The growth of Non-Banking Financial Companies (NBFCs) in India has played a vital role in fueling the expansion of the Indian economy. These entities have witnessed a significant proliferation in recent years and have emerged as the preferred credit source for numerous small businesses and individuals. Several factors have contributed to the notable growth of NBFCs in India. Here, we highlight four key factors that have propelled their rise.
NBFCs Being The Preferred Option For Many Investors
NBFCs have gained traction as an attractive investment opportunity for investors. These entities have successfully raised substantial funds through debt and equity offerings, empowering them to enhance their operational capabilities and explore untapped markets. The strong valuations of various NBFCs have also enticed significant foreign investments, fueling their continued growth and expansion.
2. Challenges Faced By Banks
Banks, facing stringent regulatory norms, have adopted a cautious lending approach, leading to a credit gap in the market. This gap has been effectively filled by NBFCs, who have capitalized on the opportunity. Over the years, the credit-deposit ratio of banks has witnessed a decline, presenting favorable prospects for NBFCs to seize a substantial portion of the lending market.
3. Favorable Demographics
India, being the largest population globally and with a projected steady increase, holds promising prospects for the NBFC sector. The country's economy is poised to experience robust growth, which bodes well for NBFCs. As incomes rise and aspirations grow, there is expected to be a surge in credit demand. This presents a significant opportunity for NBFCs to expand their operations and cater to the diverse needs of an increasingly ambitious population.
4. Growth Of Technology
The advancements in technology have brought significant benefits to NBFCs, making them more agile and efficient in their operations. Cutting-edge technologies such as Artificial Intelligence and Machine Learning have revolutionized the underwriting processes and risk management capabilities of NBFCs. According to Mr. Abhay Bhutada, the Managing Director of Poonawalla Fincorp, the rapid pace of innovation has been instrumental in driving the growth of the entire BFSI sector. Moreover, technology has empowered NBFCs to deliver a seamless and hassle-free experience to their customers, resulting in heightened customer satisfaction levels.
Summing Up
The remarkable growth of NBFCs in India can be attributed to a combination of factors. These entities have effectively bridged a substantial credit gap left by banks, while their adoption of cutting-edge technology and strategic focus on niche segments have allowed them to establish a distinct identity and become indispensable participants in the Indian financial landscape. Looking ahead, the future appears promising for NBFCs, as they possess ample opportunities to expand their operations and meet the diverse requirements of a rapidly expanding economy.
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