Financial Inclusion Can't be Pretext for ‘Financial Exploitation’: Sitharaman Warns NBFCs Against Aggressive Lending

Finance Minister Nirmala Sitharaman emphasised that financial inclusion must not be misused as a guise for predatory lending, as she called on non-banking financial companies (NBFCs) to adopt more responsible credit practices. “Financial exploitation in the name of financial inclusion is unacceptable,” Sitharaman said at the NBFC Symposium 2025 on Wednesday. 

She stressed that loans must be extended based on genuine borrower need and repayment capacity, not through aggressive marketing or coercion. Interest rates, she said, must remain reasonable, while recovery practices should adhere strictly to the Reserve Bank of India’s Fair Practices Code. 

The finance minister's comments come as NBFCs continue to cement their role as critical credit providers to traditionally underserved segments. Gross loan advances by NBFCs have doubled over the past four years from Rs 24 lakh crore in March 2021 to Rs 48 lakh crore in March 2025, underscoring their growing footprint across the economy. The sector now comprises over 9,000 registered entities, ranging from large infrastructure lenders to niche microfinance firms, offering diversified access to credit across income groups. 

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Sitharaman also highlighted the sector’s improving financial health. The NBFCs' gross non-performing assets (NPAs) have steadily declined from 6.4 per cent in March 2021 to 3 per cent as of March 2025, while return on assets has more than doubled to 2.4 per cent in the same period. These trends, she noted, reflect strong "fundamentals underpinned by strong capital buffers, robust interest margins and earnings and low levels of impairment."

However, she cautioned that sustained growth must be anchored in sound governance and robust risk frameworks. "As the NBFC model matures, the focus on Risk Management should increase. Risk-taking must be well-planned and data-driven and never beyond the absorption capacity of the entity concerned," she said.

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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, she added. 

Sitharaman also underscored the need for deeper and institutionalised collaboration between banks and NBFCs, particularly through co-lending arrangements. Standardised digital onboarding, interoperable servicing platforms, and shared risk frameworks could improve credit delivery to underserved segments, she said. 

Calling the term "shadow banks" outdated, Sitharaman noted that many systemically significant NBFCs now rival banks in governance and compliance. “Robust NBFCs should have a pathway to become banks, creating an institutional continuum,” she said.