Know the Factors which led to the growth of Indian NBFCs

The Non Banking Financial Companies (NBFC) plays a very important role in contributing towards the growth of the Indian financial system. It helps the individuals with their financial needs and has been playing an alternative of the banking sector in providing loans and credits to the small local borrowers and the unorganized sector. The functioning of NBFC is similar to that of banks, but it is not a bank and is supervised and regulated by the national or international banking regulatory authority. The NBFCs plays an important role in the economic development, employment generation, core infrastructure transport, wealth creation in India. There are number of factors which are responsible for the importance of NBFC in India. Therefore, let us now know the factors which led to the growth of Indian NBFCs.

Some of the factors which led to the growth of Indian NBFCs

Understanding the customer

The Indian NBFCs focus on deeply understanding the needs of the customers by focusing on the unorganized and underserved segment of the economy and frequently communicating and interacting with the customer segments. It ensures that it is efficient in its performance by upgrading its delivery and enhancing the experience of its products and services. Also, NBFCs keep on modifying its policies to meet the needs of its customers.

Reaching out to the wide range of audience

NBFC License are now building a connected channel experience that provides with 24*7 sales and services, reaching out to the Tier- 2, Tier- 3 and Tier- 4 markets and providing loans to several customers. NBFCs provide 24*7 online helpline numbers on their websites. It is mostly a toll- free number where the customers can reach out to resolve any queries regarding the financial products. It has created new and better ways to connect with the customers.

Customized product offerings

Where on the one hand, the banks are required to provide standard rate of interests and charges on their products as subject to the rules and regulations by the Reserve Bank of India (RBI^[1]), on the other hand, even though there are certain guidelines for NBFCs as well, but they are not rigid for traditional banking institutions. Therefore, this allows the NBFCs to offer customized products as per the requirements of the clients. Many NBFCs focuses on a limited line or often a mono- line set of products to serve to the target customer segment. It has customized the products offerings to serve with unique characteristics to the customer segment and focus on meeting their needs. Many NBFCs are adopting non- standard pricing models for their product lines, in line with the profile of the customer and inherent risk of lending. This facility to avail customized financial products entices and attracts a lot of people to opt or choose the NBFCs over the traditional lending institutions.

Sturdy and better risk management

Certain regulations of the NBFCs direct them to ensure the highest standard of risk management for all its financial products. NBFCs appoint financial experts at all the levels of management to ensure that it provides highest security standards and discretion. It keeps an agile, sturdy and better risk management model.

Leveraging technology and right use of it

Using of technology is helping the NBFCs to customize the credit assessment models and make the most effective use of business processes which thereby results in reducing the time to market and help in improving the customer experience. The NBFCs have been pro active in incorporating technology with all their processes. Most of them have online platforms that help to make fast online processing of loans, insurance applications and etc. It is investing much in data analytics and artificial intelligence to connect with its target customers more effectively.

Co- lending arrangements

NBFCs are making initiatives to tie up with multiple alternative lenders with commercial banks and digital platforms, thereby adding to their targeted customer base.

Dynamic Growth

The NBFCs with their unique team and credit delivery have got much valuation and credits for scaling up its finance provisions for the small scale businesses while maintaining its strong reputation, ability and quality. The loan provisions provided by NBFCs facilitate the small marketers with their occupational needs such as technology up gradation, equipment purchase, business expansion and working capital requirements. Further, the NBFCs are focusing on developing its networks in specific geographies. It has developed innovative ideas to become dynamic in its growth and reach out to the people.

Supervision of NBFCs

To ensure that NBFC operates and functions properly and avoid excessive risk taking, the Reserve Bank of India’s department of Non- Banking supervision has formed a four pronged supervisory framework such as: –

• On- site inspection on the basis of assessment and evaluation of capital, management, assets, liquidity, earnings and system.
• Use of market intelligence system.
• Off- site monitoring supported by state of the art technology that is through the periodic reports from the NBFCs.
• Reports of statutory auditors of NBFCs.

Conclusion

NBFCs contribute a lot towards the growth and development of the Indian economy. It has become prominent in a wide range of activities like finance, investments, equipment lease finance etc. It has greater reach and flexibility in utilization of resources. It focuses on creating a great connection with its customers and understands their needs and requirements. There are many factors which led to the growth of Indian NBFCs. NBFC as financial institutions has become successfully strong and meet with the challenges in today’s competition.

The important factors stated above have been influencing the development of the Non- Banking Financial Companies (NBFC) in India. Ensuring financial access in order to fuel growth of the Indian economy is essential. The rise of NBFCs will surely change the way of banking system in the country. It would result in the strategic and sustainable growth for NBFCs for a long term. Further, as now more and more individuals are taking digital mode of transaction and trading, the digital platform will potentially open new paths for development in India.

Also, Read: A Complete Summary of NBFC Compliance under FEMA