6 Factors that led Growth of NBFCs In India.

October 14, 2022

6 Factors that led Growth of NBFCs In India.

Non-banking Financial Companies (NBFC) sector in India has undergone a significant transformation over the past few years and plays a significant role in the growth of the Indian financial system.

NBFC in India sector is playing a critical role in the development of Core infrastructure, transport, employment generation, wealth creation, economic development of the weaker sections in India.

Non-Banking Financial Companies have outperformed banks in the Mortgage Industry, by leveraging technology in credit deployment. Technology has made NBFC’s expand into underserved segments, where the banks don’t serve. NBFC’s have carved niche business areas for themselves by understanding customers & building customized products, which the commercial banks fail to.

The total Credit market of NBFC’s is going up from 13% FY16 to 16% FY17 to 20% FY18. The average growth of NBFC’s will be 4-6% every FY.

This is a significant growth in the NBFC industry, but what is making this growth happen?

Deep understanding of the Customers segment:

NBFC’s have strongly focused on unorganized & Under-served segments of the economy, which led the companies to create a niche for themselves through frequent interactions with their Customer segments & deeply understanding needs. They are ensuring last-mile delivery & enhanced customer experience of products & services.

Customized product offerings by NBFC’s:

Several NBFCs have focused on a limited line (or often a mono-line set of products) to serve the target customer segment. Armed with a thorough comprehension of their target segment, NBFCs have customized product offerings to address unique characteristics of the customer segment and focus on meeting the right needs. Several NBFCs are adopting non-standard pricing models for product lines, in-line with the customer profile and inherent risk of lending.

Leveraging Technology for Improved Efficiency and Enhanced Experience:

The use of technology is helping NBFC companies customize credit assessment models and optimize business processes, thereby reducing the time to market and helping improve customer experience. NBFCs are investing in data analytics and artificial intelligence to build robust relationships with their target customer segments.

Wider and Effective reach:

NBFCs are now reaching out to Tier-2, Tier-3 and Tier-4 markets, distributing loans across several customer touch-points, building a connected channel experience, that provides an omnichannel seamless experience with 24/7 sales and service, as the consumers of today evolving and accessing digital media like never before, NBFCs have embarked on new and better ways to engage with the customer.

Co-lending Arrangements:

NBFCs have been tying up with multiple alternative lenders with digital platforms and commercial banks as well, which has been adding to their targeted customer base.

Robust Risk Management:

Given their focus on lending to the sub-prime customer segment, and regulatory disadvantage (SARFEASI, DRT, and capital adequacy requirements) in comparison to commercial bank lenders, NBFCs are ensuring enhanced governance through a proactive, robust and agile risk management model.

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