In the frequently transforming banking industry, Non-Banking Financial Companies (NBFCs) have been fulfilling the requirements of the unbanked segments by promoting Financial Inclusion, purely on the basis of business potential and cash flow rather than credit history or collateral cover, says Ashok Bajaj, Managing Director and Chief Financial Officer, Insta Capital, in conversation with Rakesh Roy of Elets News Network (ENN). Exceprts:
What is the significance of NBFCs in terms of Financial Inclusion in India?
India is a land of financial diversity that garners most of its Gross Development Product (GDP) from Micro, Small and Medium Enterprises (MSMEs). It is a matter of irony that most of these enterprises are starved of capital to a large extent.
While banks have not been able to fulfil the requirements of these underserved segments, NBFCs have been able to create greater financial inclusion by lending on the basis of business potential and cash flow rather than credit history or collateral cover.
Further, NBFCs (unlike banks) have operational viability at lower volumes due to relatively fewer regulatory requirements, which makes it possible for NBFCs to focus on niche products or market segments, and have a greater understanding of their focus segments. This, in turn, leads to better/ customised products, lower delinquency rates, greater customer satisfaction and overall Financial Inclusion .
NBFCs with a vast network of branches are also providing other financial products such as insurance and investment products to those who may not have access to banks.
What are the Unique Selling Propositions (USPs) of Insta Capital that makes it unique as compared to others to serve SMEs?
SPEED is our key differentiating factor. At Insta Capital, we process loans from application to disbursement in less than 12 hours for repeat customers and 72 hours for new customers.
Our quick decision-making and disbursement has enabled by our proprietary underwriting system which we have developed and calibrated from years of experience and historical data spanning over four decades. We are also using latest technologies and analytics in our underwriting which allows a deeper understanding of risk and thereby low delinquency rates, which is the most important success factor for this industry.
We also provide a high degree of flexibility to the borrower in terms of tenor and repayment options to suit their cash flow. The entire loan process is completed with minimal paperwork.
How has NBFCs in India evolved with the changing business environment and customers’ expectations?
We are in the age of the digitisation. Customer’s attention span is shrinking and they want every service at the click of a button. Most traditional businesses have been disrupted by online players, and finance is no exception.
And, this disruption is being led by new-age NBFCs rather than banks. We do have banks that offer one- minute loans, however that’s for the existing clients of the banks and this is just cross selling. It is some of the new age NBFCs that are truly bringing down the turnaround time of loan applications to as little as a few hours or even minutes (for small ticket sizes). Such short turnaround time is only possible due to e-Know Your Customer, online banking and cloud based lending systems that are being implemented rapidly. Today, every company knows that they must innovate or sooner or later they will cease to be relevant.
As banks are burdened with Non Performing Assets (NPAs), they have not been able to cater to the increasing demand for credit off-late. This is where the NBFCs are playing a pivotal role.
How will technology transform NBFCs in future?
The Central Government is taking a lot of initiatives for digitising the banking sector and Digital India initiative is playing a pivotal role in this regard. With the introduction of Aadhaar and India Stack, eKYC is now a reality. It has made it simpler, faster and secure for NBFCs to verify the identity of its customers through biometrics. Frauds can also be prevented using these technologies.
The most disruptive technology, however will come in the form of data analytics. With the amount of data available to NBFCs – be it traditional sources (credit bureaus, bank statements, MCA data, etc.) or non-traditional data (social media profiles, aggregator data such as Flipkart and Ola, online review websites, etc.) – managing and monetising this data is a gold mine. Today, using analytics and predictive modelling, it is possible to distinguish low risk clients from high risk clients.
What are your future plans?
NBFCs are approaching the market with a rather aggressive outlook. Insta Capital started business about 24 months ago and has garnered quite an impressive track record as far as delinquency rates are concerned. We are currently serving businesses (Small and Medium Enterprise and Corporate) based in the Mumbai region only. However, being the financial capital of the country, demand in Mumbai is quite robust.
We plan to continue growing with a focus on the unsecured business lending segment by leveraging our digital marketing strategy and accelerating growth through strategic tie-ups with corporates and SME aggregators. We aim to be extremely versatile and agile moving forward by continuing to embrace latest technologies that are relevant for our business be it in the area of improved customer experience, greater operational efficiency or better risk management. While bank funding is easily available to us for funding our growth, we are also being approached by several investors who believe in our vision of being one of the leading NBFCs.