Market Share of the NBFC in India

Did you know, as of January 31, 2022, there were 9,495 NBFCs registered with the Reserve Bank ? And this figure is reached by excluding Housing finance companies and Asset Reconstruction Companies. 

We are not oblivious of the fact that the Indian financial market is multifold and is continuously enlarging. Our financial structure includes commercial banks, non-banking financial institutions, co-operatives, mutual funds and other financial entities. And due to inadequacies, lack of reach and various other factors, NBFCs have paved their way as the preferred option for meeting the ends with credit in various sectors. 

Non Banking Financial Sector and Its Importance:

This is not us but our trusted RBI saying –

“The Non-Banking Finance Companies (NBFCs) ecosystem in our country is a place of immense diversity and complexity as well. There are 9651 NBFCs across twelve different categories focussed on a diverse set of products, customer segments, and geographies. As on March 31, 2021, NBFC sector (including HFCs) has assets worth more than ₹54 lakh crore, equivalent to about 25% of the asset size of the banking sector. Therefore, there can be no doubt regarding its significance and role within the financial system in meeting the credit needs of a large segment of the society. Over the last five years the NBFC sector assets have grown at a cumulative average growth rate of 17.91 per cent.”

So, we can have an idea of the role played by NBFCs in our financial sector. Let’s try to understand how this all happened even after the covid-19 pandemic. 

Non-banking financial entities, by their regulatory design, enjoy freedom to undertake a wider spectrum of activities as compared to banks for which the permissible activities are enshrined in the statute itself. This freedom, coupled with a light touch regulatory prescription, gives them a greater risk-taking capacity to engage in financial intermediation in the segments which are often underserved by other players. Hence, even with large universal banking’s reach across the country, the NBFC sector has the ability to create a space for itself with customized services with a local feel.

Over the years, the NBFC sector has evolved in terms of its size, operations, technological sophistication with entry into newer areas of financial services and products. To keep pace with the same, regulations have also evolved to address various accompanying risks and concerns. 

The year 2022 for NBFCs :

After the out of ordinary challenges on account of the covid-19 pandemic, the financial year 2021 and first quarter of financial year 2022, the lending landscape in India has indicated remarkable recovery. As per reports, this market grew to Rs. 174.3 lakhs crore in march 2022, which is up by 11.1 percent on an annual basis if we compare it to March 2021.

Some reports also suggest that Non-banking finance companies are set to grow their loan books at the fastest pace in three years led by growth in vehicle loans, unsecured consumer loans and loan against property riding on better macroeconomic conditions, credit rating agency Crisil said.

They also said that Non-bank lenders’ asset growth will jump to a four-year high of 11-12 per cent this fiscal. In terms of personal loans, NBFCs witnessed 39 percent growth in March 2022 over March 2021.

NBFCs have navigated the challenges in the past couple of years by focusing on higher liquidity, capital, provisioning buffers, and focusing on digitized lending platforms, softwares for the ease of NBFCs and better loan management system. These, combined with improving economic activity, have put the sector in a comfortable position to capitalize on growth opportunities.

Future of NBFCs in India :

NBFC has gone through extraordinary progress over the past few years. Now that we know the significance of NBFCs in the Indian Economy and its vital role in uplifting the infrastructure, creation of wealth and employment generation, we can understand the gravity of its importance in the future as well. 

But, as always there’s a but. With the increase in economic growth, the need for credit will rise more than proportionate. NBFCs are facing the issue of a liquidity crisis. The market was grasped by not taking the risk, which as a result, affected the credit outflow of NBFCs. The perception of NBFCs regarding the risk-taking ability of credit has increased significantly, which resulted in taking the strict steps by the Government. Additionally, NBFCs are also facing stiff competition from new-age FinTechs which have been capturing a greater market share with their technology-heavy low-cost operating models and by setting new gold standards for customer experience.

Considering the same, NBFCs are learning to evaluate the overall market scenario and by approaching the new strategies to lend to different segments and expand further.  As a critical part of India’s financial system, NBFCs have been driving credit inclusion among individuals and enterprises by improving access and bridging pricing inefficiency through innovative product solutions and delivery models. Hence, Sustainability and high growth of NBFCs in the future are imperative to achieve India’s target GDP.

Crux : 

NBFCs have a competitive edge in their superior understanding of regional dynamics, well-developed collection systems and personalized services in the drive to expand financial inclusion in India. Lower transaction costs, quick decision making, customer orientation and prompt provision of services have typically differentiated NBFCs from banks. The reach and last mile advantages of NBFCs have empowered them with agility, innovation and a cutting edge in providing formal financial services to underbanked and unserved sections of the society.

Additional benefit of a diversified product line and more effective risk management capabilities ensured further growth. But this is not enough, more longitudes and latitudes are to be covered to tap the untapped areas. Both in terms of needs and management. This is where the NBFC software plays a crucial role. With an enhanced loan management system, digitalized lending platform, and implementation of technology in almost all aspects make it as easy as a,b,c for NBFCs and their customers to utilize the most of available and offered resources.

If you are also a Non Banking Financial Company and looking for upgrading or tapping into the world of user friendly and easy peasy management of operations in this era of digitalization, then Wind Finance is fully committed to help you.