving this resurgence in bank lending.

Regulatory support and market-based funding

The credit flow recovered is also a significant break to the trend that was experienced earlier in the year. Bank deposits to NBFC have been increasing at a low rate of 4% annually in September 2025. Nevertheless, this growth rate increased exponentially in October 2025 by 11%. This almost threefold rise in credit impetus underscores the resurgence of the banking sector to take credit in non-bank lenders, which act as key agents in accessing both the retail and small business segments of India.

This lending rebound is mainly due to a set of strong actions taken by the Reserve Bank of India (RBI). Trying to provide systemic liquidity and to make sure that credit flows to the productive parts of the economy, the central bank engaged in regulatory easing, which practically reduced the capital requirements of banks that lend to NBFCs. These risk weights were reduced by the RBI, thus releasing large amounts of capital in the banking system, making it more appealing and affordable to the commercial banks to loan to non-bank financiers.

This regulating wind came during the high season of the festive season, which is traditionally characterized by a high demand for credit under the influence of consumption. As Indian consumers were spending more on cars, consumer goods, and personal needs, NBFCs were desperate to have strong funding channels to cater to the growing demand for credit. The active reaction of the banking sector to these requirements was vital in stabilizing the financial ecosystem in general in this high-growth phase.

Although the bank credit offered a stable anchor, the capital markets were more complex and skewed as far as NBFCs were concerned, to diversify their funding sources. The market-based funding gave contrasting indications during the entire month of November 2025, as there was an apparent disparity among the various financial instruments. The tendency to further increase the gap between the benchmark yields of the NBFCs with ratings of AAA and AA and the Government Securities (G-Sec) rate was one of the most noticeable ones. This broadening dispersion indicates that available liquidity does not imply that investors are indiscriminate, but instead require a greater risk premium on non-bank paper regardless of its increasing macroeconomic expectations.

There was a sharp increase in the short-term funding market, especially the commercial papers (CPs). Commercial paper issues reached ₹1,020 billion in November 2025, a drastic difference from the ₹534 billion of October. The immediate rollover requirements of the existing debt and strategic decision by the issuers to lock in relatively favorable short-term rates were the primary factors in fueling this surge. These issuances were mainly in the 90 to 180-day tenor range. In the high-demand segment, the costs crept slightly up, as yields on 90-day CPs of AAA-rated issue went up to 6.6% as compared to 6.5% a month back.

Stability and improved availability of bank loans

Unlike the buoyancy in the commercial paper market, there was an indication of soft landing in long-term borrowing in the form of non-convertible debentures (NCDs). The volume of issues NCDs dropped to ₹302.4 billion in November, a decline compared to ₹407.7 billion in the previous month. This fall was explained by a number of causes, such as seasonal changes in the investment pattern, an overall tightening of the liquidity market in the long-term bond market, as well as a growing preference by issuers and investors to make their placements privately rather than publicly.

The instability in market-funding was partially counter-balanced by the fact that bank loans were now more accessible, enabling NBFCs to deal with their liability base more freely. According to Karan Gupta, Director of Financial Institutions at Ind-Ra, the better bank lending has served as a stabilizer, which offers a business-friendly alternative to the volatile state of affairs on the debt capital markets. This two-way funding structure is such that well-rated NBFCs are in a position to carry on with their lending activities even when certain market segments experience temporary headwinds.

Regardless of the changes in the pattern of funding, the inherent credit quality of the NBFC industry has gone remarkably further. Repayment stress indicators like the National Automated Clearing House (NACH) bounce rates were kept generally stable up until November 2025. Bounce rates improved marginally on a value basis, and got to 19.5% in November, as opposed to 19.8% in October. Although this is marginally high as compared to the low of 18.7% in July 2025, the stability indicates that borrowers are effectively meeting their repayment burden, although with increased interest rates.

The sector-specific trends also indicated stabilization in asset performance. Within the vehicle financing business, the commercial vehicle demand was showing signs of stabilization, a critical indicator of industrial activity and logistics. The stabilizing quality of assets and the fact that access to funding is steadily increasing show that the NBFC sector is going to start 2026 on a better footing than many analysts had previously predicted.

Conclusion

The revival of bank lending to the NBFCs in India indicates that there is a growing relationship, which is supported by a flexible regulatory structure. As the capital markets keep giving unbalanced signals on funding, the banking industry has intervened to cover the shortfall, such that the credit requirements of the economy are met when the demand is high.

Going forward, it will be important how NBFCs will continue with their credit quality in the face of the growing spreads in market funding. The sector is also in a position to spearhead the next round of credit growth in the Indian economy, as long as bank lending is healthy and repayment rates remain constant.