The NBFC sector in India comprises of various types of Financial Institutions with each one of them having its roots at a particular stage of development of the financial sector. NBFCs have come a long way from the era of concentrated regional operations, lesser credibility and poor risk management practices to highly sophisticated operations and its presence is most important as an alternate choice of financial intermediation. NBFCs, on the other hand, are mostly private sector institutions, which have carved their niche in the Indian financial system.
The NBFC sector in India has become very mature with reduced dependence on acceptance of Public Deposits as part of its overall funding. A mix of a few large Companies with nationwide presence and a large number of small and medium sized Companies with regional focus now represents the NBFC sector Companies with regional focus.
The operations of NBFCs are being regulated and supervised by RBI in terms of powers conferred under Chapter III-B of Reserve Bank of India Act, 1934. The regulatory and supervisory framework for NBFCs has been continuously strengthened in order to ensure strong and healthy functioning, limiting the excessive risk taking practices protecting the interest of the deposit holders.
NBFCs are present in the competing fields of vehicle financing, hire purchase, lease, personal loans, working capital loans, consumer loans, housing loans, loans against Shares, investments, distribution of financial products, etc. NBFCs are present where the risks are higher than returns, recovery has to be the focus area, loan-ticket size is small, appraisal and disbursement has to be speedy and flexibility in terms of loan size and tenor is required.
In recent years, NBFCs are witnessing strong competition in their traditional areas of retail lending from banks and Financial Institutions. Banks, which have innate advantage of lower cost of funds, are taking an increasing Share in retail financing and providing strong competition to NBFCs. The RBI also intends towards moving to a phase of non-acceptance of Public Deposits by NBFCs over the years.