It may be noted that since the collapse of the two major NBFCs (NBFC) — IL&FS and Diwan Housing Finance Limited ,DHFL) — The shadow banking industry was in trouble for a long time.
The crisis had more to do with their ability to raise loanable funds as banks sidelined them and the RBI continued to tighten the regulatory noose around them, finally bringing them on par with banks when it comes to bad loan recognition from November 2021. ,
Addressing the NBFC Summit organized by CII, the Union Minister of State for Finance said that NBFCs have become a major growth driver of the economy by playing a key role in providing credit to small and medium enterprises. He has helped the MSME sector to scale up its operations and generate more employment. They have helped create higher credit growth than the commercial banking sector – NBFC credit grew by over 10 per cent last fiscal, while it was only half that for banks. Karad said that the main reason for their success is that they have adapted products and become an innovation machine of the financial landscape.
He also credited digitization and customer service for his success, which has seen its balance-sheet size doubling to 25 per cent of the banking sector’s balance sheet size by March 2022 from just 12 per cent in fiscal 2010.
NBFCs are investing in digital technologies such as artificial intelligence and big data. The minister said that due to the low cost of operations it will also bridge the financial gap in the coming years, adding NBFCs have become a strong alternative to the banking sector.
CII’s NBFC Forum President Abhimanyu Munjal, who also heads Hero FinCorp, said NBFCs disbursed nearly 60 per cent of their loans digitally in FY12 and also achieved real-time customer onboarding.
He said that around 11.3 million MSMEs have availed collateral-free loans worth Rs 2.32 lakh crore from NBFCs till June 2022. The demand for loans in the NBFC sector is expected to grow to around Rs 30 lakh crore in the next few years.