Non-Banking Financial Companies
The Non-Banking Financial companies (NBFCs) sector forms an integral part of the Indian financial system. The sector plays a vital role in India’s economic growth and development. It aids in boosting ‘Financial Inclusion’ initiative by lending services to the unbanked population in rural/ semi-rural or few urban areas, also provide services to the Micro, Small and Medium Enterprises (MSMEs) segment. They provide product and services such as personal loans, housing loan, gold loan, insurance and loan for purchasing commercial vehicles, machinery, and farm equipment amongst others. NBFCs ability to understand their customer profile, their credit portfolio and deliver on customised products and services makes them as one of the fastest growing sectors providing innovation in financial products. Although, few of the products and services provided by NBFCs are similar to those of banks, NBFCs are still at a disadvantage in comparison. As they work under certain regulatory constraints which restrict their business portfolio. In the time, when now all banks are forced to clean up their balance sheets especially in terms of lending activities, the role of NBFCs becomes more important as the push towards entrepreneurship is increasing creating further job opportunities. Thus, there is a need for uniform regulations, practices and level playing field for NBFCs in India. In order to capitalise on their full potential with greater efficiency there is need to address the framework of this sector in order to meet ever growing financing need of the economy. NBFCs are rapidly gaining importance as financial intermediary in the retail finance. Their contribution to the economy has significantly improved standing at 13% as on FY15. The growth is driven not only by the traditional NBFC products like commercial vehicle financing but also in the areas of loans financing like personal and housing etc. The success of the sector is attributed to the cost efficiency, bad debt control, customised products and better customer services. Along with on-going stress in the public sector banks due to mounting debts, the lending potential of the banks are going to deteriorate further, thereby providing opportunity for NBFCs to increase their reach.
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