NBFCs Drive Digital Transformation On Multiple Fronts
Banking Frontiers|December 2021
A deep dive into how NBFCs are riding the storm and emerging stronger :

The high value of funding, Open API platforms like UPI, Aadhaar, GSTN and Bharat Bill Payments, and the large number of smartphone and internet users are some of the drivers fuelling a boom in the financial which is very important for the economy. The NBFC sector has systemic linkages with the capital market and other financial entities as well as the banking sector. Despite the difficulties caused by covid in the fiscal years 2019 and 2020, most NBFCs has managed to keep the momentum going in the face of challenges.

This report delves into some of these challenges and offers insights into the road ahead. About 50 CEOs and CXOs representing NBFCs and Fintech sector participated were surveyed on their business growth prospects and industry outlook for the near future.

Undoubtedly, the path that various companies take to fuel their growth varies. While some companies like Aditya Birla and Art Housing focus exclusively on retail lending, there are others like NAFA and Mufin Finance that focus on the SME sector. However, a majority of the NBFCs cater to a wider variety of customers ranging from students to MSMEs. Companies like Spandana and Svatantra Microfin have carved a niche in the micro finance sector.

Dvara Kshetriya Gramin Financials is a company that is serving the rural parts of India in 6 states and has various kinds of loans like group loan, individual loan, and even enterprise loan. According to the company’s former CEO, Joby CO: “Our mission is to maximise the financial well-being of every individual and every enterprise by providing complete access to financial services in remote rural.”

Thus there is no one-fit business model for all companies. Each company follows a model that suits its business needs and the segment as a whole covers a wide gamut of beneficiaries including SMEs, MSMEs, students, low income and underserved entrepreneurs, unorganized business sector, etc.

STRONG BUSINESS GROWTH DESPITE PANDEMIC

Despite the ravages of the Covid pandemic, the sector has seen substantial growth in the last 2-3 years. Going forward, there is immense confidence about shortterm growth. Except for one company in auto finance which has seen virtually no growth, and another company in factoring finance which has seen a slow growth, and another NBFC offering multiple finance offerings which has seen a dip of 50%, other companies have been able to grow.

In fact, for Finway Financial Services, Covid proved to be a blessing in disguise as it forced it to embrace the online model of business that substantially increased its reach. As a result, the number of customers also increased. Some other companies too have done exceedingly well with Arthan Finance clocking a stupendous 300% growth. On the other hand, SRG Housing Finance is cautiously optimistic about the future. In the words of its CEO, Vinod Jain: “In the next 3 years, we are expecting to add around 4000-5000 customers in case there are no further disruptions due to covid.” While Repco Micro Finance aims to integrate 1 lakh customers in the same time period, Belstar Microfinance aims to achieve a 30% YOY growth in the next 2-3 years.

The fact that the companies have more or less successfully navigated the covid times have imbibed immense confidence about the future and most companies are confident of clocking double digit growth.

CONSOLIDATION & EXPANSION

Responding to a question about any withdrawal of loan products in the last 12 months, an overwhelming number of respondents replied in the negative. Regarding addition of products in this time and their future plans thereof, CEOs of most of the NBFCs and fintechs surveyed replied according to their business plans, with a majority of them seeing an opportunity not only to consolidate but also to expand their business.

For instance, U GRO Capital launched micro branches for direct sourcing of loans and opened 25 such branches in tier 3-6 cities of 5 states. Going forward, the company aims to increase the number of micro branches to 75.

Samunnati Financial has continued to focus on its customized financial products for the agri business sector where it serves the farmers as well as agri enterprises of all sizes. Remarks CEO Anil Kumar SG, “The company has also added a portfolio of retail loans by striking new partnerships while SME Corner plans to introduce various short terms products around supply chain finance, credit line & vendor finance products.”

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