NBFCRegulatory Approval

Future of NBFCs in India – A Reality Check

calendar27 Mar, 2020
timeReading Time: 3 Minutes
Future of NBFCs in India

In the Indian economy, NBFC is playing a phenomenal role by providing excellent sources of funding. NBFC has gone through extraordinary progress over the past few years. In India, NBFC majorly covers those sections that are not covered by the banks, i.e. Infrastructure, micro, small and medium enterprises. NBFCs are often used by the borrower as compares to the banks as they are quite efficient in meeting financial requirements. In the article, we will discuss the Future of NBFCs in India, how technologies are uplifting the growth of NBFCs, and how the Government is taking measures to uplift the growth of NBFCs.

Significance of NBFCs in the Indian Economy- An Overview

In the Indian economy, NBFCs are playing a vital role in uplifting the Infrastructure, creation of wealth and employment generation. NBFCs are majorly focusing on the weaker sections of the society.

NBFCs are offering a varied range of products, financing, leasing, housing finance, and gold loans for carrying out the new division, i.e. durable consumer Loans by taking into consideration the following key points-

  • Providing tailor-made products offering and products to the customers.
  • Uplifting the business model through improved efficiency and enhanced experience.

Further, it has emerged as an alternative to conventional Banking. Though the year 2019 had brought several challenges for the sector, and it was evident that there is an urgent need to hold the positives. Taking into consideration the future of NBFCs in India, it was announced in the budget (2019) the growth aspiration of achieving a $ 5 trillion economy in 2024.

Role of Advanced technology in the Future of NBFCs

In recent times, the regulation for NBFCs has become stricter, and the borrowing cost has increased. NBFCs are focusing on developing new and innovative products through advanced technologies. Advanced technologies help the NBFCs in adopting the business and powered models that help in facilitating the design launch and execution of the tailored products and services used by the NBFCs. Technology-driven services help the NBFCs in lowering the costs and in increasing the customer base.

Newly formed NBFCs are using advanced technology which will result in a better future of NBFCs. Technologies like Artificial Intelligence, Machine learning have prepared the lenders in evaluating the customer’s perception and also in maintaining alternative credit scoring models.

For the better future of NBFCs, NBFCs are using the technology-driven business model, which is reducing the dependency on manual tasks.

Read our article:NBFC Registration – Know the Entire Incorporation Procedure

Issues Faced by an NBFCs

NBFCs are facing the issue of a liquidity crisis. The market was grasped by not taking the risk, which as a result, affected the credit outflow of NBFCs. Without considering the asset-liability scenario, NBFCs went on thoughtless credit expansion as a consequence; the result is in front of everyone. The perception of NBFCs regarding the risk-taking ability of credit has increased significantly, which resulted in taking the strict steps by the Government.

Further, NBFCs were also facing issues like Asset quality and offhand growth in the loan book. The issue of asset quality was mostly faced by wholesale financers. However, companies in the retail segment are not much concerned about asset quality.

It is apparent that the slowdown of the economy is real, the confidence of the consumer is declining, and RBI has limited the GDP growth rate at 4.5%. NBFCs are finding ways to manage their books, demand and stay in business in long-run. Through Advanced technology, New NBFC lenders are focusing on processes and models driven aids.

Prospect in the 2020-An overview of the initiative taken by the Government for the better Future of NBFCs

In India, with a view to enhance the demand and to ensure liquidity, the Government has taken various measures by organizing the Loan mela and Partial Credit Guarantee scheme.

Observing the scenario, Amit Shah[1] said, From the industry point of view, the outlook for 2020 is cautious as the slowdown has begun and it cannot be spun that easily. A booster shot is required to uplift the NBFC. Adding to that, Shah further said

“Structurally, the Government can make it easier for MSMEs to survive the environment by providing more subsidies to some sectors and build more platforms for small-scale industries to expand. The Government should consider relaxing and easing some compliances, for e.g. reforms on taxes or entry requirements for DFIs”.

In recent years, the future of NBFCs is witnessing good growth in consumer lending. The liquidity position has improved and is gradually coming back to normal. In the future also, NBFCs will play a crucial role in economic development and in financial inclusion. With the increase in economic growth, the need for credit will rise more than proportionate.


For uplifting the Future of NBFCs, NBFCs are learning to evaluate the overall market scenario and by approaching the new strategies to lend to different segments. To compete with the issues and loopholes, the Government shall consider the relaxing and easy NBFC compliances. The future of NBFC calls for a reinvention of the business model of NBFCs, which will definitely result in better business processes, better execution, and underwriting.

Read our article: Are you running an NBFC? Get updated about the list of Annual Compliances Prescribed by the RBI

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