Emerging Prospects for NBFCs in the Indian Financial Landscape in 2023

Financial Landscape

NBFCs are companies created in accordance with the Companies Act. With the Reserve Bank of India, these businesses receive NBFC licences (RBI). NBFCs are financial intermediaries that conduct financial transactions. NBFC provides credit, accepts deposits, and is crucial in directing limited financial resources towards the development of wealth. They provide credit to the unorganised sector and small local borrowers, assisting the organised banking sector in addressing the corporate sector’s rising financial requirements. However, they are not permitted to fund any agricultural, industrial, commercial, or residential real estate development or sales.
The world is recovering from the effects of the difficulties presented in recent years. Despite its difficulties, India has emerged as a region of economic growth amid predictions of a worldwide decline. According to a recent World Bank research, when compared to other significant emerging economies and financial landscape, India is better equipped to handle global spill overs and navigate global headwinds.

Objectives of NBFCs

Both business entities’ and individual customers’ financial needs are covered by NBFCs. The following are the several other purposes of non-banking financial institutions:

Provides Long-Term Credits: In order to meet the long-term financial demands of businesses engaged in commerce, trade, infrastructure development, and construction, NBFCs offer extended credit terms.

Expansion of National Income: Providing capital to various private businesses, they help industries grow faster and boost the nation’s Gross Domestic Product (GDP).

Provide Job Opportunities: NBFCs indirectly create job possibilities in the nation by promoting and assisting small and medium-sized businesses (SMEs).

Mobility of Funds: NBFCs are always beneficial for the economy since they mobilise capital by turning savings into investments and using that capital to lend to businesses.

Improved Living Standards: As industrialisation expands and NBFC loans are made available, people’s purchasing power rises, ultimately raising their standard of living.

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Strengthening financial market: The NBFCs are the financial market’s heart and soul. Hence their strength is crucial. Most startups and SMEs rely primarily on NBFCs to obtain loans to meet their capital requirements.

Emerging prospects of NBFCs in the Indian Financial Landscape

In 2023, non-bank lenders will concentrate on restoring growth by improving asset quality supported by rising retail demand and liquidity, according to a recent analysis by ICRA. The MSME sector and other growing sectors will see more participation from NBFCs as part of the same. Also, more NBFCs will start investigating AI and machine learning for services or full-fledged applications with the introduction of 5G services nationwide.

Compared to 15 to 20 years ago, the gold loan sector has gained credibility, and the industry’s ongoing competitiveness shows that it is expanding. Even though banks will continue to compete in the market, NBFCs will remain an important player because of their wider reach, increased flexibility, individualised services, and cutting-edge digital solutions. Gold loans were a crucial source of financing for MSMEs, the agricultural sector, small companies, and the unorganised sector, as is clear from the consistent demand for gold loans.

It’s critical to overcome the significant difficulties the NBFC sector is currently experiencing if development is to continue in 2023. The recent change in the RBI’s securitisation regulations, which say that loans with residual maturities of fewer than 365 days cannot be securitised, is one of these difficulties. Due to the shorter period of gold loans and MFI loans, this may have an effect on the amount of securitisation.

NBFCs will need to concentrate even more on their pricing power to sustain profitability and also focus on higher-yield categories for expansion in a climate of rising interest rates and fierce competition from banks. NBFCs will continue to perform better and become stronger in financial landscape in the years to come if they have more robust business models, adequate capital, excellent underwriting capabilities, and a focus on digital strategy.

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Compliances and regulations

NBFC expansion typically goes hand in hand with a wider regional branch footprint. The reach is greater, and the asset under management is consequently greater the more branches there are (AUM). Regrettably, as businesses expand, federal, state, and local levels all have much more compliance requirements. 

  • NBFCs are required to abide by the Master Directions and Master Circulars published under the Reserve Bank of India Act 1934, including the “Non-Banking Financial Company – Micro-Finance Institutions” (2015) and “Information Technology Framework” (2017). Additionally, they must follow the Fair Practices Code (FPC) and make those codes available on their website.
  • The terms and conditions of the borrowers’ loans must also be explained to them in regional languages. The personnel needs to be instructed to avoid using coercion in the loan recovery procedure. 
  • The corporations must choose an internal ombudsman, who must submit reports on the complaints they receive and the decisions they make on a quarterly and annual basis. All NBFCs must also meet the numerous Video Customer Identification Process (V-CIP) compliance standards.
  • The Prevention of Money Laundering Act of 2002 and the Prevention of Money Laundering (Maintenance of Records) Regulations of 2005 mandate that NBFCs keep records and submit returns. The RBI’s Fair Practices Code standards and other vital rules have similar criteria. 
  • The industry is heavily regulated, and businesses are required to abide by RBI laws as well as those set forth by the Ministry of Corporate Affairs. Each rule has its own set of requirements for filings, documents, procedures, and penalties.
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Looking ahead on NBFCs financial landscape

NBFCs may be able to offer themselves as a superior alternative to conventional banking practices and to their extensive reach and thorough grasp of the market. The addition of such specialised players and technologies will significantly alter the entire banking value chain. For NBFCs, this offers a strategic chance to secure long-term, sustainable growth.

Looking forward, From a macroeconomic standpoint and as a key accelerator in the Indian financial landscape, NBFCs have been quite significant. For addressing the financial landscape

and needs of numerous sectors, NBFCs are unquestionably becoming more advantageous alternatives to traditional banks. But, in order to thrive and continue to expand, NBFCs must concentrate on their core advantages while strengthening their disadvantages. 

In order to remain in this very competitive financial industry, they will need to be highly dynamic and constantly try to find new goods and services. The regulatory framework has to be updated due to the NBFC sector’s innovative and dynamic nature.


The NBFC industry accelerates the country’s economic growth. The RBI is continually working to make the required modifications to the NBFC regulatory framework in order to proactively give regulatory assistance to the sector and maintain long-term financial stability. In 2023, NBFCs will make a more significant impact on the socioeconomic structure of the Indian economy. The potential for credit penetration in India is still relatively high. NBFCs may establish a new standard by working with fintech and creating new business models with specialised goods.

Also Read: How are NBFCs Changing the Business Loan Landscape in India?

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