Credit and Finance for MSMEs: Minister of State for Finance Bhagwat Krishanrao Karad on Tuesday said that the asset base of non-banking financial companies (NBFCs) has reached over Rs 54 lakh crore as of March 2022, comprising a quarter of the balance sheet of the commercial banking sector, as per a report by the Press Trust of India (PTI).
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The Union Minister was addressing an NBFC summit organised by the industry association Confederation of Indian Industry (CII). He said that NBFCs have become the engines of growth of the Indian economy and are enabling small and medium enterprises (SMEs) access capital.
The shadow banking industry has been in crisis since the fall of the two major NBFCs – Infrastructure Leasing & Financial Services Limited (IL&FS) and Dewan Housing Finance Ltd (DHFL). Their crisis was linked with their ability to mop up lendable funds as banks maintained their distance from them on one side and the Reserve Bank of India (RBI) kept on tightening the regulatory norms around them. It finally brought NBFCs on par with banks in November 2021 when it comes to bad loan recognition.
NBFCs have helped the MSME businesses grow their operations and create employment in the country. Importantly, due to their reach and technology, they also have a higher credit growth than the commercial banking sector. NBFCs loans grew by more than 10 per cent in the last financial year whereas bank loans rose by just five per cent.
The minister said that the key reason for the NBFCs success is that they have customised solutions and are innovating for the SME credit landscape.
NBFCs saw their balance sheet size double to 25 per cent of the balance sheet size of the banking sector as of March 2022 from just 12 per cent in fiscal year 2010. The minister said that digitisation and customer service are top factors for their success.
Hailing NBFCs as a strong alternative to the banking sector, Karad said that they will help bridge the credit gap in the coming years due to their low cost of operations.
Abhimanyu Munjal, Chairman of CII’s NBFC forum and Managing Director of Hero Fincorp said NBFCs disbursed almost 60 per cent of their loans digitally in FY22 and have also achieved real-time customer onboarding. Around 11.3 million MSMEs have taken collateral-free loans worth Rs 2.32 lakh crore from NBFCs till June this year, said Munjal.
The credit demand in the NBFC sector is expected to grow to almost Rs 30 lakh crore in the next couple of years, he added.