The growth of NBFCs in India has scaled substantial progress and has diversified their activities up to a large extent. The NBFCs have now created a passage connecting the less banked customers to the financial services paving the way for inclusive growth. The NBFC sector comprises financial institutions that provide certain banking and financial services without a banking license. These institutions are not permitted to accept demand deposits from the public.
They are not covered under the financial and state financial regulation. The RBI announced a small-scale-based framework for NBFC w.e.f Oct 22, 2022. The new framework comprises capital requirements, governance standards, prudence regulation, and other similar criteria. The growth of NBFCs in India is further classified based on the size of their assets and other marketable securities.
The operations of NBFCs have evolved over the past few years. A few larger NBFCs approached the scales of several private sector banks. Take a look at some of the major causes that influence the expansion of NBFCs in India -
The working of NBFCs primarily focuses on a specific line of business leading to the development of the NBFC sector. The NBFCs modify their products to suit the requirements of a distinct consumer. It focuses on providing a satisfactory response to the demands. These developments are now leading to the growth of NBFCs in India through better non-standard pricing structure according to the product lines of the client profile and keeping a check on the lending risk.
Optimum use of technology
The NBFCs are customizing their credit assessment models. They are also focussing n streaming their business processes through means of technology. This up-gradation has resulted in an enhanced client experience. NBFCs use data analytics, artificial intelligence, and other cutting-edge technology. These developments help in building strong relationships with their target client segments.
Service to the underserved
NBFCs give priority to the unorganized and under-served portions of the economy. The frequent interaction prepares a carved out niche for the businesses in the NBFC sector. These developments assure last-mile delivery and improvement in client satisfaction.
Arrangements for co-lending
The growth of NBFCs in India has recently forged partnerships with several alternative lenders and commercial banks working on digital platforms. These modifications have led to considerable growth in their target customer base.
The NBFCs are now rendering their services to the Tier 2, Tier 3, and Tier 4 markets. They provide loans to the clients through several touchpoints and establish a connected channel experience. The multi-channel facilities of the NBFC sector are accompanied by 24*7 sales and service. These financial institutions have now developed new and innovative ways for the customers.
Better risk management
NBFCs adopt a robust and adaptable risk management model to focus on enhanced governance. They emphasize their lendings to the subprime customers and mitigate the regulator disadvantages as compared to the commercial bank lenders.
The future path for growth of NBFCs in India
The NBFCs shall be able to provide deposits, loans, and investment services to the clients. These developments may take place due to the successful collaborations between the NBFC and the payment banks, bill payment providers, and other such financial service providers. The growth of NBFCs in India can also exploit digital consumer data to provide better services in the current digital environment. The NBFCs should lookout for new ways to serve the clients in a better manner and build long-term relationships.
The NBFCs of India are unparalleled in terms of accessibility and flexibility in accessing resources. The NBFCs endure even the adverse times due to their combative nature and customized solutions. The NBFC sector is now transforming into a financial supermarket and serves as a one-stop financial destination. NBFCs play an important role as the primary facilitator in the growth journey of the Indian Economy. These Financial institutions have acquired an ever-evolving role in the economy and need better policies to allow them to grow and safeguard the interests of the investors.