slide 1: Pros and Cons of NBFC
Business in India
slide 2: ‘N BFCs’
Non-Banking Financial Companies NBFC do not fall in the legal
definition of Banks but they proffer banking facilities and financial
services. It is a well-known fact that Banks are not able to cater to the
financial needs of all Indians however hard they try therefore more
and more companies are applying for NBFC Registration.
The functioning of NBFCs is regulated and monitored by the RBI in
compliance with the provisions mentioned in Chapter III B of the RBI
Act of 1934.
The segments which are largely served by the NBFCs are instruments
of the capital and money markets such as stocks bonds along with
hire-purchasing deposits leasing insurance business investment
funds and chit business and many more similar activities.
slide 3: NBFCs
– A Promising Venture
RBI ’ s recent Financial Stability Report says- NBFCs have continued to
perform better than the banks. Net profit as a percentage of total
income remained at 15.3 between March 2015 and March 2016. The
flow of non-bank resources to the corporate sector which includes
NBF Cs’ bond market borrowing and lending has increased by 43
from April 2017 to December 2017. NBFC sector is growing at the cost
of banks that are saddled by bad loans and poor profitability. NBFCs
were the largest net borrowers of funds from the financial system.
There is a growing realisation of the significance of NBFCs in the
industry and in promoting I nd ia’ s economic growth. There are huge
growth opportunities for NBFCs because of the great advantages it
offers though there are some issues regarding the NBFCs.
slide 4: Advantages
▪ Can provide loans and credit facilities
▪ Can trade in money market instruments
▪ Can do wealth management such as managing
portfolios of stocks and shares
▪ Can underwrite stock and shares and other obligations
▪ NBFCs are the last resorts of borrowing NBFCs are
there where banks are not there
▪ NBFCs are the largest propellants of ushering finance
into the country
▪ Agility is very important for NBFCs as it sets the banks
apart. Banks function slower as compared to the
NBFCs
▪ The use of modern methods by NBFCs has overcome
key challenges that had overwhelmed conventional
lending. NBFCS have made great use of technological
advancements like the use of mobile phones and the
internet which has helped in making information easily
accessible anytime anywhere. It has reduced the
demand and reliance on bank branches
▪ Technology is not only at the head of banking and
financial services but also an increasingly digitized
India has underpinned the rise of NBFCs. Digitalization
has given NBFCs the ability to present multiple choices
and reach the larger audience at quicker pace. This
indirectly gives rise to larger NBFCs
▪ Combination of partnership and database helps in
increasing penetration of financial inclusion. To reach
large numbers of customers successfully and minimize
risks NBFCs have forged partnerships including the
government to use their database and identify
customer worthiness. Thus lending has been
productive
slide 5: Disadvantages
▪ NBFCs cannot accept demand deposits as it falls within the realm of activity
of commercial banks
▪ An NBFC is not a part of the payment and settlement system and as such an
NBFC cannot issue cheques drawn on itself
▪ Deposit insurance facility is not available for NBFC depositors unlike in case
of banks
▪ All NBFCs cannot accept deposits only some can. Only those NBFCs holding
a valid Certificate of Registration with authorisation to accept Public Deposits
can accept/hold public deposits
▪ The regulatory mechanism for NBFCs is stringent
slide 6: What people at
MUDS believe
“ An other major advantage of NBFCs is the ground level understanding of their
customers profile and the need for their credit which gives them an edge as their
abilitytocustomizetheirproductsaccordingtoclientneeds. ”
-DivyaGuptaMarketAnalystMUDSManagementPvtLtd
“R BI has prescribed strict norms on capital adequacy and NPA in order to bridge the
regulatory gaps between NBFCs and Banks asking NBFCs to maintain minimum
capital adequacy norms. It is reflected from a statement of the RBI which said that
seven NBFCs were not able to meet the regulatory minimum capital adequacy
normsof15asofMarch2016 ”.
-MirIrfanMarketAnalystMUDSManagementPvtLtd
slide 7: “NB F Cs are slowly taking charge of the
financial needs of I nd ia ’ s unorganized
sect or”
-ShwetaGuptaFounderandCEOMUDS
slide 8: Thank Y ou