India's Financial Sector Set for Robust Growth: NBFCs to Outpace Banks by 2030
UBS report projects India's financial services industry profits to grow from Rs 6.1 trillion in FY25 to Rs 11.3 trillion by FY30, at a 13% CAGR. NBFCs expected to outperform banks with 16% growth vs 11%. Low credit penetration offers growth opportunities in housing loans and business lending. Market-linked businesses show strong potential, with wealth and asset managers projected to grow significantly. Digital payments boom expected, with fee income to exceed Rs 1 trillion by 2030. Potential US trade tariffs pose a risk, potentially impacting GDP growth.
*this image is generated using AI for illustrative purposes only.
India's financial services industry is poised for significant growth over the next decade, with profits projected to nearly double by 2030, according to a recent UBS report. The sector is expected to witness a substantial increase in profits from Rs 6.1 trillion in FY25 to Rs 11.3 trillion by FY30, representing a compound annual growth rate (CAGR) of 13%.
NBFCs Lead the Charge
Non-bank financial companies (NBFCs) are anticipated to be the primary drivers of this expansion, with a projected profit growth of 16%. This outpaces the expected growth rate of banks, which stands at 11%. The superior performance of NBFCs is attributed to their access to better funding sources and robust demand for retail credit.
Challenges for Banks
While the overall outlook is positive, banks face several challenges that may hinder their growth:
- Thinner margins
- Weak corporate loan demand
- Rising deposit costs
These factors contribute to the slower projected growth rate for banks compared to their NBFC counterparts.
Growth Opportunities in Credit Market
India's relatively low credit penetration presents significant growth opportunities for the financial sector. The report highlights that household debt in India stands at 42% of GDP, considerably lower than other major economies:
| Country | Household Debt (% of GDP) |
|---|---|
| India | 42 |
| China | 61 |
| United States | 73 |
This untapped potential is expected to drive substantial growth in various lending segments:
- Housing loans: Projected to grow at 13% annually
- Business lending: Forecasted to expand by 18% yearly
Market-Linked Businesses Show Promise
The report identifies market-linked businesses as having the strongest growth potential within the financial services sector:
- Wealth managers: Expected to see assets grow by 21% annually
- Asset managers: Projected asset growth of 17.4% per year
Digital Payments Boom
The digital payments segment is set for explosive growth, with fee income projected to exceed Rs 1 trillion by 2030. This underscores the rapid digitalization of financial services in India and the increasing adoption of digital payment methods.
Potential Risks: US Trade Tariffs
While the overall outlook is optimistic, UBS warns of potential risks that could impact India's economic growth. Specifically, the report cautions that potential US trade tariffs could have a significant impact on India's GDP growth:
- Potential reduction in GDP growth: 35-60 basis points in fiscal 2026-2027
- India's exports to the US: Currently valued at $87 billion
This highlights the importance of India's trade relationship with the United States and the potential economic implications of changes in trade policies.
In conclusion, India's financial services sector is on track for robust growth over the next decade, with NBFCs leading the charge. While challenges exist, particularly for traditional banks, the low credit penetration and emerging opportunities in market-linked businesses and digital payments present a promising outlook for the industry as a whole.
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