The old question—whether Kerala-based NBFCs are outperforming commercial banks—can be tempting, but it is not very useful. Banks and NBFCs operate with different balance sheets, mandates, funding structures and customer niches. The better management question is whether an NBFC’s operating model is becoming more resilient as its portfolio grows.
NBFCs remain important because they specialise. They combine product focus, local market knowledge, field distribution, digital data and last-mile reach to serve customers that may not fit a standard bank journey. In Kerala, gold-backed lending, vehicle finance, micro and small-business credit and relationship-led distribution have made that adaptability particularly visible.
“Growth is not resilient because the book expands. It is resilient when portfolio economics, funding, credit quality, customer conduct and operating control improve with it.”
What the June 2026 data actually says
RBI’s Financial Stability Report shows continued expansion among upper- and middle-layer NBFCs, but with important shifts beneath the headline. Aggregate credit growth moderated to 16.6% year on year in March 2026. Retail and agriculture accelerated, supported within retail by gold loans and other retail loans, while vehicle-loan growth slowed.
- NBFC-UL & ML credit growth
- 16.6%
- Upper-layer retail share
- 62.2%
- Funding sourced from banks
- 30.4%
- NBFC credit / nominal GDP
- 16.7%
For upper-layer NBFCs, retail loans accounted for 62.2% of the portfolio and services 25.5% at March 2026, although growth in both segments slowed. Across upper- and middle-layer entities, the share of funding from banks rose to 30.4% from 28.6% a year earlier. Net interest income grew 9.7% and profit after tax 11.8%, while overall asset quality improved despite a marginal rise in gross non-performing assets in housing and education loans.
These numbers do not support a simple growth-is-good or growth-is-risky conclusion. They show why management needs a portfolio-level view: different products are moving at different speeds, funding concentration is changing and aggregate asset-quality improvement can conceal pressure in particular segments or vintages.
Why comparing NBFCs with banks misses the operating question
- NBFCs can specialise by product, geography and customer profile; commercial banks typically operate across a wider deposit and credit franchise.
- Banks have access to deposits, while NBFCs depend more heavily on borrowings and capital-market instruments, making funding mix and asset-liability management central to strategy.
- NBFC distribution may rely more on branches, field teams, sourcing partners and digital journeys working together, increasing the importance of consistent conduct and data lineage.
- Speed and contextual underwriting can be an advantage, but only when scorecards, policy exceptions and human judgement are governed and validated.
An NBFC should therefore benchmark a bank where the comparison reveals a capability gap—funding stability, customer protection, risk infrastructure or digital resilience—not use a different business model as a blanket performance scorecard.
Seven capabilities for resilient scale
Manage portfolio economics by segment
Track yield, expected loss, operating cost, collection cost, funding cost and capital consumption by product, channel, geography and vintage. Volume targets without risk-adjusted economics can hide value erosion.
Strengthen underwriting and policy governance
Combine data-led decisions with verified income or cash-flow evidence, clear exception authority, fraud controls and regular model validation. Monitor whether sourcing incentives are changing the quality of approvals.
Design the customer journey and conduct controls
Make pricing, charges, consent, repayment expectations and grievance routes understandable across branch, digital and partner channels. Customer protection should be embedded in scripts, screens, documents and supervision.
Build early-warning and collections discipline
Detect risk before delinquency using behavioural, payment and portfolio signals. Segment treatment strategies, control field conduct and feed collection learning back into underwriting and product design.
Connect funding strategy with asset-liability management
Test liquidity under realistic stress, diversify funding sources, match tenor and repricing characteristics, and make growth limits responsive to liquidity and market conditions.
Make digital and cyber resilience operational
Establish ownership for third parties, access, data quality, incident response, recovery and customer communication. Resilience must extend across outsourced technology and distribution partners.
Raise the quality of governance and talent
Give the board and senior management a decision-ready view of concentration, exceptions, complaints, model performance, liquidity and operational risk. Incentives and leadership behaviour must reinforce prudent conduct.
Use stress testing as a management tool
RBI’s June 2026 solvency assessment illustrates the point. Under its baseline scenario for a sample of NBFCs, the aggregate gross NPA ratio rises from 2.4% in March 2026 to 2.8% in March 2027 and the capital ratio falls from 22.3% to 20.8%. Seven entities could breach minimum capital requirements in the baseline scenario, rising to 15 under medium and severe stress.
A management stress test should go further than regulatory ratios. It should translate changes in funding cost, renewal availability, collections, collateral value, customer income and operating disruption into decisions about pricing, product appetite, liquidity buffers, capacity and communication.
The 2026 supervisory agenda is an operating agenda
In September 2026, RBI highlighted governance and culture, liquidity, asset quality and credit risk, customer protection and fair conduct, and digital and cyber resilience as expected areas of focus for NBFC leadership. These are not separate compliance workstreams. Each one changes how products are designed, cases are approved, customers are served, partners are controlled and performance is reviewed.
The opportunity for Kerala-based NBFCs
Local trust, product expertise and last-mile access remain meaningful advantages. The next advantage will come from converting that proximity into repeatable insight and control: understanding household and enterprise cash flows, making decisions consistently across locations, identifying stress earlier and protecting customers across every channel.
The strategic choice is not between growth and control. It is to build an operating model in which control makes good growth repeatable—and in which management can see quickly when market conditions require a different decision.
Primary sources
- RBI — Financial Stability Report, June 2026: Chapter IINBFC credit, sector mix, earnings, funding, asset-quality and solvency stress-test data through March 2026.
- RBI — Financial Stability Report, June 2026 releaseOfficial publication release dated 30 June 2026.
- RBI — Building Resilient Non-Banking Financial CompaniesDeputy Governor Swaminathan J’s 3 September 2026 remarks on scale, governance, liquidity, customer conduct and operational resilience.