Branch-based NBFC lending in India: how it is built and how to improve it
How large Indian NBFCs build branch networks across tier 1 to tier 4 towns, what gold, business, housing and vehicle loans look like, and what could change.
The short version
Branch-based lending is still the main way large Indian non-banking finance companies (NBFCs) reach customers who have thin credit files, irregular income or no formal salary. A branch is not only a sales point. It is a small credit, collections and relationship unit that lets a lender see the borrower's shop, home or gold, and meet them every month. The model works when each branch reaches break-even quickly and when the lender can keep its credit and collections discipline as it adds hundreds of outlets.
The numbers in this case study come from company results and investor material for the June 2026 quarter, with a few older figures marked by date. Muthoot Finance runs 7,654 branches and Manappuram 5,328, both centred on gold. Housing and small-business lenders run far fewer, larger-ticket branches: Five Star Business Finance has 856, Aadhar Housing Finance 626, Aavas Financiers 440 and Home First Finance 175. In April 2026 the Reserve Bank of India (RBI) removed the general requirement for NBFCs to seek its approval before opening a branch, which makes the real constraint the lender's own capacity to manage a branch, not permission.
What follows is an account of how the model is set up, what the products look like, where evidence is thin, and where lenders could do things differently. Wherever a number is our own arithmetic or a simplification, it is labelled as such.
Background
An NBFC is a lender regulated by the RBI that does not hold a banking licence. It cannot take demand deposits, so it funds loans mainly from bank borrowings, bonds and securitisation. Larger NBFCs with a public face are placed in layers under the RBI's scale-based regulation, and the stricter the layer, the more demanding the rules on capital, governance and disclosure.
Branch lending grew out of a gap. Banks built branches in cities and large towns and lent mostly against salary slips, audited accounts and clean credit history. Many borrowers in smaller towns have none of these: a shopkeeper whose income is mostly cash, a transporter with one truck, a family building a house on land with a clear title but no payslip. NBFCs filled the gap by sending people to the borrower. A loan officer visits the shop, estimates the income from what is visible, checks the property and the references, and decides with a credit manager. The branch exists to make that visit and the monthly follow-up affordable.
Two broad families of lender grew up this way.
Older, product-led networks. Muthoot and Manappuram built thousands of gold-loan branches over decades. Shriram built its network around commercial vehicle finance. Cholamandalam grew from vehicle finance and added other products over time.
Newer or reshaped networks. Aadhar, Aavas and Home First were built in the last fifteen years to lend for affordable housing. Five Star targets small business borrowers with loans secured on their homes. Poonawalla Fincorp, under new ownership since 2021, is now adding hundreds of branches across several products.
Where things stand today
The table gathers the latest figures we could verify for the lenders in this study. All of them manage more than ₹2,000 crore of assets, and most manage far more. Figures are for the June 2026 quarter unless a different date is given, and sources are listed at the end.
Lender · Main business · AUM · Branches · NotesMuthoot Finance · Gold loans · Group ₹1,91,532 crore, up 43% · 7,654 (86 opened in the quarter) · 6.58 million active customers; average gold AUM per standalone branch ₹32.47 crore
Manappuram Finance · Gold loans and others · ₹69,635 crore, up 57.2% · 5,328 · Branch figure at 30 June 2026
Shriram Finance · Vehicle finance, MSME, gold · About ₹3.13 lakh crore, up 15.3% · Not confirmed · Vehicles are about 47% of AUM; FY27 growth target cut to 15% to 17%
Cholamandalam · Vehicles, home equity, gold · ₹2,54,392 crore, up 23% · 171 dedicated gold branches · Gold loan AUM only ₹2,143 crore at 30 June 2026
Poonawalla Fincorp · Multi-product · ₹67,054 crore, up 62.5% · Gold loans in 460 branches · About 400 new branches planned in FY27, 60 done in the quarter
Five Star Business Finance · Small business loans on property · ₹13,722 crore (₹14,640 crore at 30 Sept 2026) · 856 · About 5.1 lakh accounts at 30 Sept 2026
Aadhar Housing Finance · Affordable housing and LAP · About ₹31,364 crore · 626 in 22 states and UTs (March 2026) · Average ticket ₹11 lakh; average LTV 60%
Aavas Financiers · Affordable housing · About ₹23,930 crore, up 15.4% · About 440 in 15 states and UTs, 2,600+ towns · Roughly 83% of AUM in tickets under ₹15 lakh
Home First Finance · Affordable housing · ₹16,938 crore, up 25.7% · 175 branches, 373 touchpoints · Average ticket ₹12.1 lakh; headcount 1,988
The branch count says little on its own. A gold branch holds jewellery and tens of small loans, and a housing branch holds files and large tickets. To compare, we divide assets by branches. This is our own arithmetic, and it mixes dates (Aadhar's branches are from March 2026 and its assets from June 2026), so read it as a rough guide.
The pattern is intuitive. Housing lenders sit at the top, with large tickets and fewer branches. Five Star's small tickets and small-business focus give about ₹16 crore a branch, and the company splits a branch once it passes roughly 2,500 accounts or ₹50 crore of AUM, as its management has described.
What happened
This section describes how a branch-based lender is set up, step by step. No single company publishes a manual, so the steps below combine regulatory text, company disclosures, a 2018 Business Standard report on rural NBFCs and several job postings. They describe the usual sequence. They are our synthesis and not any one firm's process.
Step 1: Regulatory base
A lender needs an RBI registration as an NBFC or housing finance company, a board-approved credit policy, and a funding line. On 15 April 2026 the RBI issued the Non-Banking Financial Companies (Branch Authorisation) Amendment Directions, 2026, which generally allow an NBFC to open branches in India without prior RBI approval, unless it is specifically restricted. Deposit-taking NBFCs still face limits linked to net owned funds and credit rating. The change took effect immediately.
Step 2: Choose the market and the hub
Lenders usually pick a state or cluster of districts where they already have a view on the borrower, the property and the legal process. Management at Five Star has described adding branches mostly in newer states. The 2018 Business Standard report described a "hub and spoke" model: a relatively large regional branch, well connected to nearby villages, handles sourcing, credit and operations, and smaller offices or kiosks connect to it. Analysts quoted there saw this as giving the lender better control over credit and operational risk. Volumes at a spoke must reach a level before it scales into a mini-branch.
Step 3: Open the branch
The branch is usually a rented shop or first-floor office in a commercial lane or near a market. The model is light: a counter, a few desks, a safe if gold or documents are held, and connectivity to the central system. Gold branches need strong rooms, safes and insurance. Five Star's management has described a break-even period of about 6 to 9 months for a typical branch, as reported from its October 2025 earnings call. We found no published figure for the cost of setting up a branch, so the simulator below uses assumptions that you can change.
Step 4: Staff it
Branch structures vary by lender and product. Job postings for NBFC branch roles describe a branch manager who oversees daily operations, loan processing, collections and customer service, with two or three sales executives and one collection executive reporting in. A branch sales manager owns the disbursement target and works with a credit manager to make sure that sourced files meet credit standards. Above the branch sits a cluster manager who runs a cluster profit and loss, builds sales teams and referral networks, and escalates to central operations, credit and product teams.
The structure below is our simplified reading of those sources.
Role · What they do · Who they report toSales or relationship officer · Finds borrowers, visits the shop or home, collects documents · Branch manager
Credit manager · Assesses the file, visits where needed, recommends or declines · Regional credit head, with a dotted line to the branch
Operations or documentation officer · Checks documents, registers the security, releases funds · Branch or regional operations
Collections executive · Follows up on missed payments, visits, records promises to pay · Branch manager
Branch manager · Owns the branch's disbursement, quality and cost · Cluster manager
Cluster manager · Owns the profit and loss of several branches · Regional or business head
An ICRA note on Five Star says that all loans are sourced in-house and that a dedicated collections team at the branch level monitors collections. As rough staffing figures, Five Star reported 520 branches and 9,327 employees in Q4 FY24, which is about 18 employees per branch, and Home First reports 1,988 employees across 175 branches, about 11 per branch. These are our divisions, and they include head-office staff.
Step 5: Source, underwrite, disburse, collect
Sourcing comes from field officers, local referrals such as brokers and builders, existing customers and, increasingly, digital leads routed to the branch. Underwriting for small-ticket secured loans combines a field visit, an income estimate from what the officer observes, a check of the property and its title, and the credit bureau record. Disbursement happens after the security is registered. Collections start before a loan goes bad: calls and visits in the first days after a missed payment, escalating through monthly buckets.
Collections matter more for lenders without strong legal tools. Five Star's chief financial officer has said that, because its loans are below ₹20 lakh, it cannot use the SARFAESI Act to take possession of property quickly, and recoveries typically take about 18 to 24 months.
Step 6: Scale by splitting, not stretching
Five Star's management describes splitting a branch that has grown past about 2,500 accounts or ₹50 crore of AUM into two or three branches. Chola is putting its new gold loan counters inside existing vehicle finance branches, with other businesses co-located. Poonawalla offers gold loans in 460 branches already. All three practices reuse the fixed cost of a branch, a point we return to later.
Branch formats across tiers
Lenders use different definitions of "tier". The RBI's older, bank-oriented classification by population puts a Tier 1 centre at 1 lakh people or more, Tier 2 at 50,000 to 99,999, Tier 3 at 20,000 to 49,999 and Tier 4 at 10,000 to 19,999. NBFCs often use their own categories, so treat this table as a way of thinking about formats and not a company standard.
Town type · Typical format · Product emphasis · Main riskTier 1 (large cities) · Larger hub branch, cluster office, often co-working with other products · Housing and LAP for salaried and self-employed, gold in dense markets · Competition from banks and digital lenders, high rent
Tier 2 · Full branch, 8 to 15 staff, cluster management · Housing, small business loans on property, vehicle · Bank competition, property price volatility
Tier 3 · Compact branch or mini-branch linked to a hub · Small-ticket housing, small business loans, gold, used vehicles · Thinner credit information, local title issues
Tier 4 and villages · Spoke office or kiosk, three to six people · Gold, small business, small-ticket housing · Cash income, weak legal recovery, collection cost per account
Evidence on tier mix is patchy. Aadhar's own Q1 FY27 release refers to continued strength in Tier II and Tier III markets, while older IPO-era material described a focus on Tier IV and V towns, so the mix has probably shifted upward over time. Aavas reports reaching more than 2,600 towns through about 440 branches, which is only possible through a hub-and-spoke reach. We did not find a current branch-by-tier split for any lender.
Products and policies
The rules that shape product design come from two places: RBI directions that apply to every lender, and each lender's own credit policy, which is not published in full. The sections below separate what is sourced from what is typical.
Gold loans
RBI's final gold and silver lending directions, notified on 6 June 2025 and applicable by 1 April 2026, set the following for consumption loans: a maximum loan-to-value (LTV) of 85% for loans up to ₹2.5 lakh, 80% for ₹2.5 lakh to ₹5 lakh and 75% above ₹5 lakh. Consumption loans repaid in a single bullet payment cannot run beyond 12 months, and for bullet loans the LTV must include accrued interest. A renewal or top-up is allowed only after the interest is paid. Income-generating loans have no prescribed LTV cap. Lenders must set standards for assaying and valuation, and the borrower must be present during assaying. Crisil estimated that loans below ₹5 lakh make up close to 70% of the NBFC gold loan portfolio.
The directions cut both ways for lenders. They allow a higher LTV on small tickets, which supports growth, and they apply equally to banks, which Crisil flagged as a source of competition. Muthoot's group gold AUM rose 48% to ₹1,75,527 crore in the quarter, and Manappuram's total AUM rose 57.2%, so the sector is expanding fast, helped by a high gold price.
Small business loans and loan against property
This product is the heart of Five Star's model. ICRA reported that more than 95% of its loans were against self-occupied property, and that 97% of AUM had an LTV below 50% as of March 2023. A profile based on a Reuters report gave an average ticket of ₹3.5 to ₹4 lakh and tenures of 2 to 7 years. Those two figures are older and may have moved, as ticket sizes tend to rise. Net interest margin was 19.87% in the September 2026 quarter, cost of funds 8.78%, credit cost 1.80% and gross Stage 3 assets 3.48%. A high margin is the price of lending to borrowers that banks avoid, and the credit cost shows how much of it is spent on losses.
Aadhar and Aavas also lend against property to small-business owners, with loans against property (LAP) forming 27% of Aadhar's AUM and a rising share at Aavas, whose home loan to LAP mix is shifting towards 65:35.
Housing finance and mortgage lending
For individual housing loans, the RBI's directions for housing finance companies cap LTV at 90% for loans up to ₹30 lakh, 80% for ₹30 lakh to ₹75 lakh and 75% above ₹75 lakh. Verify these against the current RBI master direction, since sources describe the bands by loan amount and sometimes by property value. Affordable lenders typically sit well below the cap. Aadhar reports an average LTV of 60% and an average ticket of ₹11 lakh, with salaried customers at 55% of AUM. Home First reports an average ticket of ₹12.1 lakh, and describes an "assessed income" model that estimates a self-employed borrower's income without relying on audited accounts, using inputs such as rent and utility payments. Aavas reports about 83% of AUM in tickets below ₹15 lakh. Industry estimates put about 60% of affordable housing finance borrowers as self-employed.
Vehicle finance
Vehicle finance is the oldest branch-based business. Shriram's vehicle book is about 47% of its AUM, which makes the lender sensitive to rural conditions, and its management flagged slower vehicle growth because of lower rainfall in the quarter. We did not find published LTV or income policies for vehicle loans, which are largely set by each lender and vary by vehicle type, age and borrower, so the table below leaves them blank.
Simplified policy by product
The table sets the sourced parameters beside what remains unknown.
Product · Sourced parameters · Not published or not foundGold loan · LTV 85/80/75% by loan size for consumption loans; bullet consumption loans up to 12 months; applies from 1 April 2026 · Lender LTV, ticket size, auction triggers
Small business loan on property · Mostly self-occupied property; 97% of AUM at LTV below 50% (March 2023); average ticket ₹3.5 to 4 lakh (older) · Current ticket range, income method
Housing loan · HFC LTV caps 90/80/75% by loan size; Aadhar average LTV 60%, average ticket ₹11 lakh · Income multiples, tenure, FOIR limits by lender
Loan against property · 27% of Aadhar AUM · Lender policy
Vehicle loan · Product mix at Shriram · Policy details
Personal and unsecured business loan · Poonawalla's newer products are 16% of AUM, 26% of disbursements · Eligibility, ticket and pricing
Because lenders do not publish their credit policies, the simulator below uses an illustrative policy of our own to show how a typical small-ticket home loan decision works. It is not any lender's rule.
With the defaults, the income supports about ₹11.3 lakh and the property about ₹18 lakh, so the loan is ₹11.3 lakh and income is the binding constraint. That finding reflects what lenders say: for the self-employed, deciding how much income to credit is the hard part of the process, which is why "assessed income" matters.
Why it worked (or did not)
The branch model worked where three conditions held.
1. The borrower segment was underserved. Margins are high where banks do not compete. Five Star's net interest margin of 19.87% would be unthinkable in prime lending.
2. The branch could reach break-even quickly. If a branch covers its running cost within about 6 to 9 months, as Five Star describes, then growth pays for itself. The simulator below shows how that depends on cost, ramp-up and margin.
3. Credit and collections stayed close to the borrower. Five Star's collection efficiency was 98.2% in the September 2026 quarter and its 30-plus days past due fell to 11.5% from 12.38%, with gross Stage 3 at 3.48%. The branch's presence is part of why.
The model failed where one of these slipped. Expansion into new states can outrun the credit team's local knowledge. Five Star's coverage of Q1 FY27 flagged rising cost-to-income from branch expansion and asset-quality risk in newer geographies, and a preview called doubling the network in 24 months an operational risk. Shriram has cut its FY27 AUM growth target to 15% to 17% from 18%.
Current limitations
Thin public data. We found no published branch set-up cost, no branch-level profit and loss, and no per-tier AUM split for any lender. The break-even figure comes from one management comment.
Mixed dates. Branch counts and AUM come from different quarters for some lenders. Per-branch figures here are rough.
Secondary sources. Several figures come from brokerage notes, news summaries and aggregators relaying company results, not the filings themselves. Where sources conflicted, as with Chola's planned gold branches, we say so.
Policy parameters. Most lenders do not publish their credit policy. The simplified policy in this study is illustrative, and the sourced parameters are limited to RBI rules and a few company-reported averages.
Unconfirmed. We could not confirm Shriram's current branch count. A Hindi-language source says it plans to add 150 branches in FY27, which we did not verify.
What is coming next
Gold loan rules are now live. The RBI's gold directions applied from 1 April 2026. Banks are subject to the same grid, and competition from them is likely to rise.
Looser branch rules. Since April 2026, NBFCs can open branches without prior RBI approval in general. This is a fact, but what lenders will do with it is a forecast: we expect more light-format offices in Tier 3 and Tier 4 towns, though no lender has said so.
Announced expansion. Poonawalla plans about 400 new branches in FY27. Chola plans to add gold branches, with sources giving 300 to 360, and about 100 vehicle finance branches. Muthoot guided to 15% AUM growth for FY27, with a possible revision after half-year results. These are company plans and may change.
What other companies can learn
These ideas are analysis and judgement, not company practice. Each is a hypothesis to test.
Test a spoke before building a branch
The hub-and-spoke model lets a lender learn a town before committing a full branch. With the 2026 rule change, the lender can stage the commitment: a small office with a sales officer and a collections executive reporting to a nearby hub, and promotion to a branch only when volume and early delinquencies meet set thresholds. Use the break-even simulator to set the threshold: if a spoke needs a loan book of ₹2.7 crore to cover a ₹4 lakh monthly cost at an 18% margin, the gate is the book, not the calendar.
Share the fixed cost across products
A branch has fixed costs: rent, a manager, security, systems. Chola's practice of co-locating gold with vehicle finance and Poonawalla's gold in 460 branches both spread those costs. The risk is that sales staff chase the easier product, so incentives must reward the product mix the lender wants, and gold needs its own storage, valuation and audit controls.
Split early, and measure by capacity
Five Star splits a branch at about 2,500 accounts or ₹50 crore. A split rule based on accounts per collection executive, files per credit manager and portfolio at risk, not only AUM, guards against a branch that is large but strained.
Separate sales from credit
Job postings show credit managers working alongside branch sales managers. Keeping credit reporting to a regional head, and having the branch carry only a small part of its incentive on disbursement, protects quality in new states where the sales team is new.
Use data where a visit cannot reach
An officer can estimate a shop's income by looking at it, but cannot see a borrower's other loans. Bureau data, bank statement analysis and account aggregator consent can supplement the visit and cut turnaround, so that a branch spends its scarce field time on cases the data cannot settle. This is where lenders with better data can run lighter branches.
Publish more
The sector would be easier to analyse, and easier to trust, if lenders disclosed branch maturity (share of branches older than 12, 24 and 36 months), productivity per branch, and delinquency by branch vintage. A few already show some of this. Investors and regulators would then see whether growth comes from mature branches or from new ones that are still unproven.
Key takeaways
Branch lending is a credit and collections model, not only a distribution one. Branches let lenders assess cash-income borrowers and follow up monthly.
Scale differs by product: Muthoot has 7,654 gold branches and Manappuram 5,328, while housing lenders run 175 to 626 branches with far larger assets per branch.
The RBI removed the general requirement for prior approval to open an NBFC branch on 15 April 2026. Capacity now limits expansion more than permission does.
RBI's gold directions, applicable from 1 April 2026, set LTV at 85%, 80% and 75% by loan size for consumption loans, and HFC rules cap housing LTV at 90%, 80% and 75%.
A branch must reach break-even in months, not years. Five Star's management describes 6 to 9 months, and the simulator shows how cost, disbursement and margin drive that.
Public data on branch economics, tier mix and credit policy is thin, so figures here are marked by source and date and the policy table has gaps.
Sources
- [RBI: Master Directions on NBFC branch authorisation, with the April 2026 amendment](https://rbi.org.in/Scripts/BSViewMasDirections.aspx?id=12962)
- [Crisil Ratings: LTV breather in final gold loan directions a growth prop for NBFCs (June 2025)](https://www.crisilratings.com/en/home/newsroom/press-releases/2025/06/ltv-breather-in-final-gold-loan-directions-a-growth-prop-for-nbfcs.html)
- [Vinod Kothari Consultants: new gold lending directions, LTV grid and bullet loan rules](https://vinodkothari.com/?p=54380)
- [Five Star Business Finance: press release for the March 2026 quarter, NSE](https://nsearchives.nseindia.com/corporate/FIVESTAR28042026211216PressRelease.pdf)
- [Kalkine Media: Five Star Business Finance Q2 FY27 earnings call highlights](https://kalkinemedia.com/in/news/announcements/five-star-business-finance-nsefivestar-q2-fy27-earnings-call-highlights-record-disbursements-and-strong-profitability)
- [GuruFocus: Five Star Business Finance earnings call transcript, branch break-even and SARFAESI comments](https://www.gurufocus.com/news/3171289/q2-2026-fivestar-business-finance-ltd-earnings-call-transcript)
- [Prabhudas Lilladher: Aavas Financiers Q1 FY27 note](https://plindia.com/ResReport/AAVAS-22-7-26-PL.pdf)
- [Prabhudas Lilladher: Cholamandalam Q1 FY27 note](https://www.plindia.com/ResReport/CIFC-29-7-26-PL.pdf)
- [Sahi: Shriram Finance cuts FY27 AUM growth target](https://www.sahi.com/news/shriram-finance-cuts-fy27-aum-growth-target-to-15-17-from-18)
- [ICRA: Five Star Business Finance rating report](https://www.icra.in/Rating/GetRationalReportFilePdf?id=120349)
- [Home First Finance: Q1 FY27 press release](https://homefirstindia.com/files/HomeFirst%20Q1FY27%20Press%20Release.pdf)
- [ICICI Securities: Aadhar Housing Finance Q1 FY27 note](https://mailcontent.icicidirect.com/mailcontent/idirectaadharq1fy27.pdf)
- [Muthoot Finance Q1 FY27 results, Kotak Neo](https://www.kotakneo.com/news/stocks/muthoot-finance-q1-fy27-results-pat-2825-crore/)
- [Manappuram Finance Q1 FY27 results, Investywise](https://www.investywise.com/manappuram-finance-reports-strong-q1-fy27-earnings/)
- [Poonawalla Fincorp: business update for Q1 FY27, NSE](https://nsearchives.nseindia.com/corporate/POONAWALLA06072026075343BusinessUpdateQ1FY27.pdf)
- [Business Standard: Low operating expense, high yields to help NBFCs grow their rural books (2018)](https://www.business-standard.com/amp/article/finance/low-operating-expense-high-yields-to-help-nbfcs-grow-their-rural-books-1180315006461.html)
Tags: NBFC Branch lending Gold loans Housing finance Case study