The Indian BFSI sector is undergoing a major transition. While rising menace of Non-Performing Assets (NPAs) is disrupting the operations of traditional banking institutions, several non-conventions entities are boosting the level of Financial Inclusion by reaching out to the underbanked segments of the society.
Non-Banking Financial Companies (NBFCs) are emerging as one such institution and are offering a bouquet of services and meeting demands of the consumers. According to Microfinance Institutions Network (MFIN), NBFCs and Microfinance institutions have more than 50 percent growth in the gross loan portfolio at Rs 51,878 crore in April-June 2018 as compared to the same period of last year.
While NBFCs are meeting the demands of the segments that are largely untouched by the banks, technology is significantly helping in broadening the scope for these institutions.
“Non-Banking Financial Companies (NBFCs) form an integral part of the Indian financial system. It helps in reaching out to the unbanked sections of Indian society, especially the Micro Small and Medium Enterprises (MSMEs) segment. NBFCs are also embracing a lot of new technologies. Cloud Computing plays a significant role in this regard. The government does understand the value of this sector and therefore is committed to speeding up its growth in every possible way. I believe due to the government’s initiative such as Aadhaar based technology, including eKYC (Know Your Customer), the turnaround time for customer engagement has now been reduced drastically. There are many more developments in the offing that would be rolled out soon,” said Prem Narayan, Deputy Director General, UIDAI, Government of India.
BFSI sector in India is transforming rapidly in alignment with the central government’s flagship scheme “Digital India”. NBFCs too have a greater scope to perk-up their services by implementing several tech-driven innovations.
“The greatest opportunities for NBFCs are in terms of tech-enablement. There is a lot of scope for smaller businesses with regard to digitisation. It is significant for them to convert digital footprint into a creditworthy data. Tech-enablement model is a new way of digital lending and it is proving to be an efficient way of serving the customers,” said Srihari Adurty, Co-Founder & Chief Risk Officer, FundsCorner.
Being young and dynamic, NBFCs are trying to cover up what is lacking in the formal banking sector of the country with their unique offerings and solutions.
“NBFCs were not regulated before 1991. Prior to that, there were a lot of scams that forced the government to take a step against these financial institutions. Today, this sector has become a focal point of the Indian economy. NBFC is a young and dynamic entrant in the broader BFSI sector and in my view, country’s NBFC players, in many ways are trying to cover up what is lacking in the formal banking sector of the country. These offer unique solutions that are very much customised to the needs of today’s tech-guided customers and that in my view is the main differentiator working for NBFCs,” said Raman Aggarwal, Chairman, Finance Industry Development Council.
NBFCs have been occupying a space that is largely left unattended by the conventional banking institutions for the past several years. There is a negative growth in the MSMEs lending by the commercial banks.
Explaining the role of NBFCs in meeting the needs of the MSMEs, Dr B Yerram Raju, Adviser, Telangana Industrial Health Clinic Limited, Government of Telangana said, “The progressive NBFCs now take major innovative steps to cater to the credit lines faster as compared to the commercial banks. The demand for lending in MSMEs is growing faster as per the latest figures reported by the Reserve Bank of India (RBI), the contribution of NBFCs in this lending is significantly high. I believe in future this contribution is going to grow beyond six percent.”
Posing a great threat to the banking institutions, Non-Performing Assets (NPAs) are hindering operations of several banking institutions. NBFCs, on the other hand, are assisting the banks in these tough times.
“The rising menace of Non-Performing Assets (NPAs) in India is bringing a lot of challenges for banks. In these tough times, NBFCs-MFIs are emerging as the new leaders catering to the demand of the customers in several innovative ways. Opportunities for both banks and NBFCs are equal but NBFCs are reaching out to the actual demand of the consumers,” said Punit Jain, Chief Executive Officer, Nelito Systems Ltd.
“Today it is worth probing that why NBFCs are succeeding when a lot of banks are not? The differentiator as I see is: Agility. So many banks today are in trouble, with high default rate and not being to penetrate the rural markets. On all these counts, NBFCs are doing a better job. In my view, the technology plays a game-changing role here. So be it, customer onboarding or approving of loans-in all such processes, technology has been the key enabler for NBFCs,” he further added.
In times when banks are under major pressure due to NPAs and amalgamation of Public Sector Banks is on the rise to deflate the inflating losses, investing in NBFCs can surely be a good step forward.
In alignment to the growing vitality of NBFCs in India, Elets Technomedia is organising 5th NBFC100 Tech Summit in Mumbai on November 20, 2018. It will be a unique congregation of experts from across NBFCs, Microfinance Institutions, Small Finance Banks, Payments Banks and Housing Finance Institutions. It will also offer a wide range of business opportunities and networking services to participants.
To know more, visit: bfsi.eletsonline.com/nbfc100/