NBFCs' Credit Growth to Accelerate Further Next Decade: Report

Mumbai: Having grown their loan books 10 per cent during the past decade, credit growth of non-banking finance companies (NBFCs) is set to accelerate further in the coming decade as well, says a report.

During the decade ending 2015, NBFCs' share of credit went up from 10 per cent to 13 per cent and this growth is likely to accelerate further over the next 5-10 years, a joint report by BCG and CII said on Monday.

This growth is not only observed in traditional NBFC domains like commercial vehicle (CV) finance but also in products like mortgages where commercial banks are also very active.

But the domestic NBFCs' credit penetration at 13 per cent is well behind economies like Thailand and Malaysia at around 25 per cent and in China where it is higher at around 33 per cent.

NBFCs have to find a way to use the digital surrogate data to make better credit decisions, as both retail as well as businesses customers are fast adopting digital at a rapid pace, it said.

NBFCs have to embrace digital to dramatically enhance internal productivity (sales, operations and pricing) and to re-imagine the end to end customer experience, it added.

According to the report, the winners in next decade will augment the strengths in four key areas. First, high touch model for credit and collections will be augmented with surrogate digital data-based analytical techniques. 

"Traditional sources of advantage for NBFCs will erode over time with deepening of banking penetration. It is imperative that NBFCs harness the latest trends in technology, digital adoption by customers, and the web of partnerships to innovate and come up with new models," BCG India partner and director Saurabh Tripathi said.

"NBFCs are likely to benefit from these underlying trends and developments in the market," he added.

The report said old generation NBFCs relied mostly on a standalone business models with a few partnerships. But the new generation  NBFCs will heavily rely on partnerships to gain access to data and to create unique customer experiences.

It also said that the entry of payment banks and small finance banks, as also the proposed bill payment service providers will deconstruct the banking value chain. This opens up very strategic opportunities for NBFCs to partner with asset management companies, and payment banks to create complete financial offering for customers including savings, investments, transactions and borrowings.

The Reserve Bank of India's policy stance has been pro-innovation and pro-competition. It should support NBFCs to fill the gaps left by banks in serving demand, it added.