Factors That Led to the Growth of NBFCs in India
The transformation of Non-Banking Financial Companies (NBFC) in India in the past few years plays an important role in growth of Indian Financial system. NBFC’s have emerged successful as compared to Banks as their customized product offerings help individuals with their financial needs.
NBFC Credit Market growth is as shown below.
| Financial Year | Growth |
| 2016 | 13% |
| 2017 | 16% |
| 2018 | 20% |
NBFC’s grow at an average rate of 4%-6% every year. Following are the major factors that led to the growth of NBFC’s in India
Understanding the customer
- Focus on unorganized & under-served segments of the economy.
- Customization of rigid policies to meet customer needs
Customized product offering
- Emphasis on a limited line (or often a mono-line set of products) to serve the target customer segment
- Adoption of non-standard pricing models for product lines, in-line with the customer profile and inherent risk of lending
Leveraging technology
- Reduced time to market and enhanced customer experience
- Offering customized credit assessment models with optimized business processes
Reaching out to wider audience
- Catering to the needs of Tier-2, Tier-3 and Tier-4 markets
- Distribution of loans across several customer touch-points with 24/7 sales and service
Risk Management
- Improved governance with agile risk management model
- NBFCs continue to grow with Chief Risk Officer (CRO) ensuring the highest standards of risk management.
FAQs:
1. What is the role of NBFCs in India’s financial sector growth?
Non-Banking Financial Companies (NBFCs) play a pivotal role in India’s financial sector growth by extending credit to underserved sectors, fostering financial inclusion. Their flexibility in offerings, quicker approvals, and tailored financial products cater to diverse needs, supplementing traditional banking. NBFCs facilitate access to capital, stimulate entrepreneurship, and bolster economic expansion, contributing significantly to the robust growth of non-banking financial institutions in India.
2. How are NBFCs regulated in India, and what measures are in place to ensure their stability?
Non-Banking Financial Companies (NBFCs) in India are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934. To ensure stability, the RBI employs stringent regulations, including capital adequacy norms, risk management guidelines, and regular inspections. Measures such as the introduction of prudential norms, stricter asset-liability management, and periodic reporting have been implemented to oversee NBFCs’ operations, fostering a balanced growth within India’s expanding non-banking financial sector.
3. What challenges do NBFCs face in their growth journey, and how do they address them?
NBFCs in India encounter multifaceted challenges in their growth journey. Regulatory compliance demands, liquidity management, and competitive pressure top the list. To address these, NBFCs emphasize technological integration for efficient operations, diversification of services to mitigate risks, and fostering robust risk management frameworks. Additionally, forging strategic partnerships, accessing diverse funding sources, and maintaining prudent asset-liability management stand pivotal for sustained growth in this dynamic sector.
4. How have NBFCs embraced digital technology, and what impact has it had on their operations?
NBFCs in India have wholeheartedly embraced digital technology, revolutionizing their operations. Factors like robust digital infrastructure and tech-savvy leadership spurred this growth. Enhanced customer experience through online services, streamlined operations via automated processes, and expanded reach to remote areas have been pivotal. This digital transformation propelled NBFCs towards efficiency, risk management, and heightened competitiveness in the rapidly evolving financial landscape.
