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Non-banking Finance Companies: Ushering Financial Inclusion

Kaushik Banerjee, President & CEO - Asset Finance, Magma Fincorp
Thursday, February 2, 2017
Kaushik Banerjee, President & CEO - Asset Finance, Magma Fincorp
Magma Fincorp (NSE: MAGMA.NS) is an RBI registered non-banking financial company offering a wide portfolio of financial services such as vehicle finance, construction finance, housing loans, SME loans and Insurance services, to name a few. It has a current market capital of Rs.2314.84 crore.

Non banking finance companies (NBFC) form an intrinsic part of the Indian financial system. They contribute to both nation building and financial inclusion by providing credit to those who are not covered by the formal banking sector. NBFC as a sector is now being recognized as an important part of the financial system and has shown consistent growth of 19 percent compounded annual growth rate (CAGR) over the past few years.

The NBFC players cater to the new to credit customers who do not have repayment track records or banking habits; largely in the commercial vehicles, tractor, SME, and used vehicles segment. NBFCs have over time developed a strong platform to assess the profile and credit needs of an unbanked borrower supported by a robust collection mechanism to ensure that their portfolio behavior is under control. As of 2016, NBFCs have by and large proven to be more profitable than conventional banks due to higher yields and better portfolio behavior.

The traditional banks, with increasing bad debts, are finding it more and more difficult to lend, especially in rural areas, presenting an opportunity to NBFCs to reach out to rural areas. NBFCs have succeeded due to better and more relevant products, lower cost, greater reach, strong risk management capabilities, and deeper understanding of customer segments. Apart from traditional segments like passenger and vehicle finance, they are managing to build considerable assets in the personal loan and housing finance sector.

In the consumer finance segment, increasing urban demand, greater disposable incomes due to effective government schemes and 7th pay commission will continue the growth trajectory in urban areas, but the picture may not be so bright in the rural areas. In small and medium enterprises (SME) sector, there is an increase in business and professional loans, but this is not so in loan against property due to greater competition from new entrants as well as from traditional banks. In the commercial vehicles (CV) segment, regulatory changes such as scrapping of old CVs and Bharat stage VI pollution norms is expected to increase growth in the pre-owned CV sector.

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