PE exit cycle looms for NBFCs

The non-banking financial company (NBFC) sector in India surged in calendar year 2025, with mergers and acquisitions (M&A) tripling on year and investments by private equity (PE) and venture capital (VC) funds rising ~16% to ~$5 billion (excluding ~4.4 Billion deal of Shriram Finance with MUFG).

The headline numbers, however, masked a sharp bifurcation: NBFCs at the top of the pyramid were plush with capital, while those lower down were parched.

Indeed, while larger NBFCs made hay, equity funding for smaller ones collapsed 30-35% on year to $2.8 to $3 billion in 2025. Increased competition compressed the margins of smaller NBFCs even as compliance costs spurted and asset quality in the microfinance sub-segment deteriorated.

Understanding the divergence becomes crucial to gauging what could come next as the pressure grows and many deals from earlier years near the end of their tenure.