This is a time of great change and expansion in the Indian economy. The financial sector has expanded steadily in recent years. The Indian economy was hit hard by the pandemic, and the financial market has spent the past year recovering. NBFCs have formed a major part of the financial lending sector and have greatly contributed to growing the economy of the nation. With the Government encouraging MSMEs and a rise in the number of established enterprises in India, there has been a pressing need to make capital more accessible. This is where NBFCs have stepped in and become the new industry standard.
Since their inception, non-banking financial companies (NBFCs) have expanded rapidly, becoming an integral part of the current economic system and a vital factor in helping the lending industry. They’ve been crucial in directing funds toward the production of new capital for growing MSMEs and helping low-income households. Small local borrowers have benefited from NBFCs’ ability to fill in the gaps left by the traditional banking system and meet the increasing capital needs of businesses. They are experts at determining their customers’ individual requirements and providing them with suitable financial services. Especially in the wake of the COVID-19 outbreak, they have helped in reshaping the country’s financial system and bringing stability during times of disruption. In the financial sector, non-banks promote innovation and increase competition because they are subject to less stringent and more differentiated regulations than banks. The growing demand for enhanced technology has contributed to their stratospheric rise.
Leveraging ever-evolving technology
The growth in demand for NBFC services is due to efforts made to strengthen the bonds with clients and security built to increase trust. By eliminating the need for key staff to undertake mundane operations like sifting through piles of paperwork to assess a borrower’s creditworthiness and associated risks, technology improves efficiency and productivity. Artificial intelligence is used to tailor loans to each individual’s needs. Incorporating AI and data analytics into NBFCs’ lending system, payment collection, and management processes has proven to be a revolutionary change. There are immense advantages of digitisation in NBFCs like broader inclusion, lower costs, more outstanding credit quality, and faster turnaround times. These are achieved through the technology-driven business model of NBFCs, which is predicated on the capabilities of RPA to reduce reliance on human processes.
Lenders have historically used a single approach, applying the same credit policy universally regardless of the nature of the borrower. This has resulted in the rejection and exclusion of many otherwise-qualified borrowers. Various interest and loan plans are made available to the intended recipients, each suited to their individual needs and financial situations. As a result, they may reach a wider range of potential clients and tailor their product offerings to each one based on their individual credit histories. NBFC lenders take a more individualised approach to approaching lenders by utilising segment-definitive standards, leveraging different data sources, and making credit decisions using scorecards. They employ a technology-driven approach that enables them to identify potential borrower’s needs and tailor financial lending packages to their specific needs.
NBFCs prioritise the needs of small businesses, retailers, and those in rural areas. With their multi-channel facilities, NBFCs are increasingly serving not only large cities but also smaller towns and their local merchants. The frequent interaction prepares a carved-out niche for businesses in the NBFC sector. The collaboration of NBFCs with other financial institutions resulted in the provision of a broader range of services to their customers, such as deposit taking, loan making, and investment management. They believe that financial inclusivity for all is the core step to reducing poverty. Providing financial capital and loans to low-income households allows them to create a space for financial inclusivity.
These recent developments are now contributing to the expansion of NBFCs in India. This expansion is occurring due to better, non-standard pricing structures geared to the product lines while maintaining a tight rein on loan risk. The NBFCs are resilient because they are resourceful and can adapt to changing circumstances.
The NBFC industry is evolving into a destination for all of a customer’s financial needs. NBFCs are crucial to India’s economic development since they serve as the key facilitator of the country’s growth journey. The RBI has been introducing instrumental changes to the guidelines for NBFCs which have resulted in better system processes and higher client trust, resulting in further growth of this segment.
Views expressed by H P Singh, Chairman & Managing Director, Satin Creditcare Network Limited