Don't Aggressively Push Loans, Keep Interest Rates Reasonable: FM To NBFCs

Finance Minister Nirmala Sitharaman on Wednesday asked NBFCs not to aggressively market or push loans to customers and said financial inclusion cannot be used as a pretext for "financial exploitation".

She also asked non-banking financial companies (NBFCs) to adhere to the Reserve Bank of India's loan recovery norms strictly, and keep interest rates at reasonable levels.

Addressing an NBFC Symposium 2025 here, Sitharaman said there should be deep collaboration between NBFCs and banks, especially through co-lending arrangements for providing loans to the priority sector.

"Financial inclusion cannot be used as a pretext for financial exploitation," she said, adding that the lending should be based on the genuine needs and repayment capacity of customers.

Loans should not be aggressively marketed or pushed onto individuals, the minister said, stressing that the recovery process should be fair, empathetic and in a respectful manner, in strict accordance with the RBI's Fair Practices Code.

"...it (loan recovery) is part of your duty, but it's not part of your duty to be heartless... So the same message is that the push for growth should not come at the expense of customer wellbeing. Let's be clear on that," she told NBFCs, which are about 9,000 in numbers.

The minister further said as the NBFC model matures, the focus on risk management should increase.

Risk-taking, Sitharaman told NBFCs, must be well-planned and data-driven, and never beyond the absorption capacity of the entity concerned.

Sitharaman emphasised that liquidity and credit risks must be rigorously assessed and managed, while robust internal controls should ensure oversight on asset-liability mismatches, nature and tenor of the funding sources, and concentration risks.

A sustainable business model must be the cornerstone of the sector's growth, and at the heart of a sustainable credit landscape lies a financially aware and literate customer, she said.

Loan book of NBFCs has doubled to Rs 48 lakh crore in March 2025 in the past four years from Rs 24 lakh crore.

They currently account for about 24% of the volume of credit disbursed by commercial banks and the aim should be to reach 50%, she said.

"NBFCs are no longer 'shadow banks' -- their stronger regulation and oversight is the best testimony of their importance in the financial system and the broader economy," Sitharaman added.

Sitharman, who also holds the portfolio of Corporate Affairs Ministry, said as India moves forward, NBFCs will have a key role in meeting the credit needs of the future, including in areas like green initiatives, affordable housing, and MSMEs.

She said the reach of NBFCs is their biggest strength.

"By 2047, at least 50% of NBFC credit should be directed towards high-growth, high-impact sectors," she said.

NBFCs' fundamentals have been underpinned by strong capital buffers, robust interest margins and earnings and low levels of impairment, Sitharaman said.

Recent regulatory measures such as the restoration of risk weights on bank lending and the easing of financial conditions are expected to further improve credit prospects, strengthening the overall funding environment for the sector, the finance minister said.

"With the recent RBI measures reducing the costs of funds to the sector, urge NBFCs to pass on the benefits of this reduction onto customers," she said, adding that the government remains committed to supporting the NBFC sector by enabling a responsive policy environment.

"Want to assure the industry that we are committed to a consultative approach, and the issues flagged in the consultations with NBFCs will be examined with due attention," Sitharaman said.

NBFCs' asset quality has shown steady recovery since the pandemic, with the sector's gross NPAs having steadily declined from 6.4% in March 2021 to reach the current level of 3% in March 2025.

Profitability has also improved with return on assets improving from 1.11% in March 2021 to 2.4% in March 2025.