Discover why India’s Non-Banking Financial Companies (NBFCs) will revolutionise the way our country develops in the future.
India has a substantial financial services industry. It encompasses non-banking financial institutions (NBFCs) in addition to commercial banks. These businesses are distinct from banks and provide a wide range of financial services, including loans and chit funds. NBFCs are frequently little players that receive little attention. Even in a developed nation like India, where 70% of the country’s population lives in rural regions, they’re nevertheless vital to the economy.
The Reserve Bank of India’s Executive Director, P. Vijaya Bhaskar, highlighted in a speech that NBFC firms are game-changers and crucial to the economy. This is how:
The Sector Size
Despite the recent downturn in the economy, the NBFC industry has expanded significantly. It made up 12.5% of the nation’s Gross Domestic Product (GDP), which is an indicator of the size of the economy, as of March 2013. From 8.4% in March 2006, this is an increase. This only includes NBFCs with assets over Rs 100 crore, though. “If the assets of all NBFCs below Rs 100 crore are reckoned, the share of NBFCs’ assets to GDP would go further,” Bhaskar said in the speech he delivered.
Between 2006 and 2013, the NBFC industry outperformed the banking sector in terms of growth rate from year to year. It increased by 22% yearly on average. The NBFC industry had growth of 25.7% even though the nation’s GDP growth fell to 6.3% in 2011–12 from 10.5% in 2010–11. This demonstrates that it is boosting the economy each year.
Due to reduced expenses, NBFCs are more profitable than the banking industry. This enables them to give clients loans at lower costs. Because of this, the credit growth of NBFCs is greater than that of the banking industry, which refers to the rise in the quantity of money provided to consumers. Compared to banks, NBFCs had credit growth of an average of 24.3% annually. This demonstrates that more clients are choosing NBFCs.
Finance for Infrastructure
By providing funding for infrastructure projects, which are crucial for a rising nation like India, NBFCs significantly contribute to the economy. However, they are expensive to start up and only start making money after a long period of time. These are riskier ventures as a result. Many banks are discouraged from funding to infrastructure projects as a result. NBFCs have had a greater impact on infrastructure finance recently than banks have. As of March 2013, NBFCs have lent the infrastructure sector 35.8% of their total assets, or more than one third. Bank lending, meanwhile, was just 7.6%.
Encouragement of Inclusive Growth
Both in urban and rural locations, NBFCs serve a diverse range of clients. They provide funding for small-business ventures, which is crucial for rural communities to develop. Additionally, they offer modest-cost financing for housing developments. All of these support the nation’s inclusive progress.