Market Size of NBFC

India’s financial market structure is manifold and continuously growing where existing entities are expanding, new entities are also becoming part of it. The financial structure is comprised of insurance companies, non-banking financial companies (NBFC), commercial banks, co-operatives, mutual funds and other financial entities. NBFCs have paved their way towards growth and diversification and has become an important part of financial structure in the country

Progress of  NBFC:

NBFCs are emerging as preferred option for fulfilling the credit needs covering various sectors. The market share of NBFC had increased from 22.68% in March 2018 to 44.92% in March 2020. Further, by fiscal year 2021-22 around 42% of Non-Banking Financial Companies are anticipating more than 15 per cent growth in their asset under management. 

Categorrization of Non Banking Financial Companies 

NBFC can be categorized on following basis:

  1. On basis of liabilities:
  • Deposit and Non-Deposit accepting NBFCs
  1. Non deposit taking NBFCs on basis of size:
  • Systemically important and Other non-deposit holding companies
  1. On basis of activity:
  • Investment and Credit Company (ICC)- Perform function of Lending and investment.
  • Infrastructure Finance Company (NBFC-IFC)- Provide for infrastructure loans.
  • BFC-Systemically Important Core Investment Company (CIC-ND-SI)- Makes investment in equity shares, preference shares, debt or loans of group companies.
  • Infrastructure Debt Fund-NBFC (IDF-NBFC)- Provides long-term debt into infrastructure projects.
  • NBFC-Micro Finance Institution (NBFC-MFI)- Provide Credit to economically disadvantaged groups.
  • NBFC-Factor- Extending loans against the security interest of the receivables at a discount.
  • NBFC-Non-Operative Financial Holding Company (NOFHC)- Facilitate promoter/(s) group in setting up new banks.
  • Mortgage Guarantee Company (MGC)- Deals in mortgage guarantee business.
  • NBFC-Account Aggregator (NBFC-AA)- Collect and provide information about a customer’s financial assets in a consolidated, organized and retrievable manner to the customer or others as specified by the customer.
  • NBFC–Peer to Peer Lending Platform (NBFC-P2P)- Providing an online platform to bring lenders and borrowers together.
  • Housing Finance Companies (HFC)- Deals in housing finance. 

Opportunties for NBFCs

The problem of increasing bad debt in public sector banks (PSUs) can be a way for NBFC to step in with diversified product lines, low cost, wide reach and more effective risk management capabilities. Also, NBFCs does not have to follow strict rules and regulations that are imposed on other financial institutions such as banks (like NBFC can make foreign investment not exceeding 100% of the NoF), can also pave the way for NBFCs. Sectors where traditional banks do not lend can also serve as an opportunity to NBFCs to attract the borrowers.

The private wealth market of India is expected to become the fourth largest private wealth market by 2028 and NBFCs can play an important role in achieving this growth through their diversified product options and more efficient management control. Also, government is also taking initiatives to aid the NBFC sector to grow and expand its market size.

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