New Delhi: NBFCs have emerged as a crucial source of finance for a large segment of the population, including SMEs and economically unserved and underserved people. In terms of asset size-wise mix, housing loans and infrastructure loans continue to account for a major chunk of the overall NBFC portfolio.
Microfinance loans have increased their share, though housing and infrastructure loans are expected to maintain their share in the overall NBFC portfolio. In addition, auto loans, personal loans, MSME loans, and microfinance loans are expected to perform better as compared to other segments in FY24, according to a joint report released by CII and KPMG today.
The key drivers for this growth are deep demographic and addressable market understanding, tailored product offerings, wider and effective reach, technology advancements, and a growing fintech ecosystem that has allowed efficiency and enhanced experience. Co-lending model too has provided the much-needed boost to the growth of the sector.
In addition, the government has also unveiled several initiatives aimed at addressing some of the structural issues stressing the small business lending segment. These include granting licenses to account aggregators, initiating the Pradhan Mantri Mudra Yojana (PMMY), launching UPI platforms, unveiling platforms such as TReDS, GeM, and Open Network for Digital Commerce (ONDC), and implementing GST.
NBFCs are embracing digitisation to achieve better operational efficiency, provide better customer experience, reduce costs, and be compliant with the regulatory guidelines
The report adds that the Indian economy continues to show robust growth, with the RBI projecting a 6.51 percent GDP growth rate. This in turn is paving the way for significant credit growth for NBFCs.vNotably, the MSME sector, along with several retail credit segments, including consumer durables, vehicle loans, microfinance, and affordable housing, are leading the growth trajectory for NBFCs.
Technology is increasingly playing a pivotal role in every aspect of NBFC operations. It has become a key enabler for providing superior customer service, effective credit decisions and disbursement, portfolio monitoring and collections as well as for other mid- and back-office functions
Five key themes that are driving technology in the NBFC sector are the following:
Emergence of super apps and partnerships: Super apps are increasingly becoming one-stop shops to address customer needs from an end-to-end perspective. While super apps are prevalent in the banking industry or e-commerce perspective, NBFCs will have a crucial role in terms of embedding their products and servicing customers through app-enabled journeys. The key to success lies in delivering seamless experiences, instant decision-making and superior customer satisfaction
Emerging funding avenues for NBFCs- NBFCs in India are proactively embracing diverse funding channels. For enriching the NBFCs’ landscape, foreign direct investment serves as a gateway for international capital. Collaborative co-lending models, often forged with fintech partners, present innovative financing solutions. Simultaneously, venture capital injections offer crucial equity support, fostering NBFC expansion and innovation. These emerging funding avenues underscore the sector's adaptability, leveraging global investments, financial markets, and strategic collaborations to ensure sustained financial robustness in an ever-evolving landscape.
For NBFCs to grow steadily, they must also adopt higher technology and digital practices, improve supervision and reporting, and implement customer protection measures. NBFCs need to stay updated on industry trends and strive to upgrade their practices, particularly in risk management and digital lending, the report says.
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