Rise of NBFCs in India: Strengths, Health and Challenges
Why in the news
NBFCs are stepping out of the shadow of banks, and the RBI acknowledged their growing importance for India’s $5 trillion economy goal, per Deputy Governor M. Rajeshwar Rao.
Key facts
| Indicator (September 2024) | Value |
|---|---|
| Capital adequacy | 26.1% |
| Net interest margin | 5.1% |
| Return on assets | 2.9% |
| Gross NPAs | 3.4% |
| Equity capital growth, non-government NBFCs | 26.5% year on year |
| Equity capital growth, upper-layer NBFCs | 17.9% year on year |
- Nearly ₹6,000 crore equity came in at the start despite the IL&FS and DHFL collapses; Multiples PE and Bain Capital were key backers.
Advantages over banks
- Agility: no legacy systems, so they can run pilots, pivot and use live customer feedback.
- Institutions built from scratch with governance, risk culture and people management in focus.
- Banks are scale-driven; NBFCs are efficiency-focused with targeted portfolios.
Role in credit
- Serve small business credit, gold loans, tractor and used-vehicle finance, microloans.
- Take wholesale loans and pass them on to last-mile customers in smaller towns.
Challenges
- Tighter norms, including expected credit loss frameworks, and limits on bank loans to NBFCs.
- Four years of pandemic disruption and liquidity stress.
Way forward
- India needs hundreds of institutions to close credit gaps; NBFCs will keep innovating and widening access.
Exam angle
- Regulator: RBI; terms: capital adequacy, NIM, ROA, upper-layer NBFCs.