Nbfcs Need to Adopt Smart Technology With Subject to Covid-19 Impact
According to CRISIL, Fitch, and SBI Analysis, India could enter a full-fledged recession, with Arthur D Little predicting that it will drive 120 million people back into poverty and ruin opportunities worth up to $1 trillion in GDP. According to the RBI, banks have approximately 1.92 trillion dollars in credit outstanding and about 1.69 trillion dollars in deposits. COVID 19 has wreaked havoc on NBFCs, which are the primary financing sources for many businesses that banks don’t serve. They were struck by a massive liquidity crisis and deteriorating asset quality right away. Manufacturing, car, real estate, and retail, all essential to NBFCs, are still performing poorly. It has increased the burden on NBFCs already under stress as a result of the IL&FS defaults. Though banks use public deposits to fund loans, most NBFCs rely on bank borrowing to fund their disbursements. Banks have been hesitant to lend to NBFCs due to the pandemic.
NBFCs advised a moratorium to their debtors to add to their woes, although they did not receive any similar support from banks. The RBI took several steps to provide relief, first in April and then in August. Despite this, no moratorium has been imposed on capital market borrowings, which make up a significant portion of NBFC borrowings. In October, the government announced Rs 75000 crores in liquidity support for NBFCs — MFIs as part of its $20 trillion stimulus package, which has to allocate in two separate schemes. While it is encouraging news, the banks’ cautious mindset remains a source of concern.
COVID-19’s Impact on FinTech Funding
Global mobility, trade, tourism, and consumer sentiment have all been impacted by the COVID-19 pandemic. Several startups are treading carefully during the slowdown, planning how to stay afloat in the face of possible losses in the coming quarters. Investors have been cautious due to a lack of clarity in the broader macroeconomic environment, current business models’ viability, and uncertainty about future growth. As a result of their investment mandates and fiduciary obligations to limited partners, asset managers have made a visible shift toward fewer, higher-quality investments. In Q1 2020, disclosed venture capital (VC) investments in India totaled USD 1.74 billion, down 22% from USD 2.22 billion in Q1 2019, indicating a year-over-year decrease of 22%. The number of investments decreased by 35.7 percent to 126 from 196 in the same period last year.
In such an uncertain economic climate, many venture capitalists are reinforcing that the principle of cash is king by conserving cash and planning to gradually and tactically raise capital. Financial institutions and lending institutions are dealing with rising asset risk and a deteriorating operating environment. FinTechs have also been affected by the current economic climate. In the current climate, equity injection may be difficult to come by as private equity (PE) and venture capital (VC) funds observe further investment prudence. Debt financing from banks/FIs may be challenging to come by and costly. Early-stage FinTechs may find it more challenging to compete with mature and better-capitalized FinTechs in such a situation.
FinTech funding and deals have already declined sharply globally in Q1 2020. The contraction is expected to widen in Q3 2020 as many investors pause deals to assess the impact of COVID-19 on the global economy and specific business sectors. Due to logistical issues such as traveling for due diligence and delays in compliances such as getting clearances and tax certificates, several deals could be impacted in the coming quarters.
NBFCs’ Future Prospects: Survive and Then thrive
Since their core market is shrinking due to Covid-19, NBFCs are forcing to diversify and reimagine their businesses. They’ll have to reinvent themselves with a market-driven platform that takes advantage of their strengths, such as their consumer base, distribution scope, and partnership with different ecosystems. It has become apparent that NBFCs would have to concentrate on their strengths, five strategies to survive with evolving market scenarios.
- In assessing a potential borrower’s risk potential or creditworthiness, the tasks of origination, underwriting, and decision-making are critical.
- Loan fulfillment and servicing accomplish using various methods to meet the target audience and provide end-to-end personalized services.
- Risk management with effective risk control and improved governance procedures.
- Collections with a prioritization system and a well-regulated mechanism preventing delinquencies by various collection strategies.
- Funding includes raising funds to carry out the four functions mentioned above.
Smart Technology Must Be Adopted by NBFCs
In India, the NBFC sector is transforming. According to industry sources, the lending sector is worth up to $600 million and is rising from 19% to 21%. Alternative lending companies, also known as Non-Banking Financial Companies (NBFCs), play an essential role in developing the Indian economy. NBFCs must adopt Smart Technology to ride this growth wave effectively.
All major NBFCs have risen to the top due to their ability to innovate, tailor products to meet their clients’ needs, increase workflow agility, and reduce operating costs. This skill was developed in them through cloud-based lending software with features such as paperless loan sourcing, access from anywhere at any time, good business process management, artificial intelligence-powered lending analytics, omnichannel sourcing, and innovative collections.
Reason to adopt Smart Technology
- India is a diverse and large market, and reaching out to people in rural areas is difficult. Build strong reachability by adopting evolving technology and migrating from legacy systems to Cloud and Artificial Intelligence, which can help NBFCs efficiently reach customers. This will aid in the expansion of the customer base as well as the reduction of operating costs.
- NBFCs must be innovative and deliver goods that meet customers’ rapidly evolving needs in today’s industry.
- In today’s environment, lending firms must be flexible and safe in order to prevent fraud. Business process management tools will help you deploy established lending and operational environments for your internal team to approve, deny, disburse, and manage collections. From loan origination to loan servicing, all are regulated by senior management’s established rules and business processes. This will secure NBFCs from fraud and aid in creating a fraud-free customer base through practical analysis.
- In the NBFC industry, competition is heating up as everyone tries to figure out who their customers are and what they want. What strategies do you use to keep one step ahead of them? Using AI, ML, and analytics to learn lending data efficiently, you can monitor product efficiency, consumer performance, customer choices, trends, and behavior patterns in borrowing and repayment.
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