NBFC Fintech Model – A Scalable and Profitable Business Model
NBFC Fintech models are digital loan companies. NBFC provides fast and convenient access to funding and leverage information technology. As the main function of the NBFC is to carry financial activity as a principal business i.e. engaged in the business of loan and advances as well as the business of receiving deposits under any scheme or arrangement in a lump sum
NBFC Fintech acts as the right supplements to the banking business. NBFC Fintech reflects financial technologies that provide financial services through the new and advanced technology to the consumers to have a direct connection with them.
What are the eligibility criteria of an NBFC Fintech model for funding assistance?
New-age Fintech NBFCs have to meet prescribed eligibility criteria and parameters mentioned below-
- Minimum capital risk-weighted assets ratio of 15 per cent;
- Non-performing assets less than or equal to 4 per cent;
- Minimum net-owned fund (NOF) of ₹20 crore
- The Minimum asset size of ₹50 crore;
- At least two audited annual reports,
- Positive net worth and leverage ratio within 5:1.
What are the factors that affect the working of the NBFC Fintech model?
There is an increased number of internal and external forces and environment that affects the working of the NBFC Fintech model:
- Stiff competition and new entry of Fintech players to compete leveraging technology-based operating models.
- Restricting the ability of the NBFC to freely impose the Price and the active regulations that increase the cost to comply.
- Increased ability to launch the products and also reducing the cost to serve to ultimately reach a new customer segment.
- Increase in the level of expectation of the consumer.
- Pricing pressure and shrinking credit performance.
- NBFC Fintech is not allowing the lenders to add unique capabilities to boost up their value proposition.
Role of NBFCs Fintech in the Development of the Nation
NBFCs Fintech is playing a crucial role in the development of the infrastructure, employment generation, in the creation of wealth, economic development and especially the weaker sections of the society.
By disrupting the segment of retail and MSME segment, NBFCs are offering a varied range of products such as equipment financing, leasing, housing finance and gold loans to carry out a new segment i.e. consumer durable finance by analyzing the following factors-
- Products as per their customer segment and are focusing on customized products offering.
- Optimize business model through improved efficiency and enhanced experience.
Major Highlights in the NBFC sector as per Union Budget 2019
In the Union Budget 2019 contains several legislative measures to strengthen the NBFC sector and aimed at giving more regulatory powers to the RBI. The backdrop of these amendments is maybe some of the recent episodes in the financial sector.
- To uplift the working of the NBFC Fintech model, as, until the first half of the FY 2019, the credit growth of NBFCs was higher than the credit growth of banks. However, the sector was hit by a liquidity crisis, in the second half.
- Government has taken the step to increase the liquidity in the system as they will have more resources to raise funds. Additionally, For the NBFCs facing the liquidity crisis, the measures are taken by the government that will help to raise funds and to meet out the consumers’ requirement.
- Under the Union Budget, all sound Non-Banking Finance Companies amounting to 1 lakh crore rupees, one-time 6-month partial credit guarantee to be given to public sector banks for the purchase of high-rated pooled assets of NBFCs falling in this category.
- The budget has responded very precisely as per the requirement of the various sectors through adequate funding, allocation of resources, proper analysis of regulatory shortcoming and by streamlining foreign investment.
- The Finance Minister proposed to merge the Non-resident Indian (NRI) portfolio route with the FPI route by increasing more NRI fund flows into the country.
- The government has given more regulatory power to the RBI by inserting a new section 451-D in the RBI Act. RBI has given the power to remove the directors of an NBFC on the basis of specific grounds i.e. Public Interest, Financial security and to secure the management in the proper way. The Provided opportunity of being heard will be given to the Independent Director.
- Emphasis on high surveillance on NBFCs-Emphasis has been given on the changes proposes to provide additional power to the RBI to supersede on the actions of the board and in case of stress to carry out the resolution of the NBFCs.
- To ease down the fund-raising scenario of the NBFCs number of measures has been taken to remove the complexity and loopholes in the process by enhancing the fund-raising policies of NBFC.
- To allow NBFC to participate in TReDS (Trade Receivables Discounting System)-The Finance Minister in order to encourage more participation of the NBFCs Fintech in the TReDS,(Trade Receivables Discounting System)has proposed the changes in the factoring law to be amended which as result would allow other NBFCs also to carry out factoring activities. In India, factoring continues to be an underutilized financing instrument.
- Banks acquiring NBFC pools will be provided partial credit guarantee which as a result will encourage the PSB (Public Sector Bank) in buying the NBFC pools.
The Budget 2019 was full of advantage for the NBFC sector. All the measures and amendment introduced in the union budget are extremely important as the Government of India has started analyzing the relevance of the NBFC sector in the economy.