Assessing India's NBFCS: Power Finance and Housing Finance Growth Dynamics

India's non-banking financial companies (NBFCS) have long been pivotal to the country's financial ecosystem, bridging gaps in credit access for infrastructure and housing. However, the 2023–2025 period has revealed divergent trajectories for two key sub-sectors: Power Finance and Housing Finance NBFCS. While both face headwinds in credit growth, their profitability metrics and expansion strategies offer critical insights for investors seeking to navigate India's evolving financial landscape.

Power Finance NBFCS: Profitability Amid Stagnant Credit Growth

Power Finance Corporation (PFC), a flagship player in the sector, has demonstrated resilience in profitability despite sluggish credit expansion. Its return on equity (ROE) fluctuated between 6% and 23% over 2023–2025 but stabilized at 20–21%, according to Screener. This suggests a maturing business model, though the sector as a whole has seen bank credit growth to NBFCs slow to 3.9% in 2025, down from 9.5% the previous year, as reported by Economic Times. The muted demand for power sector financing contrasts with surges in gold and renewable energy loans, underscoring shifting consumer priorities, as noted by Economic Times.

Housing Finance NBFCS: Mixed Profitability and Decelerating Loan Growth

Housing Finance NBFCS, including FinTech-driven players, have faced sharper challenges. While PNB Housing Finance reported a robust ROA of 2.73% and ROE of 13.14% in Q2FY26, reflecting improved credit quality and asset management, as reported by Economic Times, the sector's loan disbursement growth has faltered. FinTech NBFCs, which dominate personal loan markets, saw a 6% year-on-year decline in Q3FY25, with assets under management (AUM) dropping 15% sequentially, according to Economic Times. Bajaj Housing Finance, a major player, also posted its slowest profit growth since its 2024 listing, as Reuters reported, signaling broader sectoral stress.

The slowdown is partly attributed to asset quality concerns and operational disruptions, such as e-Khata implementation delays in Karnataka, as noted in Economic Times. Yet, affordable housing financiers are projected to outperform, with AUM growing 22% year-on-year in Q2FY26, driven by a 100-basis-point repo rate cut in 2025, as reported by Economic Times.

Comparative Analysis: Profitability and Expansion Potential

The contrast between the two sectors is stark. Power Finance NBFCS, while grappling with stagnant credit growth, maintain higher ROE metrics, indicating efficient capital utilization. In contrast, Housing Finance NBFCS, despite pockets of strength like PNB Housing's 13.14% ROE, face structural challenges in loan growth and asset quality.

Geographically, Housing Finance NBFCS are expanding into Tier-III cities, with over one-third of borrowers now outside traditional financial hubs, as noted in Economic Times. This bodes well for long-term market penetration but risks diluting margins if credit standards weaken. Meanwhile, Power Finance NBFCS remain concentrated in infrastructure, a sector with stable but slower-growth prospects.

Future Outlook: Policy Tailwinds and Market Realities

Government initiatives, such as the revamped credit guarantee scheme and relaxed foreign investment norms, are expected to bolster both sectors by 2030, according to IBEF. However, the immediate outlook remains cautious. For Power Finance NBFCS, profitability hinges on renewable energy financing and policy-driven infrastructure projects. Housing Finance NBFCS must address asset quality risks while leveraging digital lending to tap underserved demographics, particularly young and female borrowers, as reported by Economic Times.

Conclusion

Investors should approach both sectors with a nuanced lens. Power Finance NBFCS offer defensive appeal with stable ROE but limited growth catalysts. Housing Finance NBFCS, while riskier, present upside potential in a recovering market, provided asset quality is maintained. As India's financial services industry targets $1.2 trillion in assets under management by 2030, as IBEF reports, sector-specific strategies will be key to unlocking value.