What is the Scope of NBFC registration in India?

NBFC is playing a unique role in the Indian economy by providing exceptional sources of funding. It has gone through extraordinary development over the past few years. In India, NBFC majorly covers the sections that are not covered by the banks, like Infrastructure or MSME. NBFC registration is often used by the borrower in meeting financial requirements as it is quite efficient as compared to the banks. In this article, the Future of NBFCs in India is being discussed regarding how the technologies are inspiring the growth of NBFCs, and how the Government is taking measures to raise the growth of NBFCs.NBFC is playing a unique role in the Indian economy by providing exceptional sources of funding. It has gone through extraordinary development over the past few years. In India, NBFC majorly covers the sections that are not covered by the banks, like Infrastructure or MSME. NBFC registration is often used by the borrower in meeting financial requirements as it is quite efficient as compared to the banks. In this article, the Future of NBFCs in India is being discussed regarding how the technologies are inspiring the growth of NBFCs, and how the Government is taking measures to raise the growth of NBFCs.

Registration of NBFC is obtained as per the Companies Act, 2013, and are involved in the business of loans and advances, attainment of shares/stock/bonds, debentures and securities issued by the Reserve Bank of India. NBFCs are the financial institutions that function according to the set of rules and regulations prescribed by the Reserve Bank of India (RBI). Additionally, these rules and regulations keep on changing from time to time as per the condition. So for the smooth operation of NBFC, management should know about all the mandatory compliances. In addition to this, management should understand the procedure and work of NBFC, what to do, and how to do it. So for all the NBFCs, it’s essential to keep themselves updated with every new rule.

What is the NBFC Registration?

Non-Banking Financial Company is a financial institution that offers banking services but does not hold any banking license. A Non-Banking Institution has the principal business of receiving deposits underneath any scheme or arrangement or in any other prescribed manner. Such deposits and can be obtained in one lump sum or instalments by way of contribution.

What is the dissimilarity between an NBFC and a bank?

NBFC can give and invest money, just like any traditional bank. The actions of banks and NBFCs are furthermore similar. The financial mediators are regulated by the Companies Act, 2013, and the Banking Regulation Act, 1949. The control of both the monetary intermediaries is under the Reserve Bank of India. The difference is as follows:

1. NBFC cannot accept demand deposits like banks;
2. NBFC cannot issue cheques on themself and does not form part of the settlement and payment scheme;
3. If the facility of deposit insurance provided by Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to the depositors of NBFC.
4. The non-banking company that is registered with the Reserve Bank of India, are allowed 0nly to receive the public deposits, and they are required to fulfil the following regulations, as stated under the Non-Banking Financial Company Acceptance of Public Deposits Directions, issued by RBI. These are as follows;

• All NBFCs are allowed to take public deposits for the minimum period of 12 months, which goes up to a maximum period of 5 years.
• NBFC is not allowed to take deposits, which have to be refunded on request.
• The company cannot offer the interest rate higher than the ceiling rate fixed by RBI from time to time.
• The company are not allowed to offer any gift, incentives, or any other assistance to the depositors.
• The deposits are not protected.
• The NBFC should have a minimum investment-grade credit rating.
• The RBI provides no guarantee of the repayment of deposits by the NBFCs.

What is the significance of NBFCs in the Indian Economy?

NBFCs are playing an essential role in uplifting the Infrastructure, creation of wealth, and employment generation in the Indian economy. NBFCs focuses on the weaker section of the social order.

NBFCs offers a diverse range of products, such as financing, leasing, housing finance for the new division, i.e., durable consumer Loans. The following key points are taken into consideration-

• Provided that tailor-made products to the customers.
• It is uplifting the business model through enhanced efficiency as well as experience.

Additionally, NBFC has occurred as an alternative to the conventional Banking system. However, the year 2019 had brought numerous challenges for this sector, and it is obvious that there is an urgent need to be positive.

What is the Role of Advanced technology in the Future of NBFC Registration?

The regulation for NBFCs has become severe, and the borrowing rate has increased. NBFCs are now focusing on emerging new and innovative products over advanced technologies. Advanced technologies are helping the NBFCs in adopting the business powered models that are helping in easing the design launch and execution of the custom-made products and services used by the NBFC. Technology-driven facilities help the NBFCs in lowering the prices and in growing the customer base.

Newly incorporated NBFCs are using advanced technology, which results in a better future of the recently incorporated NBFCs. Technologies such as Artificial Intelligence, Machine learning has prepared the lenders in assessing the customer’s insight and also in maintaining an alternative credit score model.NBFCs are spending the technology-driven business model, which is reducing the dependency on manual tasks for a better future of the NBFCs.

What are the Issues Faced by an NBFCs?

NBFCs are facing the matter of a liquidity crisis. The market was clutched by not taking the risk, which affected the credit outflow of NBFCs. Deprived of considering the asset-liability scenario, NBFCs went on inconsiderate credit expansion as a concern. The awareness of NBFCs regarding the risk-taking ability of credit has increased considerably, which has resulted in taking the strict steps by the Government.

Additionally, NBFCs were also facing issues like Asset quality and offhand growth in the loan book. The question of asset quality was faced by wholesale financers. Still, companies in the retail segment are not much concerned about their asset quality. It seems that the go-slow of the economy is real, the assurance of the consumer is deteriorating, and RBI has restricted the GDP growth rate to 4.5%. NBFCs are discovering ways to manage their books, demand, and stay in business in the long-run.

What is the overview of the initiative taken by the Government for the better Future of NBFCsaccording to the prospect in 2020?

In India, intending to improve the demand and to guarantee liquidity, the Government has taken numerous measures by establishing the Loan mela and Partial Credit Guarantee system.

In recent years, the future of NBFCs is witnessing good growth in consumer lending. The liquidity position has improved and is gradually coming back to normal. In the future also, NBFCs will play a crucial role in economic development and financial inclusion. With the increase in economic growth, the need for credit will rise more than proportionate.

Conclusion

For elevating the future scope of NBFCs, NBFCis learning to evaluate the overall market situation and by upcoming the new strategies to lend to different sectors. To participate with the issues and loopholes, the Government shall consider the relaxing and tranquil compliances. The future scope of NBFC Registration calls for a reinvention of the business model of NBFCs, which will result in better business processes, better execution, and underwriting.

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