A few years back, Banks were the only other option for getting a loan, apart from traditional lenders, but over time the role of non-banking finance companies (NBFCs) increased in indian financial sector.
NBFCs offer various banking services but do not have a banking license, because NBFCs are not allowed to take traditional demand deposits as banks do. However NBFCs are engaged in the business of Loans and advances, leasing, hire-purchase, insurance, chit business etc.
NBFCs cater to all your desired financial services. Every year, these NBFCs are expected to witness a growth of 4%-6%. A number of factors have been cumulatively responsible for increasing the importance of these NBFCs in India.
Mobilization of Resources.
NBFCs do play a critical role in participating in the development of an economy by providing employment generation, wealth creation, bank credit in rural segments and to support financially weaker sections of the society. In short, NBFCs allow and provide with the mobilization of resources; Funds and capitals.
NBFCs work without expecting to gain the maximum profit which clears its idea of economic development and are also engaged in activities that generate substantial or no revenue.
Non-Banking Financial companies are bringing the much needed diversity to the financial market by diversifying the risk, increasing liquidity in markets thereby promoting financial stability and bringing efficiency to the financial sector.
Improved Risk Management Framework.
On 4th November, 2019, the Reserve Bank of India (RBI) revised the liquidity risk management framework for the Non-Banking Financial Companies.The guidelines earmarked the roles and responsibilities of NBFCs in managing their liquidity risks and implementing the Asset Liability Management (ALM) framework under normal as well as distressed liquidity market conditions.
RBI’s commitment to keep NBFCs in India free of faults is also a strong indicator that these financial entities are primed for unprecedented future growth. Improved efficiency and enhanced experience.
One of the main factors responsible for the growth of the NBFC market in India is the way in which NBFCs are gripping up with technology. Today NBFCs have Digitized provisions for almost every service offered.
The use of technology is helping nbfc Companies customize credit assessment models and optimize business processes, thereby reducing the time to market and helping improve customer experience.
Conclusion:
Non-Banking Finance Companies are highly promoting the living standards of the masses as NBFCs are collaborating with the government as well as the private sector with operations. This Uplifting in standards of living is making its part towards economic development.
NBFCs will surely be the game changer in the developing economy and surely help infrastructure companies grow significantly with respect to its capital and ethics.