A Review of NBFCs in India

Abstract

Non-banking financial companies (NBFCs) play a salient role in converting scarce financial resources into capital formation. They supplement the role of traditional banks by meeting the financial needs of the organised and unorganised sectors. They fill the credit gaps where the reach of banks is minimal. The paper provides a general review of NBFCs in India. The paper throws light on how NBFCs can increase their scope in micro, small and medium enterprises and retail sectors. The NBFCs have a cutting edge over banks because of their customised product offerings. The paper discusses the role of digitalisation in NBFCs’ functioning. The paper further evaluates the challenges faced by NBFCs due to the Infrastructure Leasing and Financing Services crisis and the COVID-19 pandemic. The degrading asset quality, decreasing profitability and evasion of capital due to sluggish industrial growth and increased provisioning remain current challenges. The corrective actions taken by NBFCs and the Reserve Bank of India to mitigate the risks arising from these challenges are also discussed. The study is concluded by recommending that the entire framework of NBFCs be recalibrated such that precedence is given to enhancing corporate governance and establishing resiliency.

Keywords: NBFCs, Digitalisation, Liquidity, RBI, MSMEs, IL&FS

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