{"id":3567,"date":"2021-03-23T06:44:26","date_gmt":"2021-03-23T06:44:26","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=3567"},"modified":"2021-03-23T06:44:28","modified_gmt":"2021-03-23T06:44:28","slug":"major-challenges-and-remedies-by-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/","title":{"rendered":"What are the Major Challenges and Remedies by NBFCs? \u2013 An Overview"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In the\nlast few years in India, the financial sector has observed a rapid\ntransformation, and NBFCs or Non-Banking Financial Companies plays a vital role\nin that growth. Non-Banking Financial Companies in India continued to gain huge\nsuccess in the financial sector, and its involvement has surpassed the\ncontribution by the traditional banks. Henceforth, <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC\nRegistration<\/a><\/strong> sound like a favourable scheme for all the entrepreneurs\nin India. However, there are some difficulties faced by an individual while\ncommencing an NBFC in India. In this blog, we discuss some major challenges and\nremedies by NBFCs in India.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a928264b97\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a928264b97\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/#What_is_an_NBFC_%E2%80%93_An_Overview\" title=\"What is an NBFC? \u2013 An Overview\">What is an NBFC? \u2013 An Overview<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/#Various_Roles_of_NBFCs_in_India\" title=\"Various Roles of NBFCs in India\">Various Roles of NBFCs in India<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/#What_are_Some_Major_Challenges_and_Remedies_by_NBFCs_in_India\" title=\"What are Some Major Challenges and Remedies by NBFCs in India?\">What are Some Major Challenges and Remedies by NBFCs in India?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/#Challenges_encountered_by_NBFCs\" title=\"Challenges encountered by NBFCs\">Challenges encountered by NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/#Remedies_to_the_Challenges_Encountered_by_NBFCs\" title=\"Remedies to the Challenges Encountered by NBFCs\">Remedies to the Challenges Encountered by NBFCs<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_an_NBFC_%E2%80%93_An_Overview\"><\/span>What is an NBFC? \u2013 An Overview<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before we discuss some major challenges and remedies by NBFCs, let first understand the term &#8220;NBFC&#8221;. \u00a0An NBFC stands for Non-Banking Financial Company, and it&#8217;s a financial company which is registered under the Companies Act, 1956 and 2013, involved in the business of advances or Credits or loans, acquisition of stocks or bonds or debenture or shares or securities issued by Local Authority or Government of India or other marketable securities such as leasing, chit business, nature, hire-purchase but does not include any organization or any institution whose principal business is that of industrial activity, agricultural activity, sale or purchase of any goods and services and sale or construct or purchase of an immovable property. A non-banking organization that is a company and has the principle business of getting deposits under any arrangement or plans in a single lump sum or instalments by way of contributions or another manner is also an NBFC (Non-Banking Financial Company). After knowing the term NBFC, we can now move forward and understand all the major challenges and Remedies by NBFCs in India.<\/p>\n\n\n\n<p><strong>Also, Read: <\/strong><mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/prerequisites-of-nbfc-registration\/\">Prerequisites of NBFC Registration in India \u2013 An Overview<\/a><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Various_Roles_of_NBFCs_in_India\"><\/span>Various Roles of NBFCs in India<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Following\nare some specific roles of NBFCs in India:<\/p>\n\n\n\n<ul><li>It helps in growing wealth creation.<\/li><li>Helps in economic development.<\/li><li>A huge contribution to the state exchequer.<\/li><li>Development of financial markets.<\/li><li>It delivers long-term audit and dedicated\ncredit.<\/li><li>Substantial employment generation.<\/li><li>Development of infrastructure.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_Some_Major_Challenges_and_Remedies_by_NBFCs_in_India\"><\/span>What are Some Major Challenges and Remedies by NBFCs in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>You can\ncheck all the major challenges and remedies by NBFCs in India from below:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Challenges_encountered_by_NBFCs\"><\/span>Challenges encountered by NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Non-Banking Financial Companies have been consolidating their presence in the financial market and have made noteworthy progress than regular banks. However, new or small NBFCs in India encountered some major challenges in protecting their presence against their popular counterparts.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Challenges-encountered-by-NBFCs.png\" alt=\"Challenges encountered by NBFCs\" class=\"wp-image-3569\" width=\"483\" height=\"248\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Challenges-encountered-by-NBFCs.png 900w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Challenges-encountered-by-NBFCs-300x154.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Challenges-encountered-by-NBFCs-768x395.png 768w\" sizes=\"(max-width: 483px) 100vw, 483px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Absence of Refinancing Option:<\/em><\/strong> In\nIndia, regular banks are prepared with several refinancing options. Similarly,\nhousing financing companies also have certain refinancing substitutions at\ntheir disposal, and it refinances from the regulator of Housing Financing\nCompanies. On the other hand, the Non-Banking Financial Companies entirely\ndepend on the capital market or banks to attain resources. This acts as a\nresistance to the NBFC growth. Moreover, always remember the flows of finds\nfrom these sources can get vanishes anytime.<\/li><li><strong><em>Issues in availing NBFC License:<\/em><\/strong> The\nprocess for obtaining an NBFC License is more difficult and complicated as\ncompared to other licenses. The process involves complex and boring\ndocumentation processes and approval from the Reserve Bank of India (RBI).\nAlways keep in mind that RBI controls the process, which should be followed by\nthe applicant to avail NBFC Registration.<\/li><li><strong><em>Complex NBFC Compliances:<\/em><\/strong> Once\nthe NBFC Registration is done, it also requires to address some compliances.\nNBFC compliance differs from one type of company to another. So, the difficulty\ngrassed on when a person running an organization of loans and advances, etc.,\nit becomes difficult to know about the filing necessities of the suggested\nreturns. This is probably one of the most complex challenges faced by NBFCs.<\/li><li><strong><em>No Flexibility in Loan Classification of\nNPAs: <\/em><\/strong>NPA or Non-Performing Assets bears important significance\nfor the major players, but businesses with unpredictable cash flow encounter a\nnegative impact on payment related delays. Classifications under NPAs and flexibility\nin scheduling is crucial. The arrangement of NPA ought to be based on assets\nfinanced rather than the profile of a borrower.<\/li><li><strong><em>Absence of Legal Recovery Tool: <\/em><\/strong>The insufficientstatutory\nrecovery tool is another complicated issue taunting the Non-Banking Financial\nCompanies for a long.<\/li><li><strong><em>Undue Tax Treatment:<\/em><\/strong> There\nexists a great variation within the tax structure for banks vs NBFCs, such as <strong><em>TDS\n(Tax Deducted at Source), <\/em><\/strong>double taxation on the lease or hire\npurchase, etc.<\/li><li><strong><em>Absence of Defaulter Database: <\/em><\/strong>Non-Banking\nFinancial Companies are more susceptible to credit risk under the influence of\ninsufficient information. In addition to that, there is a necessity for\nessential statutory changes to control the payments database in the credit\nassessment&#8217;s process.<\/li><li><strong><em>Absent in Capacity Building<\/em><\/strong>: NBFCs\nin India must create an accessible ecosystem for capacity building on a person\nas well as a collective basis. Then the bulk of the Non-Banking Financial\nCompanies still lack the said perspective; hence, it must be addressed as\nquickly as possible.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Remedies_to_the_Challenges_Encountered_by_NBFCs\"><\/span>Remedies to the Challenges Encountered by NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Following are some remedies to overcome the challenges faces by NBFCs in India:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Remedies-to-the-Challenges-Encountered-by-NBFCs.png\" alt=\"Remedies to the Challenges Encountered by NBFCs\" class=\"wp-image-3570\" width=\"525\" height=\"324\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Remedies-to-the-Challenges-Encountered-by-NBFCs.png 900w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Remedies-to-the-Challenges-Encountered-by-NBFCs-300x185.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Remedies-to-the-Challenges-Encountered-by-NBFCs-768x474.png 768w\" sizes=\"(max-width: 525px) 100vw, 525px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Team up with Fintech Companies<\/em><\/strong>: The\nNon-Banking Financial Companies can team up with Fintech Companies since their\nservices are affordable and innovative in terms of brokerage, payment, and\ncredit scoring.<\/li><li><strong><em>Assign SMEs to Manage Compliances: <\/em><\/strong>An\nexpert team of <strong><em>Subject Matter Experts (SMEs)<\/em><\/strong>can be appointed for NBFC License,\ncompliances, and documentation. It will let them overcome differences through a\ngeneral approach.<\/li><li><strong><em>Create an Effective Business Plan and\nObserving Framework: <\/em><\/strong>If a Non-Banking Financial Company is in\nits starting phase, it is crucial for them to summaries an understandable business\nplan along with an observing framework to keep their eyes on discrepancies.<\/li><li><strong><em>Co-originating Lending: <\/em><\/strong>It will\nlet these financial companies overcome funding-related problems along with\nother disputes.<\/li><li><strong><em>Implement Risk Management: <\/em><\/strong>A\ncompany should set up a framework related to Risk Management since there are\nmany difficulties that the company might face. It will strengthen the company\nto identify the possible loopholes with ease. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The major challenges and remedies by NBFCs are countless; however, it is not something that cannot be overcome. The Reserve Bank of India or <a href=\"https:\/\/www.rbi.org.in\/\">RBI<\/a> has observed the challenges and is about to make some computable decision for Non-Banking Financial Companies. These companies are vital for the survival of the financial sector in India.<\/p>\n\n\n\n<p><strong>Also, Read: <\/strong><mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/nbfc-registration-procedure-with-rbi\/\">NBFC Registration Procedure with RBI \u2013 A Complete Guide<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the last few years in India, the financial sector has observed a rapid transformation, and NBFCs or Non-Banking Financial Companies plays a vital role in that growth. Non-Banking Financial Companies in India continued to gain huge success in the financial sector, and its involvement has surpassed the contribution by the traditional banks. Henceforth, NBFC [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":3568,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58,56],"tags":[529],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3567"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=3567"}],"version-history":[{"count":3,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3567\/revisions"}],"predecessor-version":[{"id":3573,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3567\/revisions\/3573"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/3568"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=3567"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=3567"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=3567"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}