NBFC

Market Size of NBFC (Non-Banking Financial Companies) in India

If we talk about the financial sector of India, it is under the rapid growth in terms of both existing and new undertakings entering the market. In the case of Non-Banking Financial Companies in India, it has rapidly contributed to the economy over the past few years.

Due to heavy debts in the public sector banks, their lending capacity is declining especially in rural areas. With this, NBFCs are increasing their presence. The main reasons for the success of NBFCs are such as lower cost, wider reach, and strong risk management capabilities with a better understanding of customer segments. Credit demand of our country can be fulfilled with the help of NBFCs as traditional banks are not able to serve all.

In India, ensuring financial access to fuel growth and entrepreneurship is not an easy task however with the help of government initiatives such as the launch of government-backed schemes; there has been a substantial increase in the number of bank accounts in all over the country.

It will provide an opportunity to NBFC market share in India to ensure sustainable growth over a period of time. In a comparison of traditional banks, it is believed that NBFCs have a strong understanding of the market which usually helps them in a position themselves as a better alternative of banks. With the increasing demand for digital in the daily life of the consumers, NBFCs have to think about their strategy to enhance their position in the market and the process of an end to end customer-facing.

NBFCs have to think about their strategy to serve customers through digital means after the launch of Digital India^[1] Programmed by the Government. In India, the Peer to Peer lending model directly connects borrowers and lenders.

Under this, players charge a registration fee and commission is earned from both lenders and borrowers. There is also a scope of negotiation of interest rates that enable borrowers to obtain capital at a lower cost while it provides an opportunity for investors to earn lucrative returns.

They provide personal, auto, working capital and other loans to individuals and small businesses that might be either salaried or self-employed. With this type of lending models, there has been a rapid rise in the number of customers over the past few years.

All around the world, India has the second-largest mobile phone users. For assessing consumer risk and the creditworthiness of customers, mobile phone records can be used.

How Does it Work?

For Credit Risk Assessment, a set of questions are used to evaluate the ability and willingness of the borrower. There are some tests that are used to evaluate credibility.

NBFCs are considered as very important financial intermediary mainly for small-scale sectors. In the Indian financial system, there is a great importance of the NBFC segment. In India, for NBFC, there is stringent regulation.

In India, now NBFC market share in India are giving tough competition to private sector banks. According to sources in upcoming years, for NBFCs and banks, MSME will be the main growth driver. In NBFCs, there is a simpler procedure of sanctioning the credit. There are more flexible terms of repayment. Over the past ten years, NBFCs have shown phenomenal growth.

A more enhanced framework is put in place by the Reserve Bank of India^[2] for NBFCs. It is required to get registered with the RBI to setup NBFC in India. Along with other government regulators, RBI is constantly improving the regulatory framework of the banking sector in India to curb the risk for financial stability.

Classification of Non-Banking Financial Companies in India

RBI has appointed various committees to obtain recommendations for market size NBFC to improve the role of Market Size of nbfc in the financial sector. With this, RBI also revises its guidelines for regulatory framework of NBFCs from time to time.

Regulatory framework

RBI revises its framework with a view to curb the risk in the financial system and to provide operational freedom to market size NBFC.

Regulatory Requirements

There are certain requirements for NBFCs to comply with such as Fair Practices Code (FPC) and anti-money laundering. NBFC-ND category is not subject to any prudential norms and has full freedom to conduct its activities.
Moreover, in the Indian economy, Market Size nbfc play a vital role as it has the ability to cover inaccessible areas. In the Financial sector, it is considered as a substitute for banks. In a comparison of banks, it is preferable because they have expertise in niche segments. In the Indian financial sector, it is the third-largest segment of banks.

Types of NBFC in India

 Asset Finance Company (AFC)

AFC is concerned with the Financing of physical assets such as automobiles.

Loan Company

Loan Company Provide finance for an activity other than Asset Finance Company.

Investment Company

Investment Company involves the acquisition of securities.

Infrastructure Finance Company (NBFC-IFC)

NBFC-IFC involves providing infrastructure loans.

Systematically Important Core Investment Company (NBFC CIC-ND-SI)

It involves the acquisition of shares and securities mainly in equity shares.

Infrastructure Debt Fund (NBFC-IDF)

It is a type of NBFC facilitating long-term debt into infrastructure project.

Micro Finance Institution (NBFC-MFI)

They provide economic support to the weaker section and Micro, Small and Medium Enterprises (MSMEs).

NBFC- Factor

It involves the acquisition of receivables against the security interest of the receivables.

Market Size

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