Armed With AI, NBFCs Fight the NPA adversary

The Financial Express, citing another media report, pointed towards stress in the Non Banking Finance Companies (NBFCs) in India. Many of them are reeling under the issue of enhanced Non Performing Assets (NPAs). However the report says the asset quality problem is not across all types of NBFCs, “The specific pockets in which NPAs are growing in NBFCs are microfinance, credit cards, personal loans, and MSMEs,” says the report.   

According to the Micrometer Report March 2025, the Portfolio at Risk (PAR) for loans overdue by 31-180 days within the NBFC-Microfinance Institution (MFI) segment witnessed a rise from 2.0% in March 2024 to 6.6% in March 2025. This uptick indicates rising stress in borrower segments, particularly those impacted by inflationary pressures and external disruptions, such as climate-related swings.

NBFCs embedding AI across the lending journey

Many NBFCs have started employing AI tools that can alert on vulnerable customer segments or individual accounts. Digital and IT interventions have been central to Satin Creditcare’s ability to sustain resilient asset quality. “We have developed a strong in-house technology stack that enhances customer engagement and strengthens risk management,“ says Dr. HP Singh, MD & Chairman, Satin Creditcare, further adding the NBFC has been able to keep their “asset quality stable.”

Commenting on the kind of investments made in digital platforms he says, “Key investments in digital infrastructure including e-KYC, IRIS-based e-Sign, and AI/ML-powered credit underwriting and insight platforms, allow us to reinforce security, minimizse fraud, and enable seamless onboarding.”

Another NBFC, Godrej Capital, has also made sustained investments in technology to manage their asset quality. 

“At Godrej Capital, we have embedded digital intelligence into every stage of the lending journey to support customers and keep NPAs in check,” says Jyothirlatha B, CTO, Godrej Capital. 

The NBFC has taken concrete steps to streamline their lending and collections using AI tools, “AI and ML-driven scorecards, alternative data, and real-time analytics enable sharper credit decisions and early detection of financial stress. Our zero-touch processes – digital onboarding and automated collections ensure speed and convenience. We give customers timely reminders to help them plan payments and offer flexible EMI options to manage repayments effectively. Backed by strong AI governance and secure systems, this approach safeguards portfolio quality and builds lasting trust,” informs Jyothirlatha.

Non Banking Finance Company, Piramal Finance (PFL), has also widely adopted AI and GenAI across the processes in the lending journey for many of its products. The NBFC has been able to reap comprehensive benefits from its investments in AI and GenAI.

AI delivers, keeps NPAs low

The investments in AI have come to fruition and NBFCs have started realising the benefits, Dr. HP Singh, MD & Chairman, Satin Creditcare says, “These (AI enabled) capabilities allow us to strengthen predictive underwriting, improve fraud detection, and monitor the portfolio more effectively, helping us identify early stress pockets and manage risks proactively. For instance, by the end of FY24, we were able to capture early warning signals that allowed us to implement timely strategies for FY25. This proactive approach positioned Satin among the industry’s top performers on both operational and financial metrics, despite a challenging environment.” 

The AI powered underwriting and insights platform enabled the company to register impressive financial results in spite of the challenging macro-economic environment, “Our asset quality has remained stable. As of Q1 FY26, Portfolio at Risk (PAR) 90 levels stood at 3.7%, consistent with March levels and better than sector averages. This reflects the strength of our portfolio and the discipline of our risk management practices, underpinned by prudent technology investments,” says Dr Singh.

Piramal Finance has even gone to the extent of filing a patent for an AI-based credit underwriting model the company has devised.

“With rising unsecured delinquencies, we were seeing that a segment of customers were defaulting due to over leverage. This leverage is accrued after taking our loan, even though at the time of underwriting, they were not over-leveraged. Our model aims to identify such customers, who have a high future over-leverage risk. This model is built on our proprietary data and is an industry first. This capability allows us to screen out the segment of customers who get over leveraged and end up having 3x-6x the risk,” says Piramal Finance’s Chief Data and Analytics Officer, Markandey Upadhyay.

“These models provide us an added benefit over and above our traditional AI risk models. While, industry is managing current leverage risk, this model is a step forward, in pre-empting future leverage, and hence we have filed a patent for this,” he adds.