Why NBFCs Are Winning Over Banks in 2026 for Study Abroad

Non-Banking Financial Companies (NBFCs) in India have over the last couple of years morphed into players that belong to a niche category to those that can compete within the lending sector, especially in the education financing sector. By 2026, NBFCs are poised to surpass conventional banks in some of their areas of operation, in particular, student loans and study abroad financing as well as flexible credit provision.

In this blog, we examine why NBFCs are surpassing banks in 2026, particularly in the context of student loans for international students, and how specialized lenders like Avanse Finance and Credila are leveraging their agility and specialization to lead this charge.

Get the best Lending Options for Abroad

The shifting landscape: Why NBFCs are gaining ground

When comparing NBFCs and banks, the structural differences are significant. Unlike banks, NBFCs are not permitted to accept demand deposits and do not enjoy access to certain cost‑effective funding sources. However, they compensate through agility, domain specialization, and lean operations.

Key structural advantages NBFCs enjoy in 2026:

• Speed & decision‑making agility: NBFCs often have lighter bureaucratic layers, enabling faster credit decisions and disbursements. This is crucial when students awaiting study abroad financing cannot wait months.
• Niche specialization: Many NBFCs focus solely on certain segments—education finance, microfinance, consumer lending—so their credit models are custom‑tuned to those categories. Students find more tailored solutions.
• Flexible underwriting & collateral norms: NBFCs are more willing to lend on academic potential, university profile, or future earning prospects. Some NBFCs even offer unsecured education loans, reducing the friction for students who lack assets for collateral.
• Customer experience & transparency: Since NBFCs often serve younger, tech‑savvy customers, they invest heavily in digital interfaces, simplified documentation, and responsive support—an advantage over traditional bank processes.
• Regulatory flexibility: NBFCs have stronger oversight by the RBI, and more flexibility in their operations in certain aspects (e.g. not required to maintain CRR/SLR), allowing them to produce products in a more creative manner.

Together, these characteristics make NBFCs especially well-suited to servicing student loans for international students, a segment with unique risks, timelines, and documentation requirements.

How education‑focused NBFCs are shaping the competition

Let’s focus on the education financing sector. In recent years, NBFCs like Avanse and Credila have sharpened their offerings, positioning themselves as alternatives (and often superior alternatives) to bank education loans.

Avanse Finance education loan (via Avanse Financial Services) is one of the leading NBFCs in this space. It offers student loans for both domestic and international studies, featuring 100% funding of academic costs, flexible repayment options, quick sanctioning, and broad course coverage. The NBFC also runs a subsidiary, Avanse Global Finance, which offers loans repaid in foreign currency (i.e. no forex conversion costs) for study abroad students.

On the other hand, the Credila education loan interest rate is often cited because Credila is another education‑financing NBFC. Credila’s interest rates typically range from ~11.5 %–13 % (floating) depending on student profile and program. Comparisons between Avanse and Credila reveal that while Credila can sometimes offer slightly lower rates, Avanse often excels in terms of speed, support, and higher unsecured limits.

In 2025, analysts pointed out that NBFCs’ credit growth hit around 20% in FY25, significantly outpacing the 12% growth of commercial banks, illustrating that NBFCs are not just peripheral players but in expansion mode.

Additionally, regulatory winds are also shifting in favor of NBFCs. The RBI began easing curbs on NBFCs earlier in 2025, which gives them room to breathe and expand. And because NBFCs rely heavily on capital markets and commercial paper for funding, regulatory changes in risk weight and lending norms can significantly improve their cost of funds.

In short, education‑focused NBFCs combine niche domain knowledge, operational flexibility, and evolving regulatory support to present a compelling alternative to banks.

Comparative Table: NBFCs vs Banks in Education Loans

This table illustrates that while NBFCs may trade off slightly in interest rates, they deliver in speed, accessibility, and tailored servicing—factors that heavily matter for students seeking student loans for international students.

Why students (especially those planning abroad) prefer NBFCs

As a student who needs funds to finance his overseas studies, the following are some of the reasons why NBFCs will be first choice in 2026:

1. Time based: Visa deadlines, offer letters in the university, and course enrollment is time sensitive. The same can hardly be matched with legacy bank processes.
2. Complex expense coverage: Beyond tuition, students need support for travel, accommodation, living costs, laptop/equipment, and even forex or currency variation. NBFCs tend to offer holistic financing, not just tuition.
3. Flexible repayment models: NBFCs often provide deferred repayment, step-up EMI, interest-only periods, or post‑moratorium start options. This flexibility suits students who expect income growth after graduation.
4. Transparent communication and advisory support: NBFCs commonly provide end-to-end advisory services (from assessing program costs to repayment planning). Students value hands-holding in a domain they find opaque.
5. Collateral constraints: Many students (or their families) do not have high-value collateral or real estate to pledge. Because NBFCs are more open to unsecured or partial collateral solutions, this lowers the barrier.
6. Tailored for international education risk: NBFCs specializing in education understand country-specific risks (currency fluctuations, regulatory changes, visa conditions) and adapt models accordingly—something generalist banks struggle with.

Challenges & caution areas for NBFC dominance

It would be simplistic to present NBFCs as flawless champions. Some caution and challenges remain:

• Cost of funds and interest rates: NBFCs often face higher funding costs (through commercial paper, bond markets), and these are passed on as higher spreads. Borrowers must carefully compare interest rates.
• Regulatory risk: NBFCs are more sensitive to regulatory shifts. A sudden regulatory tightening or liquidity squeeze can stress many smaller NBFCs.
• Credit risk and defaults: Education loans are relatively risky, especially for international students. Strict credit appraisal and continuous monitoring are essential.
• Scalability constraints: Some NBFCs can scale only so far before needing bank partnerships or co‑lending models to expand reach.
• Public trust & perception: Banks enjoy centuries of trust and deposit insurance protections (e.g. DICGC for up to ₹5 lakh). NBFCs do not offer deposit insurance and must rely on performance reputation.

Yet prudent NBFCs that manage these risks effectively can continue to outperform banks in niche segments.

The outlook for 2026 and beyond for NBFCs

In the future, education-focused NBFCs are well positioned to win a larger share of the market. This will be fuelled by a number of critical developments. The rising co-lending arrangements and strategic partnerships among banks and NBFCs is one of them. Such partnerships enable banks to access niche markets and enjoy the operational flexibility and speed provided by NBFCs.

Meanwhile, technology is influencing the lending process by reevaluating it critically. Having incorporated tools such as AI and machine learning, NBFCs can enhance the credit assessment process, automate document verification, and develop more precise risk models. These inventions will help save time on approvals and smooth the loaning process of the students.

Support from regulatory bodies is also helping to strengthen the NBFC sector. Recent steps by the RBI and government to ease operational constraints are allowing these institutions to innovate further and serve borrowers more effectively.

Lastly, the increased population of Indian students seeking higher education in foreign countries has continued to strain international student loans. NBFCs with their special services and knowledge of this segment are better placed than anyone to address these needs.

In this evolving landscape, NBFCs are not just competitors to banks—they’re often the more relevant, student-centric option for many.

Act Now: Apply Today

Take Action: Choose Smart Finance

In conclusion, NBFCs are not merely competing with banks—they’re redefining what student-friendly financing looks like in 2026. Especially when you’re seeking Avanse finance education loan, or assessing education loan interest rate, NBFCs deliver agility, domain focus, and a more student-centric experience

Loan Finder

Find Your Best Loan
Options in Minutes

Explore Offers Now