It’s no longer banks ‘versus’ NBFCs, but banks ‘and’ NBFCs. Or so hoped the bosses of two of India’s most prominent non-banking financial companies — Mahindra Finance and Godrej Capital.
Part of storied corporate groups, both entities reckoned that NBFCs have created a “specialized” niche for themselves despite regulatory and other challenges. And, they are now integral to the success of the larger banking and financial ecosystem in India.
Speaking at Business Today’s flagship Banking & Economy Summit 2023 held in Mumbai on Friday, Ramesh Iyer, Vice-Chairman & Managing Director, Mahindra Finance, said, “Gone are days when we could believe that we will do everything by ourselves. Similarly, banks are not giving credit to everyone. That’s how microfinance is able to do for one segment of customers, which banks can’t. If you are to deliver a service to your consumer wherever they are and without sacrificing on speed, you have to invest in partnerships.”
Echoing him was Manish Shah, MD & CEO of Godrej Capital. “In theory, banks can do everything NBFCs can. But the customer no longer cares if it’s a bank or a non-bank. They will only see how their needs are being fulfilled, and it might be three different institutions [bank, NBFC, fintech] coming together to deliver value to them,” he said.
Elaborating further, Shah said, “If you want to underwrite [a loan] faster, half of that comes when you partner with someone who does that better than you. So, from a customer point of view, we are very excited about partnerships. There are 4,000 financial services players in the US. In India, you can’t think of names after the top 100. We can grow this market faster via partnerships. And we don’t have to wait for regulations to loosen.”
Both panelists also stressed on the unique specializations NBFCs bring to the table. “Within the NBFC industry, everyone is a specialized player. Someone is strong in geography, someone in the products they provide, and so on. NBFCs have faced different disruptions at different points of time. But they have been solution providers to customers. That’s the reason they have been able to overcome the disruption,” Iyer explained.
But, is the shrinking of regulatory arbitrage going to create a problem for India’s NBFCs in future?
“My personal view is no,” Iyer said, adding, “Because NBFC businesses weren’t built on arbitrage. They are built around customer-centric models. And, NBFCs will come and expand the market.”
On the advent of Reliance’s Jio Financial Services, Iyer added (with a chuckle), “All we can say at this stage is we will partner and work together.”
Meanwhile, Shah said, “We look forward to it [Jio’s entry]. In most cases, markets grow when a new player comes in. So, there’s a lot to look forward to.”
The panel was wrapped up by Iyer crooning a few lines of the classic Hindi song ‘Chhodo kal ki baatein, kal ki baat purani’, making a point on the new-age relationship between banks and NBFCs.
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