The Future of NBFCs and FinTechs
Dear Readers,
They are generally recognised as shadow banks but are very much in the limelight. The collapse of IL&FS and DHFL, which were systemically important NBFCs, made bankers review and redraft their risk strategies. Bankers developed a trust deficit, specifically after the spectacular fall of too-big-to-fail IL&FS… the question bankers had was if large NBFCs like these can fail, then whom to trust? The situation was such that bankers stopped lending to NBFCs.
But after five years, the situation seems to have improved. Analysts thought that sector would be beyond repair, but the ghost is back in the bottle and DHFL and IL&FS have been sorted, of course with heavy losses. DHFL has been acquired by Piramal Group and IL&FS has recovered what it committed. But there is still a lot happening in this space. Recently, one of the largest NBFCs operating in the housing finance segment, HDFC decided to merge with HDFC?Bank, its shareholder company. There are many large NBFCs that are also thinking aggressively about whether they should apply for a universal bank licence or merge with some bank. There is a between the line understanding that RBI wants large banks to become banks.
What do NBFCs want?
There are two arguments here. The first is that if NBFCs become banks or merge with banks then the whole shadow bank tag will go away and they will gain more respect. The access to funds will be cheaper and more doors will open. But the big catch is compliance. They will instantly fall under the regulatory hurdles which is not easy. The RBI monitors and audits every piece and layer, which many of them either are not prepared for or don't want it. Currently, both NBFCs and HFCs have a certain degree of flexibility from the regulatory side, which bankers do not have.
NBFCs + FinTechs = Digital lending
Over the years, NBFCs built their loan books and focussed on tapping those markets where banks were absent. But in the last few years, they have embraced digital like never before. They have partnered with a number of FinTechs and created an unmatchable and unimaginable innovation in the credit space.
NBFCs and FinTechs have actually redesigned the whole credit segment. They are not disbursing the loan on the basis of your salary slip but on the basis of where and how you spend your salary, whether you party hard, or shop hard, whether you travel or eat… they collect all the data points by following various digital footprints. They conduct psychometric tests, check social media accounts and much more. India was actually waiting for such remarkable innovation where borrowers will knock on the credit windows again and again. This also opened new access to a whole different segment.
Today the majority of FinTechs want to become an NBFC. Many of them have either obtained or applied for an NBFC licence. Of course, FinTechs are also partnering with banks and other financial institutions, but according to my observation, the bond is much stronger today between NBFCs and FinTechs. In many cases, both are dependent on each other.
领英推荐
Well, I think the NBFC and FinTech story needs attention. Hence we at?ETBFSI?have decided to bring this as a theme for our first offline event scheduled next week. The?ETBFSI?FinNext event will have a mix of top NBFC CEOs and founders and CEOs of FinTech companies. I think if you are really interested in the future of NBFCs and FinTechs, you should not miss this - bit.ly/3KjB95g
Well, apart from many other stories, this week we interviewed?Nitin Gupta, the CEO, of Uni for FinTech Diary?segment, and?ETBFSI?Explainer?has all the details about how banks are unlocking the cloud benefits. Like always, I am adding here the top five stories of the week that you shouldn't miss. If you have any thoughts or feedback, please feel free to share them with me at?[email protected]
Happy Reading, Happy Weekend
Amol Dethe, Editor, ETBFSI