6 Reasons We Are Witnessing Growth of NBFCs in India
Origin of the NBFCs
When the global economy witnessed a severe economic crisis in 2009, businesses worldwide were struggling not to have enough finances to run their operations. Only very few institutions that did provide financing took advantage of this and started lending money at higher costs. Hence arose the need for alternative financiers who could transform the scene by turning savings into capital investments. Know more about asset mobilization through NBFCs.
Especially in the Indian context, the gaps in the availability of credits were greater, thus leading to the formation of NBFC in India. Abbreviated for Non-Banking Financial Company, these banking institutions played a key role in fulfilling the diverse financial needs of thousands of customers who did not have access to banks and financial services.
Established under the Companies Act, NBFCs in India is licensed by the Reserve Bank of India also known as RBI.
Scope and Role of the NBFCs
NBFCs in India function as intermediaries between financial institutions. They deliver credit, accept deposits, and facilitate scarce financial resources to create wealth for neglected sections. NBFCs also support the organized banking sector and the corporate sector to meet their ever-increasing financial requirements. They also deliver credit largely to the small borrowers and the unorganized sector.
NBFC in India has been flourishing for its scope of maximizing profitability, thus grounding its role in activities like the acquisition of shares, loans, bonds, stock, debentures, and securities issued by authorities
Reasons for growth of the NBFCs in India
The role of NBFCs in providing assistance as well as guidance during times of crisis has made it so popular among the citizens. NBFCs have time and again led the role in giving innovative financial services to small-scale, micro, and medium-sized enterprises through customization of needs.
NBFC in India has proven to be more profitable than banks owing to their lower costs and long-term ventures. Due to their cheaper credit to customers, NBFCs lend more money than banking sectors, ensuring multiplied profitability.
NBFC in India lends mostly to infrastructural projects that have a huge potential of contributing largely to the country’s economy. Although the amounts involved are quite high and the projects are risky with less surety of returns, NBFCs are seen as better options than banking sectors for such projects.
Inclusivity in the financial market
NBFCs cater to both rural and urban firms that are usually left out by banking sectors due to a lack of certain parameters. Thus NBFCs bring much-needed inclusion and diversity by increasing liquidity. NBFCs have been there for small firms, startups, and rural businesses through microfinancing, thus bringing efficiency to their operations. This, in turn, promotes financial stability in the market.
NBFCs allow smooth mobilization of funds, resources, and capital. They offer easier investment norms, thus creating a fine balance between regional incomes and overall asset distribution. NBFC in India has largely turned savings into investments with better than traditional bank’s practices.
NBFCs have provided companies with funds through equity participation as against traditional banks. NBFCs usually supply long-run credit to traders and thus fulfilling the need for long-term finance with soft interest rates.
Innovation in offerings
NBFCs offer widely flexible lending as well as investment opportunities than banking sectors. They also personalize and fine-tune their offerings for corporations, the P2P being one emerging example. This makes them even more popular among traders.
NBFC in India has been instrumental in employment generation, wealth creation, bank credit for rural segments, and uplifting the financially weaker sections. These reasons have ensured the growth of NBFCs at an unprecedented pace.