NBFCs, which dominated the Indian financial sector till late 1990s, went into a near oblivion as they found the going tough in the wake of a series of scams that threatened to give a deadly blow to the sector. However, things could change for better as a host of banks including foreign as well as domestic are planning to enter the segment.
The product diversification helped them bring more borrowers into the formal credit nets. The key strength of the NBFCs has been the easy access to the customer. Unlike the banks, NBFCs maintained regular contact with the customer through constant interactions. They also set up offices in areas which are not inhabited by banks; thus, benefitting from the last mile credit delivery.
In the late 1990s, NBFCs witnessed scams such as CRB, thereby RBI started regulating deposit-taking NBFCs. They are under stringent regulations like prudential limits and capital adequacy requirements just like banks. Under this regulatory regime, two kinds of players have emerged; some small players take the regulatory arbitrage over the banks and other players are large, asset-focused NBFCs with specialized skills in credit intermediation like M&M Finance, DBS Chola, Sundaram Finance and Shriram Transport Finance, etc. On the other hand, Citibank and GE built large consumer-focused asset portfolios with the total asset base of Rs. 11,000 cr as of March 2006. The active disintermediation of credit markets has also helped NBFCs to thrive in the current environment. |
