Indian Securitisation in FY26: Securitised Paper Volumes grow, with originator and asset diversity 

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– Vinod Kothari & Chirag Agarwal | finserv@vinodkothari.com

Volumes of securitisation (which, of course, have always included bilateral assignments or so-called DA transactions) fell by 6% in FY 26, if the origination volume by Reliance group entities in the first half were to be excluded. However, the market has shown more originator diversity, with an increasing share of smaller issuers, including those tasting the market for the first time.

The dip in volumes is because of the larger issuers who were prominently absent or subdued – Shriram Finance as the largest issuer having raised on-balance sheet liquidity, and banking companies. However, the share of gold loans went up sharply, largely due to the sharp increase in gold prices and gold lending, Microfinance companies went more for securitisation, rather than direct assignment transactions.

For anyone studying the Indian securitisation market, it is important to note the following:

  • Reported volumes in India include direct assignments, which, in international parlance, are not “securitisation” (pure bilateral loan sales). However, in India, traditionally, DA has been a close and quick proxy for securitisation, and hence, mostly included. In FY 26, the split of DA/PTC volumes shows PTC transactions having gained in proportion. One rating agency1 reports an increase of PTC volume percentage from 54% to 60%; another one2 shows the increase from 48% to 52%.
  • Indian transactions mostly show LAP transactions as a part of MBS, whereas what the world reports as RMBS is quite small in India. Last year, there was a prominent transaction by LIC Housing Finance, through the NHB-promoted RDCL. There was no RDCL issuance this year. It seems that RMBS volume was either too small to be reportable, or was completely absent.
  • Microfinance sector has been under some stress in the recent past; however, MFIs have increasingly resorted to PTC issuances, with small deal sizes. Some deal sizes are even below 100 crores. This is indicating greater diversity of issuers, and of course, yields and ratings.
  • The market also seems to be showing larger acceptance for lower rated securities i.e., BBB+.

Overall, in a stressful global scenario, securitisation has stood firm. Non financial sector entities have shown increasing willingness to tap the market. Of course, SEBI regulations have to be more enabling.

Below, we give a detailed overview of the securitisation market, including a discussion on the asset classes. 

NBFCs vs Banks

Securitisation volumes have been largely driven by NBFCs, which recorded a 30% year-on-year increase in value. In contrast, originations by banks have declined significantly.

Recent Securitisation Structures in India – A Mix of Tradition and Innovation

Among asset classes, vehicle loans (including commercial vehicles and two-wheelers) accounted for 50% of securitisation volumes (vs 47% in the corresponding period last fiscal). Mortgage-backed loans accounted for about 28% of securitisation volume (vs 37% in the last FY). 

Vehicle loan-backed securitisations dominated the market, both in terms of number of deals and total value, reaffirming the sector’s strong position. This is consistent with the growth trend in vehicle loan originations during FY 25.

In addition to vehicle loans, originators also securitised receivables from a diverse set of underlying asset classes during Q4, including:

  1. Microfinance Loans
  2. Secured Business Loans
  3. Unsecured Business Loans
  4. Home Loans
  5. Unsecured Personal Loans
  6. Gold Loans

The continued diversification in underlying asset classes highlights the evolving maturity of India’s securitisation market and growing investor appetite across segments. The break-up of securitisation volumes across various asset classes have been presented below:

Securitisation of Vehicle Loans

The issuance volume for vehicle loan securitisation during FY26 was approximately ₹1.26 lakh crores. Most of the transactions were structured as single-tranche issuances. However, a few exceptions featured more layered structures comprising senior and equity tranches, or senior, mezzanine, and equity tranches.

In terms of credit ratings, the tranches were rated between A- and AAA. Notably, the senior tranches in the majority of transactions received high investment-grade ratings, typically falling within the AA+ to AAA range. This indicates strong investor confidence and reflects the underlying credit quality of the asset pools, supported by adequate credit enhancement mechanisms. 

Further, replenishing structures were also observed commonly during FY26. These variations indicate growing sophistication in transaction structuring within the vehicle loan securitisation space, aimed at catering to different investor preferences, improving credit protection, and aligning with originator risk appetite. As the market matures, further innovation in structuring and risk mitigation features can be expected.

In terms of credit enhancements, most vehicle loan securitisation transactions during the last quarter of FY26 featured: cash collateral (CC) and overcollateralisation (OC), with the Excess Interest Spread (EIS) serving as the first layer of loss absorption.

Securitisation of Microfinance Loans

During FY26, the MFI sector has seen a revival after a period of stress during FY 25 and FY 24. This has been due to better credit underwriting of lenders, improving performance trends and granular pool characteristics. Further, after a period of stress, the lenders relied on time-tested borrowers rather than exploring new markets leading to higher average ticket size of loans. This has led to a growth in the volumes of securitisation of microfinance loans during FY26. The PTC issuance volume of microfinance institutions increased to 14%  of total PTC issuance in FY26 from 6% of total PTC issuances in FY25. Most of the transactions were structured as a single tranche securitisation. 

Further, most microfinance loan securitisation transactions during the quarter featured credit enhancement through two primary mechanisms: CC and overcollateralisation OC, with the EIS serving as the first layer of loss absorption.

Securitisation of pool of loans backed by Home Loans & LAP

The volume of mortgage backed securitisation has been low both in terms of number as well as in terms of amount of issuance. As compared to FY25, the total MBS issuances dropped to 28% of total issuance from 37%. The transactions featured a common waterfall matrix and had received an overall rating of AAA. 

In terms of credit enhancement, CC and OC has been provided as a credit enhancement with the EIS serving as the first layer of loss absorption. 

Securitisation of Gold Loans

Gold loan securitisation volumes in H2FY26 stood at approximately ₹18,500 crore, significantly higher than the ₹5,000 crore recorded for the whole of FY25.

The jump in gold lending securitisation may be due to increase in gold prices and resultant increase in the value of the collateral. As a result of this valuation spike, average ticket sizes have increased, indicating that as gold valuations rise, consumers are leveraging higher-value loans to meet their financing needs. Another reason for the increased origination may be removal of LTV restriction in case of income generating gold loans.

Securitisation of Unsecured Loans

As per rating rationales published by Care the securitisation volumes of unsecured loans (both personal and business) increased during FY26. Investors in unsecured loan transactions, are preferring the PTC route, due to the support provided by external enhancement. CC and OC have also been provided as a credit enhancement with the EIS serving as the first layer of loss absorption.

Related articles: 

  1. Secure with Securitisation: Global Volumes Expected to Rise in 2025
  2. India securitisation volumes 2024: Has co-lending taken the sheen?
  3. Indian securitisation enters a new phase: Banks originate with a bang
  4. Securitisation: Indian market grows amidst global volume contraction
  1. Crisil report on securitisation volumes: https://www.crisilratings.com/en/home/newsroom/press-releases/2026/04/securitisation-deal-value-peaks-to-rs-2-55-lakh-crore-in-fiscal-2026.html ↩︎
  2. Care report on securitisation volumes
    https://www.careratings.com/uploads/newsfiles/1775801608_FY26%20Retail%20Securitisation%20at%20Rs%202.53%20Trillion%20First%20Dip%20PostPandemic.pdf ↩︎

RBI proposes changes to NBFC-UL identification

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Revised Criteria for Classification

RBI has vide its Press Releases – Reserve Bank of India proposed to review methodology for identification of NBFCs in Upper Layer. The key changes are as follows:

  1. Annual Classification: RBI shall conduct an annual identification process for classification of NBFCs in the Upper Layer.

It may be noted that NBFCs belonging to the banking group are also required to comply with the compliance requirements applicable to Upper Layer NBFCs (except the listing requirement). Our article on compliances to be followed by such NBFCs in the banking group can be seen here. 

  1. Criteria for classification: The current two-step approach (top ten by asset size and parametric scoring) will be replaced by a simple, absolute asset size criterion. The proposed asset size threshold for an NBFC to be classified as UL is ₹1,00,000 crore and above, as per the latest audited balance sheet (this limit is subject to review every 5 years).

A crucial question that arises here is whether the consolidation criteria (multiple NBFCs in the group) be applicable in this case as well to determine the asset size? Though as per prudence, it should apply, to avoid surpassing the regulatory intent, however, the same is specifically not applicable as per the SBR Directions (refer para 21) .

  1. Inclusion of Government-owned NBFCs: Eligible Government-owned NBFCs will now also be considered for inclusion in Upper Layer, based on the revised asset size criteria. Previously, these were placed only in the Base or Middle Layer.

It may be noted that the category of NBFC is not a pre-condition, hence, the list of UL NBFCs would include not just NBFC-ICCs but also HFCs, CICs, deposit taking NBFCs, and not even Govt. NBFCs

  1. Provision for Credit Risk Transfer: All NBFC-UL will be allowed to use State Government guarantees as a credit risk transfer instrument without any specific limit, provided they meet the prescribed conditions.

Implications of NBFC-UL Classification

Once the proposed criteria are implemented and the new list of Upper Layer NBFCs is notified by the RBI, entities classified as NBFC-UL will face certain immediate implications, in addition to specific corporate governance norms. The central point of discussion is how these requirements might impact the growth plans of large NBFCs.

  1. CET 1 requirement: NBFC-UL are required to maintain Common Equity Tier 1 capital of at least 9% of Risk Weighted Assets.

While CET 1 is currently manageable for most existing UL entities, aggressive growth plans could potentially make this a constraining factor for larger NBFCs newly classified as UL.

  1. Leverage Restriction: In addition to CRAR, NBFC-UL shall also be subject to leverage requirements to ensure that their growth is supported by adequate capital, among other factors. Also, NBFC-UL shall be required to hold differential provisioning towards different classes of standard assets.

Leverage ratio would have been an issue if the entity was engaged in derivatives transactions. However, most of the NBFCs in India are not very active in this space. 

  1. Exposure Framework: NBFC-ULs are required to adhere to the Large Exposures Framework. Furthermore, their Board must determine internal exposure limits for important sectors, including exposure to the NBFC sector, in addition to limits on internal exposures to Sensitive Sector Entities (SSEs).

The applicability of the large exposure framework may be a real concern. Large exposure framework looks at economic interdependence as the basis of classification into group risk. There is an absolute limit that the single party exposure cannot be more than 20% of Tier 1 capital (including quarterly audited profits) and 25% in case of a group of counterparties.

  1. Listing Requirement:  NBFC-ULs must be mandatorily listed within three years of being identified and notified as such. Unlisted NBFC-ULs shall be required to make the necessary arrangements for listing within this three-year period.
  1. CICs not accessing public funds: Under the CIC Directions, those CICs that don’t have access to public funds, irrespective of the asset size, are eligible to be classified as an unregistered CIC. Accordingly, such CICs should not be classified in the upper layer even if they breach the asset size criteria. 

Representation on the draft Amendment Directions for exemption from registration to eligible NBFCs

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Representation on the Draft Directions for ‘Advertising, Marketing and Sales of Financial Products and Services by Regulated Entities’

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Uneasy Ease: RBI Proposes Exemption in Approval Mode  for Type I NBFCs

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The RBI’s proposed relief to exempt pure investment companies from exemption from regulation is not a cakewalk but a hurdle race.  It is not an exemption that comes in auto mode; you need to earn the right to be exempt. Some of the important pre-conditions that the RBI has proposed are:

  1. No automatic exemption: It is not that you qualify, and come out of registration. In fact, those proposing to come out have to make an application, based on the financials for the last 3 years. In these financial statements, there must be no direct or “indirect” access to “public funds” (including loans from loans from directors/shareholders), nor should there be any lending within the group or outside. This position shall be supported by auditors’ certificate. It is with these conditions that the RBI may, on being satisfied about the business model, grant exemption.
  2. Customer includes my own group: The meaning of ‘customer interface’ has been clarified to say it includes customer-oriented activity like lending or providing a guarantee, including to ‘entities in the Group’, its shareholders, its directors, or providing any other “product or service” to a customer. “Any other product or service” typically refers to customer-centric financial distribution services like mutual funds, bonds, etc.
  3. Money from director/shareholder will be “public” funds: For the purpose of determining public funds, any amount received from the directors and/or shareholders of the NBFC shall also be treated as public funds. 
  4. Timelimit for making application by existing NBFCs: Type I NBFC registered with RBI as on April 1, 2026, and fulfilling the prescribed criteria for exemption, may make an application to RBI, for deregistration within a period of six months, by September 30, 2026. There is no clarity on what will happen after this date. Also, it is not clear whether existing NBFCs may change their liabilities profiles to meet the exemption conditions, and apply for exemption in future. 
  5. Discretion of RBI: RBI shall consider the requests for deregistration if it is satisfied that NBFC is functioning with a conscious business model to operate without availing public funds and without having customer interface. Hence, the fate of deregistration is in the hands of the regulator.
  6. Exclusion from aggregation: The asset size of unregistered type I NBFCs shall not be consolidated with other entities in the group for determining the classification of such group NBFCs as base/middle layer entities. See details below.
  7. Overseas investment requires registration: Unregistered Type I NBFC, in case it intends to undertake overseas investment in the financial services sector, it shall require registration
  8. Continued Supervision from RBI: Exemption is only from registration requirement; however, they would continue to be subject to the provisions of Chapter IIIB of the RBI Act, 1934 (primarily, transfer to reserve funds). Further, the RBI has reserved the right to issue necessary instructions specifically to ‘Unregistered Type I NBFCs’ in case any concerns/ risks are observed.
  9. Conditions for new entities: New entities intending to claim the exemption must satisfy these conditions- No access to public funds, no customer interface, less than ₹1000 Cr asset size, passing of annual Board resolution to not access PF and CI, disclosure in financial statements. Further, in case of violation of conditions on public funds and/or customer interface, the statutory auditor shall submit an exception report to the RBI. 

Conditions for deregistration application

Analysis of options available to Type 1 NBFCs

Type of NBFCOptions Available
NBFCs holding Type I Registration as on April 1, 2026Option 1: Apply for deregistration

Option 2: Continue to remain as Type I NBFC
Entities that fulfil the conditions for Unregistered Type I NBFC, after April 1, 2026Option 1: Satisfy the conditions under 66A and remain unregistered [see box on Conditions Subsequent]

Option 2: Apply for registration as Type I NBFC
NBFCs not having a customer interface and public funds and having an asset size below ₹1000 crores, but not registered as Type IOption 1: Apply for deregistration

Option 2: Apply for registration as Type I NBFC to avail regulatory exemptionOption 3: Maintain status quo
NBFCs not having a customer interface and public funds and having asset size above ₹1000 crores, but not registered as Type IOption 1: Apply for registration as NBFC Type I

Option 2: Apply for registration as NBFC Type II, in case of changes in business model

What happens to NBFCs not availing public funds and having customer interface but not registered as Type 1?

Several NBFCs that have been registered with the RBI before the concept of Type 1 was introduced in 2016 may not have the CoR as a Type 1 NBFC in spite of the fact that as on date they don’t have access to public funds nor any customer interface. Such an NBFC with an asset size less than ₹1000 crores will still have an option to apply for deregistration, subject to the satisfaction of the conditions prescribed. However, such NBFCs in case they decide to maintain the status quo will not be eligible for the regulatory exemption available to Type 1 NBFCs. 

What about new entities that meet PBC criteria?

If an entity carries investment activity with owned funds, within a limit of ₹1000 crores, does it need RBI registration? The answer seems to be – no. Such a company obviously does not have to go through the rigour of seeking registration first, and then qualifying for an exemption.

The company in question still has to satisfy the exemption conditions; and the auditor will need to give an exception report. The meaning of exception report is that if there is a breach of any of the conditions of exemption, or there is any breach of any other provisions of the law, the auditor shall be required to make an exception report.

Notably, CARO Order also requires auditors to comment on adherence to RBI regulations, which, in future, will include these conditions too.

Whether assets of multiple group entities will be aggregated?

Is the requirement of asset size being within ₹1000 crores based on stand-alone financial statements, or will the assets of companies within the group be aggregated, as is done for the purpose of determination of the middle layer status of companies?

It seems that the aggregation requirement is not there for the Type 1 exemption.

The basis for this is FAQ 13, which states as follows:

Q13. As per regulations of the Reserve Bank, total assets of all the NBFCs in a Group are consolidated to determine the classification of NBFCs in the Middle 11 Layer. What shall be the treatment given to ‘Type I NBFCs’ and ‘Unregistered Type I companies’ in this regard? 

Ans: For aggregation purposes, the asset size of ‘Type I NBFCs’ shall be considered but asset size of ‘Unregistered Type I NBFCs’ shall not be considered. It is emphasized that ‘Type I NBFCs’ shall always be classified in Base Layer regardless of such aggregation. 

What if I have accepted intra-group loans/granted intra-group loans, but resolve not to do so in future

Are the exemption conditions, that there is no access to public funds and no customer interface, merely a statement of intent, or must also be borne out by the conduct in any of the past 3 financial years? Looking at the definition in para 6 (14A), which reads “Not accepting public funds and not intending to accept public funds”, and likewise, “Not having customer interface and not intending to have customer interface”, it appears that the exemption conditions are both a statement of fact as well as intent. If one is negated by the fact, a mere statement of intent may not help.

However, assume there are isolated instances of intra-group loans taken or intra-group loans given. The transactions are not indicating a “business model”, at least the ones on the asset side. Are we saying that the breach of the conditions of  “no public funds” and “no customer interface”, at any time during the last 3 years, will disentitle the exemption?

We do NOT think so. There are two reasons to say this:

  • First, no one can cleanse the past. There is no reason to deny the exemption if the Company has cleaned up the asset side and liability side by 31st March, 2026, and resolves not to make neither of the “two sins” ever in future. Taking any other view will be unreasonable and not keep up to the intent of the regulator.
  • Secondly, the language itself is clear: Para 38A (2) (iii) talks about the status of public funds and customer interface in the last 3 years. Para 38A (2) (iv) and (v) refer to auditors’ certificate and the board resolution, both referring to the position as on date, and not the past. Therefore, if the past has been undone by 31st March, 2026, we see a strong reason to qualify the exemption, except if the level of activity is indicative of “conscious business model”

Three financial years: which years?

In our view, since the deregistration application has to be made within September 30, 2026, the audited financials for FY 25-26 must have been prepared. Hence, the last three financial years that would be considered are FY 23-24, 24-25 and 25-26.

VKC comments:

It is usually hard to get a relief from a regulator, as relief is seen as a prize that you earn. If the idea was based on the premise that what does not matter for the financial system, and is still being regulated, is a burden both for the regulator and for the regulated, there would have been a more welcoming approach to exemption. Specifically:

  • The extension of the definition of “public funds” to include borrowings from shareholders and directors is quite unreasonable. For private companies, deposits from shareholders and directors are exempt by law; in the case of public companies too, loans from directors are exempt. Even if we don’t lean on the law, what is taken from directors and shareholders cannot partake the character of “public”. There cannot be an element of public interest in intra-group transactions, and as a financial regulator, RBI could not have been concerned with intra-group financial accommodations.
  • The definition of “customer” service to include loans to group entities is equally unexplainable. The tested definition of “customer” in case of banks/financial entities is someone who customarily avails the services of such an entity. The only intent of the regulator could have been the conduct of business concerns, primarily customer service. A group entity borrowing from another group entity is not expecting customer service standards.
  • Both the definitions have been related to the historical balance sheets, with no apparent continuing exemption route. This, hopefully, will be made a continuing exemption, so that entities may carry financial and business restructuring to qualify for exemption.

The NBFC that doesn’t have to be: CICs and Principal Business paradox

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– Dayita Kanodia, Assistant Manager | finserv@vinodkothari.com

Holding Companies whose primary intent is to invest in their group companies have lately faced a paradox with respect to the requirement of registration as a  Core Investment Company (CIC). 

CICs are entities whose principal activity is the acquisition and holding of investments in group companies, rather than engaging in external investments or lending exposure outside the group. Para 3 of the Reserve Bank of India (Core Investment Companies) Directions, 2025 (‘CIC Directions’) prescribes the quantitative thresholds for classification of an NBFC as a CIC. In terms thereof, an NBFC that holds not less than 90% of its net assets in the form of investments in group companies, of which at least 60% is in equity instruments, is classified as a CIC and is required to obtain registration from the RBI, unless exempted.

Conceptually, a CIC is a sub-category of a Non-Banking Financial Company (NBFC) (para 3 of the CIC Directions), just like Housing Finance Companies, Micro Finance Institutions, etc. The threshold criteria that NBFCs are required to satisfy is the principal business criteria (PBC), pursuant to which at least 50% of the total assets of the entity must consist of financial assets and at least 50% of its total income must be derived from such financial assets. 

The PBC has historically served as the foundational threshold for determining whether an entity is an NBFC. Once the entity satisfies this principal requirement of carrying out financial activity, the sub-category is to be determined based on its line of business, which, lately, has seen quite a varietty – fron tradtional variants such as investment and lending activities (ICC), to housing finance (HFC), to financing of receivables (Factoring companies), the more recent inclusions are account aggregators (AA), mortgage guarantee companies (MGCs), infrastructure finance compaies (IFC), etc.  Each of these NBFCs first, and then they fall in their respective class. For instance, HFCs are a type of NBFCs that primarily focus on extending housing loans and hence, must have a minimum housing loan portfolio of 60% and an individual housing loan of 50%. 

Accordingly, all categories of NBFCs must first be ascertained to be carrying out financial activities as their primary business, and thereafter, the specific product helps to determine the category. Consequently, holding companies or CICs should ideally also adhere to the 50-50 criteria first and thereafter meet the 90-60 criteria for CIC classification. 

However, there is a common perception among the market participants that CICs, irrespective of meeting such PBC, in case they reach the 90-60 criteria, will be required to obtain registration as a CIC. Several news reports also note this perception. 

This perception among the market participants that CICs are not required to adhere to the PBC criteria stems from para 17(3) of the CIC Directions, which explicitly provides that:

“CICs need not meet the principal business criteria for NBFCs as specified under paragraph 38 of the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions.”

It may be noted that the above-quoted provision, which has recently been made a part of the CIC Directions pursuant to the November 28 consolidation exercise, was earlier included in the FAQs released by RBI on CICs.  FAQs are RBI staff views; whereas Directions or Regulations are a part of subordinate law; however, in the consolidation exercise, a whole lot of FAQs and circulars became a part of the Directions.

Going by the intent of the NBFC classification and categorisation, the above-quoted provisions seem more relevant for registered CICs, implying that CICs once registered need not meet the PBC on an ongoing basis. CICs predominantly hold investments in group companies and therefore satisfy the 90–60 thresholds, but often do not derive any financial income from such investments. Group investments, being strategic in nature, are rarely disposed of, and the dividend income from such investments depends on the dividend/payout ratio, which may be quite low. In several cases, such entities continue to earn income, say, by way of royalty for a group brand name. Even the slightest of non-financial income will seem to breach the PBC criteria, which may challenge the continuation of registration of the CIC as an NBFC. In order to redress this,  the provision under para 17(3) of the CIC Directions provides that CICs need not meet the PBC criteria on an ongoing basis. 

What is the basis of this argument? The definition of a CIC comes from para 3, which says as follows: “These directions shall be applicable to every Core Investment Company (hereinafter collectively referred to as ‘CICs’ and individually as a ‘CIC’), that is to say, a non-banking financial company carrying on the business of acquisition of shares and securities, and which satisfies the following conditions.” Para 17 (3) is a note to Para 17, which apparently deals with conditions of continued registration. 

Given that CIC is a category of NBFC, it would be counter-intuitive to say that the regulatory requirement requires holding companies to go for registration as a CIC even if they do not meet the PBC for an NBFC. In fact, if an entity is not an NBFC because it fails the principality of its business, it would not even come under the statutory ambit of the RBI by virtue of section 45-IC.

Accordingly, without going by just the text of the regulations, in our view, considering the regulatory intent, the following could be inferred:

  1. If there are group holding companies which have intra group investments, but also have operating income from one or more sources, such that the operating income is more than finanical income, these companies are not NBFCs at all. If they are not NBFCs, they cannot be CICs irrespctive of the extent of investment/loans as a part of their asset base. As we say this, we emphaise that the operating income shoudl be substantive and should be indicating a strategic business intent, rather than a pure one-off or passive income.
  2. CICs are a type of NBFC.
  3. Holding companies will be classified as a CIC in case they first meet the 50-50 criteria for NBFC and thereafter the 90-60 criteria as well. The registration requirement may then be ascertained based on the asset size and access to public funds by the CIC.
  4. A CIC (registered or unregistered) need not meet the PBC criteria on an ongoing basis. 

Other Resources:

  1. New regulatory framework for Core Investment Companies: RBI means to exempt: will there be any takers?
  2. Can CICs invest in AIFs? A Regulatory Paradox
  3. RBI introduces stringent norms for Core Investment Companies

Quick Bytes on Union Budget 2026

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Our Resources

  1. Buyback taxation rationalised with limited relief to promoter shareholders
  2. State of Climate Finance: Domestic Resources Insufficient to Bridge Funding Gaps 
  3. Microfinance and NBFC-MFIs in Economic Survey 2026
  4. Economic Survey 2026: Key Insights on Infrastructure Financing

Microfinance and NBFC-MFIs in Economic Survey 2026

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Simrat Singh | finserv@vinodkothari.com

The Economic Survey 2026 takes an honest view of India’s microfinance sector. Rather than celebrating credit growth alone, it frames microfinance as a household balance-sheet business, where the real test of success is whether borrowing improves stability and resilience at the last mile or not. NBFC-MFIs, as the primary delivery channel, sit at the heart of this assessment. In this short note, we explore major observations of the Survey w.r.t infrastructure financing and microfinance.

Microfinance remains central to financial inclusion

The Survey reiterates the importance of microfinance in extending formal credit to underserved households. Women account for the vast majority of borrowers and most lending continues to be rural. Over the past decade, the sector has expanded rapidly in both outreach and scale, with NBFC-MFIs accounting for the largest share of lending, followed by banks and small finance banks.

This expansion has made microfinance one of the most effective channels for last-mile credit delivery but it has also exposed the sector to sharper credit cycles.

Recent stress reflects excess lending, not weak demand

The slowdown seen in FY25 is presented as a supply-side correction rather than a failure of the model. The Survey attributes the stress primarily to over-lending and borrower over-indebtedness in certain regions, driven by multiple lenders targeting the same customer base after the pandemic. The key takeaway being that access to credit was not the constraint credit discipline was.

NBFC-MFIs: essential but cycle-prone

NBFC-MFIs remain indispensable to microfinance, but the Survey recognises their structural vulnerability during rapid growth phases. Unsecured lending and limited visibility into borrowers’ total debt make the model sensitive to concentration risks. Regulatory responses have therefore focused on restoring balance rather than tightening credit indiscriminately. The RBI’s decision to lower the minimum qualifying asset requirement has given NBFC-MFIs room to diversify, while self-regulatory measures have reinforced borrower-level safeguards. The Survey notes early signs of stabilisation in asset quality and disbursement trends.

The core challenge: understanding the borrower better

A recurring concern in the Survey is the lack of reliable tools to assess household income and repayment capacity. Many borrowers carry obligations beyond microfinance such as gold loans or agricultural credit that are not always visible at the point of lending. The Survey sees digital public infrastructure as a gradual solution. Wider use of digital payments, data sharing frameworks and account aggregators is expected to improve cash-flow assessment and reduce reliance on informal income proxies. Using all this information about its borrowers, the MFIs are expected to improve their credit assessment.

Rethinking what “impact” really means

One of the Survey’s most important observations is its critique of how success in microfinance is measured. While private capital has helped scale the sector, growth-centric metrics can unintentionally encourage repeated lending without sufficient regard for borrower outcomes. The Survey argues for a shift towards welfare-oriented indicators such as income stability, reduction in distress borrowing and sustainable debt levels rather than portfolio size alone. In doing so, it challenges the assumption that more credit automatically translates into better outcomes.

What the Survey ultimately says

The Survey neither dismisses microfinance nor romanticises it. It acknowledges its critical role in inclusion, while warning that unchecked expansion can weaken household balance sheets. Long-term sustainability, it suggests, depends less on how fast credit grows and more on how responsibly it is delivered. The Economic Survey’s message is simple: the future of microfinance lies in lending better, not lending more. For NBFC-MFIs, this means aligning growth with borrower capacity, using data more intelligently and treating household stability, not loan volumes, as the true measure of success.

Read our other resources

Climate Finance: domestic resources insufficient to bridge funding gaps

Representation with respect to NBFC-related Regulatory Issues

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– Team Finserv | finserv@vinodkothari.com

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RBI Integrated Ombudsman Scheme 2026 – Key Changes

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– Chirag Agarwal & Siddharth Pandey | finserv@vinodkothari.com

Background 

The framework for Integrated Ombudsman Scheme (IOS) constitutes a cornerstone of the RBI’s customer protection and grievance redressal mechanism across the financial sector. With the objective of providing customers a single, unified and accessible platform for redressal of complaints against Regulated Entities, the RBI introduced the Integrated Ombudsman framework.

The RBI has now introduced the Reserve Bank – Integrated Ombudsman Scheme, 2026 (“IOS 2026”), which supersedes the earlier Reserve Bank – Integrated Ombudsman Scheme, 2021 (“IOS 2021”). The new Scheme shall come into force with effect from July 1, 2026.

Key Changes

The IOS 2026 seeks to refine and reinforce the existing mechanism by expanding the scope of coverage, strengthening the powers of the Ombudsman, tightening procedural timelines, enhancing disclosure and reporting. The table below highlights and analyses the key changes introduced under IOS 2026 as compared to the IOS 2021, to enable stakeholders to assess the regulatory and operational impact of the revised framework.

ProvisionIOS 2021IOS 2026Analysis / Impact
Definition of “Customer” & “Deficiency in Service”The term “Customer” was not defined.
Limited definition for ‘Deficiency in Service’, largely linked to users/applicants of financial services. 		‘Customer’ means a person who uses, or is an applicant for, a service provided by a Regulated Entity. (Para 3(1)(h))
‘Deficiency in Service’ now applicable across all services provided by Regulated Entities and not just restricted to financial services. (Para 3(1)(i))		Broadens the scope of protection by covering all services offered by Regulated Entities, not just financial services.
Definition of “Rejected Complaints”Not expressly definedNew definition introduced – complaints closed under Clause 16 of the Scheme. (Para 3(1)(o))Clarificatory in nature; definition is not used elsewhere in the Scheme
Power to Implead Other Regulated EntitiesNo explicit powerOmbudsman empowered to make other Regulated Entities a party to the complaint if such Regulated Entity has, by an act, negligence, or omission, failed to comply with any directions, instructions, guidelines, or regulations issued by the RBI. (Para 8(6))Expands investigative and adjudicatory powers of the RBI Ombudsman
Annual Report on Scheme FunctioningThe Ombudsman was required to submit an annual report to the Deputy Manager of the RBI; however, the RBI was not obligated to publish it.It has now been made mandatory for the RBI to publish an annual report on the functioning and activities carried out under the Scheme. (Para 8(7))Enhances transparency and public accountability of the Ombudsman framework
Interim AdvisoryNo express provisionOmbudsman expressly empowered, if deemed necessary and based on the circumstances of the complaint, to issue an advisory to the RE at any stage to take such action as may lead to full or partial resolution and settlement of the complaint. (Para 14(6))Enables interim reliefs/directions and more effective complaint handling. This would help in resolving disputes by settlement at any stage. IOS permits advisories i.e., communications from the Ombudsman advising REs to take actions for full or partial complaint resolution. Advisories are non-binding and serve as a pre-award tool to facilitate quicker settlements.
Principal Nodal Officer (PNO) – Change ReportingReporting obligation not specifiedAny change in appointment or contact details of PNO must be reported to CEPD, RBI (prior to change or immediately post-change) (Para 18(2))Additional intimation requirement for regulated entities
Compensation – Consequential LossCapped at ₹20 lakh Enhanced to ₹30 lakh (Para 8(3))Increases the limit of potential financial risk for Regulated Entities
Compensation – Harassment & Mental AnguishConsolatory damages capped at ₹1 lakh Increased to ₹3 lakh (in addition to other compensation) (Para 8(3))Compensation limit tripled
Limit on Amount in DisputeNo monetary cap  No change – still no limit (Para 8(3))Ombudsman continues to have wide jurisdiction irrespective of dispute value
Timeline for Filing Complaint1 year from RE’s reply; or 1 year + 30 days if no reply from RE Complaint must be filed within 90 days from the expiry of the RE’s response timeline (30 days) or last communication, whichever is later. (Para 10(1)(g))Considerably tightens timelines; this would mean the customers must act swiftly
Guidance on Complaint FilingDispersed across the SchemeConsolidated guidance provided in Part A of the Annexure along with Complaint Form. (Annex)The guidance merely reiterates the points from the scheme that relate to admissibility of a valid complaint, but this is useful for the complainant as he will be aware of the complaint filing requirements and shall not be required to be thorough with the scheme itself
Modes of Filing ComplaintSpecified the options to file a complaint through portal, email, or courier at CRPC. Explicitly specified the email-ID of CRPC, and the address at which the complaint shall be couriered.
(Para 6(2))		Specification of the details for filing complaint
Data Consent in Complaint FormNo explicit consent requirementExplicit consent for use of personal data mandatory. (Annex)Aligns complaint process with evolving data protection and privacy standards
Categorisation of Complaints in complaint formLimited classificationDetailed categorisation of complainant type and nature of complaint. (Annex)Enables better routing, analytics, and faster resolution
Maintainability Check in Complaint FormNo upfront maintainability warningExplicit note stating non-maintainable scenarios (court pending, advocate filing, etc.). (Annex)Reduces frivolous filings and early-stage rejections
Appellate AuthorityExecutive Director in charge of concerned RBI departmentExecutive Director in charge of Consumer Education and Protection Department (CEPD) explicitly designated. (Para 3(1)(a))Clarificatory in nature
Introduced system-based validationNo such provisionComplaints received via portal, will undergo a system-based validation/check and will be rejected  at the outset for being non-maintainable complaints.
For the complaints received via e-mail and physical mode,  CRPC will assess their maintainability under the Scheme. (Para 12(1))		This would enhance the “gatekeeping” responsibility of the CRPC, which should speed up the process for valid complaints by weeding out inadmissible ones.

Actionables for REs:

  • REs should review and align their internal grievance handling and escalation processes to ensure all service-related complaints are covered.
  • REs shall provide prior intimation to the CEPD, RBI for any change in the appointment or contact details of the Principal Nodal Officer (PNO)
  • REs shall take note of the enhanced compensation limits under the Scheme and accordingly reassess potential liabilities, update grievance redressal frameworks, and sensitize relevant teams to ensure compliance with revised thresholds.
  • Para 18, as in the earlier Scheme, requires REs to display the salient features of the Scheme, a copy of the IOS 2026, and the updated contact details of the Principal Nodal Officer on their website and at their branches/places where the business is transacted.

Other Related Resources: