Non-Banking Financial Companies are commonly referred as NBFC which offer certain types of banking services. NBFC does act like financial institutions but it doesn’t hold a banking license thereby they are not allowed to take deposits from the public. NBFC doesn’t offer core banking services like taking deposits but it offers other banking services like loan and credit facilities, underwriting, money markets, retirement planning and merger related activities. NBFC is going through a boom period wherein their overall credit grew by 10% from 2004-05 to 2014-15. This growth has been the result of the significant spike in the home loans and commercial vehicles loan sector in the given period.
Reasons for the Rise of NBFCs
The banking sector has been a dominant force in the various loan sectors and hasn’t been challenged by anyone worth noting. But the sudden rise in the NBFCs is seen as eating off the profits made by the retail banking institutions. NBFCs rise is majorly seen in the home loan segment which was the backyard of the core banking institutions. Statistics indicate that in the home loan sector the share of the NBFCs has gone up from mere 26 percent to a remarkable 38 percent within the years 2009 and 2015. While in the commercial vehicle financing sector this percentage has risen from 42 to 46 percent which brings a huge dent in the profits of the core banking institutions.
#1. Knowledge of market
The major reason behind the rapid rise of the NBFCs is that they tend to have closer connection with their prospective customers than other financial lenders. NBFCs are found to be extremely rooted to the ground as well as the market which helps it in offering wider range of loan products to varied types of customers across different geographical locations. In simple words NBFC has mastered the so called art of lending to its customers through sheer intelligence and diligence.
#2. Catering the specific need of customers
Shriram Finance and Mutooth Finance corporations are great examples of successful NBFCs who created their own brand in NBFC sector within a short while. Another reason for the rise of the NBFC is attributed to the fact it caters the need of self employed customer base that couldn’t come up with adequate income proof is a pre-requisite of getting loans approved by core banking institutions.
#3. Strong customer relationship
Strong customer relationship is another factor which has helped NBFC in becoming more appealing to its customers. Majority of first time customers at the NBFC tend to get in touch with the senior managers and officials which simply isn’t possible at the large banks. Such easier access to the officials not just adds to a better customer relationship but also makes customer more willing to pay additional 1 percent of interest, where the process is faster, easier and hassle-free.
These reasons play a vital role when a customer is opting for a home loan. NBFC has shown strong performance in the housing and commercial vehicle loans sector which have made it an integral part of our financial system over the time.