The document discusses the Indian loan market and the roles of non-banking financial companies (NBFCs) and banks in providing loans. It notes that the Indian loan market is expected to grow significantly between 2011 and 2016. While banks traditionally provided most loans, NBFCs have grown to fill gaps by lending to segments that banks often neglect, such as rural and informal sector customers. However, increased competition from banks and high costs of funds present challenges for NBFCs. To thrive, NBFCs will need to focus on their strengths like specialized products and customer services while expanding into new markets.

1. BY
ASHUTOSH MEENA
TSB MANIPAL UNI. JAIPUR

2. Indian Loan Market by NBFC’S & BANKS:

India loan market is estimated to generate Rs 9,324.3 billion in 2011 and
is expected to reach Rs 21,980.6 billion by 2016 with a CAGR of 18.7%
from 20-11-2016.

The loan area includes home loans, education loan, auto loan, personal
loan, consumer durable loan and much hyped gold loans.

The major loan part covers by gold loan the Indian population holds
world’s 11% of the total Gold that value’s around Rs. 32,100 Billion in
2010.

Loan market is growing with the highest growth rate and is expected to
grow with a CAGR of 38.7% from 2011-2016.

3. NBFC:
A Non-Banking Financial Company (NBFC) is a company registered under
the Companies Act, 1956 and under supervision of RBI
NBFC’S work field is business of loans and advances, acquisition of shares,
stock, bonds, debentures, securities issued by government or local authority
and agriculture activity, industrial activity, sale/purchase/construction of
immovable property.
These institutions typically are restricted from taking deposits from the
public depending on the jurisdiction.
Maintenance of 12.5%of their deposits in liquid assets

Registration of NBFCs:
In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every
NBFC should be registered with RBI to commence or carry on any business
of non-banking financial institution as defined in clause (a) of Section 45 I of
the RBI Act, 1934.

4. INDIAN BANKS:
A bank is a financial institution and a financial intermediary
that
accepts deposits
Bank deals with receiving from the general public money on current,
deposit, savings or other similar account repayable on demand, paying or
collecting checks drawn by or paid in by customers
Directed under the RBI guidelines.
Around 26 nationalized bank in India.
13 old private sector banks.
19 new age private sector banks.
80 Regional Rural banks
32 Foreign banks

5. Why consumer prefers NBFC even if BANKS are
there for loans:
Only 34% of Indian individuals have access to banks.
Banks have a lot of constraints in lending.
Conditions for getting a loan.
Proximity of financial services.
Single product and dedicated business.
For collecting the dues they use human resources and pay them lower
than what banks pay. Banks lack here.
In truck financing majority of the truck drivers don’t have proper
papers to get the loans.
In home finance, housing finance companies (HFC) flourish with
higher focus and better customer service.

6. Market Share of NBFC’s in financing:
In 1981there were 7063 NBFC’S which is went up 24009 in 1990 and there
were as many as 55995 NBFC’S in 1995.
The numbers of NBFC’s was increase so rapidly because of high interest
rates provided by these companies that led investors to invest their funds in
NBFC’S.
In 1997-98 RBI introduce strict guidelines because NBFC’S failed in
repayment to their depositors.
After that private banks comes into competition and NBFC’S also shows
growth during the year 2000-02.
In recent years NBFCs once again in decline mode because of high cost of
funds and intense competition with the banking sector there are 12,740
companies as at end of June 2013.
The big players are surviving like Shriram Transport finance and Mahindra
finance because of automobile financing they also providing second hand
vehicle finance.

7. Challenges for NBFC’S:
 Increased competition from banks in across-the-board finance it diversify the
NBFCs from core business activities.
 NBFCs have also ventured into riskier segments such as unsecured loans, capital
market lending etc. moreover, NBFCs customer profile is concentrated on the selfemployed segment.
 NBFCs main focus on urban markets they are expected to look for rural and semi-
urban markets also , Because credit requirements of rural population are primarily
met by banks from organized sector or local money lenders.

8. Future scenario or opportunities for NBFCs :
 NBFCs have
a very important role both from the economic perspective and the
structure of the Indian financial system.
 NBFCs have to focus on their core strengths while improving on weaknesses.
 The core strengths would be very dynamic in nature and constantly endeavor to
search for new products and services in order to survive in this ever.
 Most of big players in NBFC segment going to get banking licences in April 2014 by
RBI, So small scale NBFCs have to alert with new strategies and focused on rural
and semi urban area because if big players got licences then this is not easy for them
to reach rural market frequently.