Pros and Cons of NBFC Business in India
                     Pros and Cons of NBFC 
Business in India
‘NBFCs’
Non-Banking Financial Companies (NBFC) do not fall in 
the legal definition of Banks but they proffer banking 
facilities and financial services. It is a well-known fact 
that Banks are not able to cater to the financial needs of 
all Indians, however hard they try; therefore, more and 
more companies are applying for NBFC Registration. 
The functioning of NBFCs is regulated and monitored by 
the RBI in compliance with the provisions mentioned in 
Chapter III B of the RBI Act of 1934.
The segments which are largely served by the NBFCs 
are instruments of the capital and money markets such 
as stocks, bonds, along with hire-purchasing, deposits, 
leasing, insurance business, investment funds, and chit 
business and many more similar activities.
NBFCs 
– A Promising Venture
RBI’s recent Financial Stability Report says- NBFCs have 
continued to perform better than the banks. Net profit 
as a percentage of total income remained at 15.3% 
between March 2015 and March 2016. The flow of non-
bank resources to the corporate sector, which includes 
NBFCs’ bond market borrowing and lending, has 
increased by 43% from April 2017 to December 2017. 
NBFC sector is growing at the cost of banks that are 
saddled by bad loans and poor profitability. NBFCs were 
the largest net borrowers of funds from the financial 
system.
There is a growing realisation of the significance of 
NBFCs in the industry, and in promoting India’s 
economic growth. There are huge growth opportunities 
for NBFCs because of the great advantages it offers; 
though there are some issues regarding the NBFCs.
Advantages
 Can provide loans and credit facilities  Agility is very important for NBFCs as it 
 Can trade in money market instruments  sets the banks apart. Banks function 
 Can do wealth management such as slower as compared to the NBFCs
managing portfolios of stocks and shares  The use of modern methods by NBFCs has 
 Can underwrite stock and shares and other overcome key challenges that had 
obligations overwhelmed conventional lending. NBFCS 
 NBFCs are the last resorts of borrowing; have made great use of technological 
NBFCs are there where banks are not there advancements like the use of mobile 
 NBFCs are the largest propellants of phones and the internet which has helped 
ushering finance into the country in making information easily accessible 
anytime anywhere. It has reduced the 
demand and reliance on bank branches
 Technology is not only at the head of 
banking and financial services, but also an 
increasingly digitized India has 
underpinned the rise of NBFCs. 
Digitalization has given NBFCs the ability 
to present multiple choices and reach the 
larger audience at quicker pace. This 
indirectly gives rise to larger NBFCs
 Combination of partnership and database 
helps in increasing penetration of financial 
inclusion. To reach large numbers of 
customers successfully, and minimize 
risks, NBFCs have forged partnerships 
including the government to use their 
database and identify customer 
worthiness. Thus lending has been 
productive
Disadvantages
 NBFCs cannot accept demand deposits as it falls within the 
realm of activity of commercial banks
 An NBFC is not a part of the payment and settlement system 
and as such an NBFC cannot issue cheques drawn on itself
 Deposit insurance facility is not available for NBFC depositors 
unlike in case of banks
 All NBFCs cannot accept deposits; only some can. Only those 
NBFCs holding a valid Certificate of Registration with 
authorisation to accept Public Deposits can accept/hold public 
deposits
 The regulatory mechanism for NBFCs is stringent
What people at 
MUDS believe
“Another major advantage of NBFCs is the ground level 
understanding of their customers profile and the need for their 
credit, which gives them an edge, as their ability to customize their 
products according to client needs.”
-Divya Gupta (Market Analyst, MUDS Management Pvt Ltd)
“RBI has prescribed strict norms on capital adequacy and NPA in 
order to bridge the regulatory gaps between NBFCs and Banks, 
asking NBFCs to maintain minimum capital adequacy norms. It is 
reflected from a statement of the RBI which said that seven NBFCs 
were not able to meet the regulatory minimum capital adequacy 
norms of 15% as of March 2016”.
-Mir Irfan (Market Analyst, MUDS Management Pvt Ltd)
“NBFCs are slowly taking charge 
of the financial needs of India’s 
unorganized sector!”
-Shweta Gupta, Founder, and 
CEO, MUDS
Thank You!