What is the Role of NBFCs in the Economic Development in India?

A strong banking and financial system is the most vital component to channelize the Indian Economy’s growth. NBFCs are the financial intermediaries that play an essential role is the development of Economy in India. It also provides credit facilities to remote areas and helps the individuals who are often ignored by the banks. Non-Banking Financial Companies supports the weaker sections of the society, so it brings stability in the nation. Scroll down to check more information regarding the role of NBFC in the economic development of India.

What is the importance of Non-Banking Financial Companies in India?

Non-Banking Financial Companies have been a foremost contributor to the growth of BFSI (Banking, Financial Services and Insurance). NBFCs developed as a perfect alternative for banks in terms of financial support and raising funds for India’s businesses. RBI controls all the functions of Non-Banking Financial Companies considering its importance in accelerating society. These financial companies are incorporated under the Companies Act, 2013 and cater to a wide range of financial services like the acquisition of stocks, advances, securities, loans, debentures, and bonds. NBFCs value its customers and highlight on the creation of innovative products. Non-Banking Financial Company’s role in Indian economic development is beyond assessment due to its credibility in supporting manufacturing development and infrastructural development.

What is the role of NBFC in the Economic Development of India?

In India, Non-Banking Financial Companies is the spinal cord and an essential source for the economy flow. Following is the list of the vital role of NBFC in the development of Indian Economy:

• Increase Employment: Non-Banking Financial Companies in India are working with the Government to increase employment opportunities by investing in Private Sectors and SMEs. Private Companies in India helps in creating occupation for the smooth functioning of the firm. As the new business start increasing employment simultaneously also increases and Non-Banking Financial Company support these firms financially.
• Mobilization of Resources: In India, Non-Banking Financial Companies mobilize resources, funds, and capital. Non-Banking Financial Companies create a proper balance between the intraregional income and the distribution of assets. Non-Banking Financial Companies prove to be a powerful lender by converting savings into investment practices.
• Render Long-term Credit: Non-Banking Financial Companies in India provide long-term credit to facilitate Trade and Commerce industry. It also capitalizes massive infrastructural projects which raises the Indian Economy at an extensive level. The services of long-term credit with a reasonable rate of interest guarantee sustainable economic growth.
• Raises Standard of Living: Non-Banking Financial Company shapes up societies by elevating living standards, and these entities motivate foreign endowments from different countries, regions, and agencies to support and help in developing the Indian Economy. Further, Non-Banking Financial Companies participate in raising funds from the public and turning it into the capital for industrial sectors and other different sectors. Increasing in emerging businesses raises the human resources to demand, so it creates employment, which eventually increases people’s purchasing power and upgrades their living standards.

How NBFCs Turn Out to be a Game Changer in the Financial Sector?

RBI (Reserve Bank of India) praises Non-Banking Financial Companies to bring revolution in the financial sector. Following are some essential factors that NBFCs contribute in Indian Economy:

• Growth: Non-Banking Financial Company has beaten the banking sector on the terms of the yearly growth rate. On average, Non-Banking Financial Company grows at a rate of about 22% every year and contributes a massive part to the Economy every year.
• Promotes Inclusive Growth: Non-Banking Financial Companies assist credit facilities to a broad spectrum of customers in urban and rural areas, Non-Banking Financial Companies finance small and micro-scale companies, which nurtures progression in rural areas. These financial institutions provide small-ticket loans accessible for housing projects that inspire broad growth in the country.
• Size of the Market: Non-Banking Financial Company market has speedily grown in the previous few years despite its downturn. Non-Banking Financial Company sector extremely grew in size from Rs. 26.2 Lakh Crore to Rs. 30.9 Lakh Crore.
• Infrastructure Lending: The Economy of a country is well-defined by the state of its infrastructure, Non-Banking Financial Companies contribute to the Economy by giving funds to the infrastructure sector, which is essential for developing the country like India. An infrastructure project requires a massive number of funds that produce revenue only after a longer time-frame; thus, doing such projects also carries risk when it comes to lending. Hence, banks discourage from lending to such infrastructures projects in the previous years. Besides, Non-Banking Financial Companies have funded more to infrastructure lending.
• Profitability: As you know, one requires less capital to set up Non-Banking Financial Company than a bank; thus, it turns into a more profitable business model due to lower cost. These financial companies give customers loans at a lower rate on the interest, resulting in credit growth. An increase in the total money being lent to the customers is far more than that of the banks. And it is rapidly increasing the customer of Non-Banking Financial Companies with more scenarios opting their services.

Conclusion

You can say that the role of Non-Banking Financial Company in developing the Indian Economy is excessive. Non-Banking Financial Companies play an essential role in financial inclusion for MSMEs and individuals that will be the backbone of the Indian Economy. If anyone wants to start a Non-Banking Financial Company business in India, reach out to SwaritAdvisors. We have an experienced team, and we provide a range of NBFC Registration.