Non Banking Financial Companies rely on clear, measurable indicators to stay profitable, liquid, and compliant. The Top 10 KPIs to Track in an NBFC help leaders translate daily operations into decisions about growth, pricing, risk, and funding. When you track the right metrics, you will spot early warning signs, allocate capital better, and serve customers faster. This article explains each KPI, why it matters, and how to interpret trends in simple language. It is written for basic and advanced knowledge seekers, so you can apply it to retail lending, vehicle finance, MSME lending, housing finance, and digital journeys with confidence.
#1 Portfolio Yield
Portfolio yield shows the interest and fee income generated by your lending book relative to the average outstanding principal. It captures pricing power, mix of secured and unsecured loans, and the impact of promotional rates or seasonal discounts. Track yield by product, geography, and vintage to see which segments truly earn their keep. Rising yield with stable risk often signals healthy repricing or superior customer selection. Falling yield may reflect competition, misaligned incentives, or overuse of low rate campaigns. Always pair yield with credit cost and operating expense so you do not chase gross returns that vanish after losses.
#2 Net Interest Margin
Net interest margin measures the spread between interest earned on assets and interest paid on liabilities, relative to average earning assets. For NBFCs that borrow from banks, issue market debt, or securitize pools, this KPI shows how well funding and pricing strategies convert into core profitability. Break it down by funding source and tenor to spot cheap versus expensive money. Monitor the effect of rate cycles on repricing lags between assets and liabilities. Sustained margin compression can signal rising competitive pressure, weak underwriting that forces discounting, or a funding mix that leans too much on short term borrowings.
#3 Cost to Income Ratio
Cost to income ratio compares operating expenses to operating income and is a practical view of productivity. It reveals whether your distribution, technology, and back office are scaled properly for the revenue base. Segment by branch, channel, and product to find true efficiency. A falling ratio often reflects process automation, centralized underwriting, and lower error rates. A rising ratio can result from rapid expansion without corresponding volumes, manual rework, or complex product variants. Pair this KPI with turnaround time and first time right metrics to ensure savings come from smarter work rather than customer experience degradation.
#4 Gross and Net NPA Ratio
Gross and net non performing asset ratios show the share of overdue accounts in your portfolio, before and after provisions. These are central health indicators for any lender. Track by delinquency bucket, product, and customer segment to find stress early. Rising NPAs in specific vintages can reveal onboarding issues, documentation gaps, or aggressive underwriting in a particular quarter. Compare roll rates from 30 to 60 to 90 days to understand momentum. Use early warning signals like bounce patterns and income volatility. Strong collection strategies should slow slippage into NPAs and stabilize the net ratio over time.
#5 Credit Cost and Provision Coverage
Credit cost reflects expected losses booked through provisions, while provision coverage ratio shows the buffer held against stressed accounts. Together, they show how realistic your loss expectations are and how resilient earnings will be under stress. Benchmark credit cost by product and economic cycle. If coverage is low in a rising stress environment, you risk sharp profit swings later. If coverage is high and stress eases, you can release provisions responsibly. Tie this KPI to scorecard cutoffs, collateral values, and recovery performance so provisioning follows data rather than hope. Transparent policies build investor and regulator confidence.
#6 Disbursement Growth and Book Growth
Disbursement growth tracks new originations, while book growth tracks net receivables after repayments and runoffs. High disbursement growth with flat book growth can mean heavy prepayments or poor retention. Strong book growth with stable risk indicates healthy demand and disciplined underwriting. Analyze growth by product, channel partner, and geography to avoid concentration. Check whether growth depends on one large anchor program that could reverse quickly. Link this KPI to capacity in collections and operations so service quality keeps pace. Sustainable growth aligns with stable margins, acceptable delinquency, and adequate liquidity buffers across normal and peak seasons.
#7 Cost of Funds and Liquidity Coverage
Cost of funds measures the weighted average interest rate on borrowings. Liquidity coverage tests whether you can meet near term cash outflows under stress. NBFCs should diversify funding across banks, market instruments, and securitization to keep costs competitive and rollover risk low. Track maturity ladders to avoid bunching of repayments in a single month. Stress test for delayed collections, slower securitizations, and tighter bank lines. If cost of funds rises, evaluate pass through to loan pricing, product mix shifts, and efficiency gains. Solid liquidity coverage provides confidence to investors, rating agencies, and strategic partners.
#8 Turnaround Time and First Time Right
Turnaround time measures how long it takes to approve and disburse a loan, while first time right shows the percentage processed without rework. Faster decisions with high accuracy raise conversion, reduce customer drop off, and lower processing costs. Track TAT across stages such as application, verification, underwriting, and disbursement. Monitor first time right by document type and channel to fix recurring mistakes. Use straight through checks, digital KYC, and rule based triage to accelerate low risk cases. Ensure speed does not compromise quality by pairing this KPI with early delinquency rates and post disbursal audit outcomes.
#9 Collection Efficiency and Roll Rate
Collection efficiency shows the proportion of due amounts collected in a period, while roll rate tracks movement of accounts from one delinquency bucket to the next. These KPIs are the heartbeat of risk control, especially in retail and MSME portfolios. A small drop in efficiency can quickly raise 30 plus delinquency and later NPAs. Analyze by product, region, collector team, and payment method to spot issues fast. Introduce digital reminders, field interventions, and restructuring options where appropriate. Monitor promise to pay kept rates and bounce reasons. Strong roll rate control keeps credit cost predictable and capital protected.
#10 Capital Adequacy and Return on Equity
Capital adequacy ratio confirms your cushion against losses, while return on equity shows how efficiently you use shareholder capital. Healthy capital allows growth, better ratings, and access to lower cost funding. Track the mix of Tier I and Tier II, and model how stress scenarios affect both capital and leverage. Pair ROE with risk adjusted return metrics so growth does not rely on excess leverage or thin provisions. If ROE is falling, investigate margin compression, rising opex, or credit cost drift. A balanced plan protects solvency, sustains investor trust, and funds future technology and distribution investments.