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In the last few years, the financial sector has undergone a significant transformation, and the NBFCs (Non-Banking Financial Companies) have been an essential component in that change. NBFCs have continued its growth, and its contribution to the Indian GDP has gone past the contribution by banks.
Therefore, NBFC registration in India may look like an excellent option for entrepreneurs. However, there are certain challenges faced by people while starting NBFCs. In this article, we shall look at those challenges faced by NBFCs.
NBFCs have been capturing market shares and have made rapid progress than the banks, but small NBFCs have faced difficulty in establishing themselves due to the presence of a few prominent players in the NBFC market.
There are a number of challenges faced by NBFCs. Some of the major challenges are discussed below:
However, the NBFCs are dependent on banks or the capital markets for raising resources. This is quite unfavorable to the sustainability of the growth of NBFCs. Moreover, it is also to be noted that the funds flow from these sources can run dry anytime.
Below are some of the major compliance challenges faced by the NBFC sector:
Enterslice is offering a few actions that would help address the challenges with compliance and the difficulty in managing them to run an NBFC.
To address these operational challenges, Enterslice can help small NBFCs by considering the following:
We assess the unique issues faced by NBFC and create specialised solutions in line with its business strategy, legal regulations, and expansion goals.
Because they serve the nation's unbanked and underbanked people, NBFCs play a key role in the economy. NBFCs offer financial services to people, small and medium-sized businesses, and other companies that aren't catered to by traditional banks.
NBFCs must abide by a number of regulatory criteria because they operate in a regulated environment. Due to their lack of resources and expertise in compliance, small NBFCs frequently struggle to comprehend and apply these requirements. Penalties, reputational harm, and disruptions in corporate operations can result from non-compliance. Enterslice is offering solutions for all business sizes.
An NBFC cannot issue checks drawn on itself because it is not a part of the payment and settlement system. Unlike banks, depositors of NBFCs do not have access to deposit insurance. Only some NBFCs can accept deposits; the majority cannot.
They provide a wide range of financial services and products, including personal loans, business loans, auto loans, loans secured by property, and other credit options. Additionally, NBFCs offer investment options such as mutual funds, term deposits, and other investment goods.
Access to capital is one of the greatest problems NBFCs in India face. NBFCs are forced to rely on bank loans or the sale of bonds to raise money, as opposed to banks, which have access to low-cost deposits. It may be challenging for NBFCs to compete with banks on interest rates as a result.
All business services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger operations, now rely heavily on NBFCs. As a result, these businesses have a significant impact on the provision of credit to the unorganised economy and for local small borrowers.
NBFCs have also made a substantial contribution to the growth of the Indian economy. They have acknowledged crucial sectors like real estate, infrastructure, and MSMEs that significantly contributed to rapid economic growth.
Also, read: Check List for an NBFC Business Model.
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