New Delhi [India], July 19 : Trade and NBFC credit are expected to remain among the fastest-growing segments of India's banking system, supported by rising formalisation of economic activity, deeper financial penetration and the expanding reach of organised lenders, according to a report by Ashika Institutional Equities. The report said continued adoption of GST, digital payments and cash-flow-based underwriting will support credit expansion, while banks are likely to increasingly favour well-capitalised NBFCs with diversified funding profiles and healthy asset quality.
Combined outstanding credit to the trade and NBFC segments increased to Rs 34.5 trillion in May 2026 from Rs 9.7 trillion in FY18, highlighting the growing role of these segments in system-wide credit growth.
Credit to wholesale and retail trade increased from Rs 4.7 trillion in FY18 to Rs 13.8 trillion in FY26, registering a compound annual growth rate of around 14.5 per cent. The segment has maintained mid-to-high teen growth since FY22, outperforming several other credit categories.
The report attributed the sustained growth in trade credit to the formalisation of smaller businesses, expansion of organised retail and rising working capital requirements. Greater adoption of GST, digital payment systems and formal banking channels has also improved lenders' visibility into business cash flows, enabling them to assess and underwrite borrowers who previously had limited access to formal credit.
"We expect Trade credit to continue growing at a healthy pace, supported by further formalization of the economy and increasing adoption of cash flow-based underwriting," Ashika Institutional Equities said. The report added that relatively attractive yields and opportunities to build broader transaction banking relationships would keep the segment a key focus area for banks.
Bank lending to NBFCs has also expanded sharply, rising from Rs 5 trillion in FY18 to Rs 20.7 trillion in FY26. After subdued growth following sector-wide liquidity stress, credit to NBFCs increased 30 per cent in FY23 and accelerated again to 26 per cent in FY26. In May 2026, bank credit to NBFCs grew 33.7 per cent year-on-year.
The report said the growth reflects the increasing role of NBFCs in serving underserved borrowers and geographies, particularly across vehicle finance, MSME, affordable housing and consumer credit. It noted that the relationship between banks and NBFCs has evolved from pure competition towards greater interdependence.
"Banks benefit from the origination and distribution capabilities of NBFCs while NBFCs leverage the relatively lower funding costs and stronger balance sheets of banks," the report said.
Banks are expected to remain selective in funding NBFCs, with incremental credit likely to favour well-capitalised lenders with diversified liability profiles and strong asset quality.