NBFCs set to give banks a run for their money

Non-banking financial companies are set to establish a stronger presence in the retail finance space.

Non-banking financial companies (NBFCs) are set to establish a stronger presence in the retail finance space,and match the non-mortgage retail lending portfolio of banks by end-March 2013.

According to a study by rating firm Crisil,the retail loan portfolio of the NBFC sector will grow to over Rs 400,000 crore by March 31,2013. The recent trends of strong growth and improving asset quality and profitability are likely to continue,strengthening the credit risk profiles of NBFCs over the medium term.

NBFCs can double their loan portfolio,and even match the market share of banks in the non-mortgage retail finance space by March 2013, Roopa Kudva,MD & CEO,CRISIL,said.

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Industry observers say the competitive landscape in the retail finance sector could change,given the likelihood of some NBFCs converting to banks,and entry of new players,including captive finance entities.

Nevertheless,NBFCs may face challenges on other fronts. Given their increasing role in the financial sector,NBFCs will need to adapt to a more stringent regulatory environment over the medium term. Competition in the NBFC sector will also intensify,and players will need to diversify their resource profiles, maintain competitive borrowing costs,and ensure availability of skilled human resources to maintain growth.

NBFCs continue to play a critical role in making financial services accessible to a wider set of Indias population,including semi-urban and rural areas,which account for majority of the NBFCs business. With their keen understanding of customer needs,NBFCs remain focused on product innovation and customisation factors that will help them gain an edge over banks while maintaining their niche positioning, Kudwa said.

The asset quality of NBFCs will continue to improve over the medium term as it has in 2010-11,after deteriorating significantly between 2007 and 2010.