Post-CRB, NBFCs had become victims of unintended negative public perception. All NBFCs were tarred with the same brush. And the regulator, the Reserve Bank of India (RBI), only worsened matters. RBI's unfocused micro-management has been adding fuel to the raging fire. Meanwhile, even sound NBFCs have been finding it difficult to source funds cheaply and efficiently.

So, what needs to be done now? RBI should give up micro-managing NBFCs. Alongside, the legal apparatus needs more teeth to dispose debt recovery suits quickly. There are too many NBFCs and many of them unfocused. All these suggest that a shakeout is around the corner in the Indian NBFC industry. Consolidation, that has begun in a small way, can only gather momentum. The coming shakeout is going to separate the men from the boys.

So, NBFCs should get out of unprofitable areas and focus on niche financing. Micro finance is certainly one long-term solution NBFCs should look actively look at. NBFCs need to do a rethink on the ways of doing business. The smaller players can get into distribution of financial products such as insurance and mutual fund products and support services such as backroom processing. And the larger NBFCs should develop fee-based opportunities and convert themselves into financial supermarkets and financial factories.

Large players are already alive to ground realities and have started exploring greenfield business avenues. They have gone ahead and floated subsidiaries and joint-ventures to cash in on those opportunities. Some are even looking at the option of converting themselves into banks.