To serve the need of investors whose financial requirements are left are unattended by existing banking system, the Non-Banking Financial Companies (NBFCs) started its operations in India during 1960s. The financial entity attained some level of popularity in between 1980s and 1990s however, it gained good momentum in recent times when banks were pressurised due to surging bad loans. The unique and innovative offerings by NBFCs have drawn consumers and make them emerge as dependable sources for relief in the BFSI sector.
The Non-Banking Finance Companies (NBFCs) have been silent contributors in nation-building for over eight decades now. NBFCs have played a significant role by providing financial services to the unbanked segment of the population. Explaining about the NBFCs and their importance in terms of Financial Inclusion, Raman Aggarwal, Chairman, Finance Industry Development Council said, “NBFCs over the years have played a vital role in the development of the economy, be it in financial intermediation in rural and semi-urban areas or financing activities that are engines of growth, such as transport, infrastructure, farm, and Micro- Small and Medium Enterprises (MSMEs).”
The success of NBFCs can be clearly attributed to their lower cost, wider and effective reach, strong risk management capabilities to check and control bad debts, and better understanding of their customer segments. NBFCs are not only successful in their traditional bastions (passenger and commercial vehicle finance) but also have been able to build substantial assets under management (AUM) in the personal loan and housing finance sector.
Performance Graph of NBFCs
According to Microfinance Institutions Network (MFIN), the aggregate Gross Loan Portfolio of NBFCs-Micro Finance Institutions (MFIs) stood at Rs 38,288 crore in Quarter two (Q2) of Financial Year (FY) 2017-18. NBFC-MFIs disbursed 63.1 lakh loans in Q2 FY 2017-18. This is a 2 per cent increase as compared to 15 per cent loan disbursement reported in the corresponding period during last year.
NBFCs are emerging as a preferred partner in the BFSI sector on account of three main factors – Innovation, Customisation and Technology. Today, NBFCs are innovating new solutions and novel financial products which are gaining acceptance from the market. These innovative solutions encompass every aspect of the partnership – from holistic credit profiling, to flexible repayment options, from integrating multiple information resources to entering new markets – NBFCs are innovating their way to the top. These innovations have helped NBFCs to build customised products for their customers.
NBFCs are focussing on pan India presence with a larger, localised marketing and distribution network to enhance customer reach and accessibility. Legacy driven and experienced NBFCs have specialised credit underwriting competencies tailored for target audiences that facilitate quicker turnaround. As a result, NBFCs have been successfully driving customer satisfaction, delivering value to all stakeholders and thus, serving India’s vibrant economy.