Effect of Financial Leverage on the Financial Performance and Sustainability of NBFCs in India

Abstract

 

Financial leverage plays a crucial role in determining the profitability, growth, and long-term sustainability of financial institutions, especially Non-Banking Financial Companies (NBFCs). NBFCs rely heavily on borrowed funds to expand lending operations and enhance market competitiveness. However, excessive leverage may increase financial risk, reduce liquidity, and negatively affect sustainability during economic downturns. This research paper examines the impact of financial leverage on the financial performance and sustainability of selected NBFCs in India. The study uses secondary data collected from annual reports, RBI publications, and financial databases for the period 2018–2025. Key financial indicators such as Debt-Equity Ratio, Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin, and Interest Coverage Ratio are analysed. The findings reveal that moderate leverage positively influences profitability, whereas excessive dependence on debt adversely affects financial sustainability and risk management. The paper concludes that NBFCs must maintain an optimal capital structure to ensure long-term financial stability and sustainable growth.