5 Factors That Led To The Growth Of NBFCs In India

Non-Banking Financial Companies (NBFCs) have been instrumental in driving the growth of the Indian economy. In recent years, these entities have proliferated dramatically and become the preferred source of credit for several small businesses and individuals. Here are five factors that have led to the growth of NBFCs in India.

Growth of NBFCs

1. Regulatory Challenges Faced By Banks

Stringent regulatory norms for banks have compelled them to adopt a cautious approach with regard to lending. This has resulted in a credit gap that NBFCs have been able to fill effectively. It has been observed that the credit-deposit ratio of banks has been declining over the years, providing ample opportunities for NBFCs to capture a significant share of the lending market.

Also Read: Understanding The Role And Functions Of NBFC In India

2. Favourable Demographics

India’s population is the second-largest in the world and is expected to increase at a steady pace. The country’s economy is poised to grow at a robust rate which augurs well for the NBFC sector. With rising incomes and aspirations, the demand for credit is likely to surge. This provides ample scope for NBFCs to expand their operations and cater to the diverse needs of an increasingly aspirational population.

3. Technological Advancements

Advancements in technology have enabled NBFCs to be more nimble and efficient in their operations. New-age technologies such as Artificial Intelligence and Machine Learning have enabled NBFCs to enhance their underwriting processes and risk management capabilities. The Managing Director of Poonawalla Fincorp, Mr. Abhay Bhutada believes that the speed of innovation has enabled the growth of the entire BFSI sector. Technology has also enabled NBFCs to provide a seamless and hassle-free experience to their customers, resulting in higher customer satisfaction.

4. Focus On Niche Segments

NBFCs have been successful in carving out specialized niches, such as microfinance, gold loans, consumer finance, etc. These segments have a more significant unserved or underserved market, and NBFCs have been able to capitalize on the opportunity. This has enabled NBFCs to differentiate themselves from banks and provide tailored financial solutions to their customers.

Also Read: NBFCs Vs Banks: Which One Is Better For Business Loans?

5. NBFCs As A Preferred Investment Option

Investors are increasingly viewing NBFCs as a lucrative investment option. NBFCs have raised a significant amount of funds through debt and equity issuances, providing them with the necessary firepower to expand their operations and tap into new markets. The robust valuations of several NBFCs have also attracted a sizable influx of foreign investments, further spurring their growth.

Conclusion

The growth of NBFCs in India can be attributed to a multitude of factors. While the sector has been able to fill a significant credit gap left behind by banks, advancements in technology and a focus on niche segments have enabled NBFCs to differentiate themselves and become indispensable players in the Indian financial ecosystem. The future for NBFCs seems bright, with ample scope for them to expand their operations and cater to the diverse needs of a rapidly growing economy.

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