The digital lending ecosystem in India spent most of 2025 learning to breathe differently. After two years of regulatory resets, liquidity swings and uneven demand cycles, the year became a litmus test for every participant in the credit chain.

Non-banks discovered that capital wasn’t scarce, but confidence in their risk models and lending partnerships was. Digital lenders realised that growth at any cost had quietly gone out of fashion and that everyone is tightening their margins.

Banks, meanwhile, held their ground — steady, cautious, and increasingly selective — while the credit appetite of consumers and MSMEs moved in sharp, unpredictable waves.

By mid-2025, it was clear that the sector had split into two worlds.

On one hand, there were players like CRED, Jio Financial Services, Flexiloans, JSW One, and Veefin that tightened underwriting, rebuilt collections muscle and focused on patient, measured growth.

On the other were players who struggled with compliance gaps, rising NPAs, funding-cost pressures or business models misaligned with the RBI’s sharper gaze. For instance, NBFCs and fintechs, including Sarvagram, Kinara Capital, & Kiwi, among others, faced significant challenges. Adding to the turmoil, the Minister of State for Corporate Affairs, Harsh Malhotra, highlighted in a report that the IT Ministry (MeitY) has so far blocked access to 87 illegal lending apps.

But 2025 wasn’t merely a year of constraint. It was also the year when technology rewired the foundations of credit. AI-driven underwriting matured, digital public infrastructure deepened its grip on loan delivery, and platforms across ecommerce, payments, logistics and mobility quietly evolved into new distribution rails for small-ticket and working capital credit. As capital markets steadied in the final quarter, the system began showing signs of cautious optimism.

In the opinion of MSME lending platform Flexiloans’ cofounder Ritesh Jain, 2025 turned out to be a transformational year for most digital lenders. Growth was, on average, around 25% to 30%. Players who were focussed on profitability and unit economics found their way through it more easily.

“When you are looking for growth, you also have to manage NPAs, so net growth was there but it was a calibrated growth because of the experience with which we entered 2025. We are now seeing much improved collection ratios and delinquency trends. Confidence is coming back for companies to scale from here,” he added.

Between 2020 and H1 2025, lending tech startups attracted over 36% of all fintech deals outpacing SaaS, banking, and insurance tech by a wide margin. Analysts believe that funding is expected to remain active in digital lending, largely because capital is the core raw material of the business.

Many are of the view that lending is inherently a scale business, and attracting capital requires reaching a certain size. Also, in the last few years, many growth stage fintech companies have slowed down, and private equity investors have plenty of options with large NBFCs approaching IPO stage. Thereby making equity capital scarce for a large chunk.

Regardless of the funding........

© Inc42