NBFCs in the country have undergone a significant transformation and is recognized as an important and integral part of the Indian economy. NBFCs play a critical role in every sector in the country and are giving tough competition to traditional banks. India’s NBFC sector continues to remain at the top in terms of driving new credit disbursals for the underserved retail market. Although NBFCs have shown robust growth, there are several challenges that they have faced.
Now is the time for reckoning for NBFCs in the country. Consumers are now aware of the personalized loan products offered by NBFCs and this has led to a shift in preference. Instead of borrowing from a traditional bank, consumers opt for NBFC loan for several reasons. It is not just the low interest rate that consumers find attractive, but it is the ease of loan application procedure and quick disbursal of funds. The future of NBFC in India looks bright and there is a lot that can go right for the sector.
Adoption of technology: NBFCs have learned to adopt technology that helps reach out to customers, offer unique products and reduce the cost of operations. Technology provides data to NBFCs which they use to reach out to the audience across rural areas. Technology also reduces operational costs and makes it convenient for NBFCs to utilize resources and manpower at its fullest. If NBFCs continue to use technology in the right manner, they will notice a rise in the number of consumers and will be able to satisfy them with personalized services. If NBFCs formulate a segmentation strategy across different geographical locations, they will be able to serve customers in a better and efficient manner.
Better framework: At the initial stages, NBFCs struggled with framework and regulations. However, with time and planning, NBFCs have managed to enjoy a better framework and to function within the regulations. NBFCs need to have a well laid out system for collections where they follow a data-driven, relationship-based approach to ensure timely collection of dues. It will reduce NPAs and the cost of operations. NBFCs also need to build a framework around risk mitigation techniques to ensure lenders are well capitalized to serve their consumers.
Mergers: NBFCs will see a lot of mergers in the future. Small firms will be merged with larger firms to expand operations and to cut down on the cost. It will also allow lenders to add capabilities that boost their value proposition in order to compete with stronger firms and traditional banks in the country. 2019 saw a few mergers and it is expected to continue in the coming years. A lot of small NBFC firms will be merged due to several reasons but it will lay a strong foundation of NBFCs in the country.
Competition is tough and NBFCs need to prepare themselves to compete with traditional lenders in the country. NBFCs have made a strong place for themselves in the industry but they will have to fight against the odds to ensure that they continue to stay at the place. Although the future of NBFC looks bright, there are many challenges that small firms will have to overcome in the coming period.
