Non-banking financial companies (NBFCs)- Surging ahead
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act and regulated by Reserve Bank of India (RBI) which is generally engaged in the business of loans and advances. However, there may be some NBFCs engaged in the business of acquisition of various kind of securities issued by Government or local authorities or other marketable securities.
NBFCs lend and make investments and hence their activities are akin to that of banks; however, there are a few differences as given below: -
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
Profitability of NBFCs:
NBFCs are more profitable than the banking sector because of lower costs. This helps them offer cheaper loans to customers. As a result, NBFCs’ credit growth – the increase in the amount of money being lent to customers – is higher than that of the banking sector. Credit grew an average 24.3% per year for NBFCs as against 21.4% for banks. This shows that more customers are opting for NBFCs.
NBFCs: An indispensable part of Indian financial system
NBFCs have emerged as important financial intermediaries, particularly for the small-scale and retail sectors, undeserved areas and unbanked sectors and it is expected that this will continue to present a big growth opportunity in the days to come.
ICRA, a globally reputed rating agency said it "expects the NBFC - retail credit, which stood at Rs 7.5 trillion as on March 31, 2018, to expand at 19-21 per cent during FY2019, as key growth drivers for large asset sub-categories remains intact. This sector has witnessed diverse investment structures ranging from strategic investments, private equity investments to debt funding through the NBFC route.
Non-banking financial companies (NBFCs) have undergone a significant transformation over the past few years.
As per research studies, NBFC sector was Rs 22.1 lakh crore as of March 2018 and borrowings grew at 19.1 per cent during FY17-18, loans and advances increased 21.2 per cent and investments increased 13.4 per cent. The sector plays a critical role in the core development of infrastructure, transport, employment generation, wealth creation opportunities and financial support for the economically weaker sections.
It also supports urban and rural people in achieving their dreams. The sector has been benefiting from the lower interest rate regime and a massive growth in under penetrated sectors, where the reach of banks was limited.
NBFCs cater to a wide variety of customers – both in urban and rural areas. They finance projects of small-scale companies, which is important for the growth in rural areas. They also provide small-ticket loans for affordable housing projects. All these help promote inclusive growth in the country.
NBFCs have emerged as important financial intermediaries, particularly for the small-scale and retail sectors, underserved areas and unbanked sectors and it is expected that this will continue to present a big growth opportunity in the days to come.
Prest Loans is an RBI registered NBFC that is working in this domain and benefiting the underbanked by disbursing loans with timely approval, and least amount of paperwork. The mantra of their success has been understanding the need of the small business owners who may need funds on a short notice due to a sudden increase in demand or a festive season. While traditional lenders have a long turnaround time (TAT) for sanctioning and disbursement, Prest Loans can approve and disburse loans in three days.
Disbursed to 300+ small businesses, MSMEs
Loan ticket size Rs 0.50 lakh–Rs 25 lakh
New loans worth Rs 15 crore disbursed in a year
Mobile app in Hindi and English coming soon
Thus, smalltime traders like grocery stores, cloth merchants, tea shops, sweet shops, bag manufacturers, building material traders, home improvement sellers can heave a sigh of relief with the overwhelming success of the NBFC sector and Prest Loans in particular!