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Part - VI
Nevertheless, the larger NBFCs’ disbursements have increased
significantly on a standalone basis because of their strong
customer relationships, traditional niche strengths and
healthy manufacturer relationships.This is also because key
retail financing segments have witnessed some
consolidation with smaller NBFCs gradually losing share to
larger players and some of them even becoming direct selling
agents and concentrating on originating portfolios for the
latter. Consequently, a few key players have garnered
significant marketshare of 60-70 per cent and above in
these segments, which is expected to grow further.
A key facet of the reorientation in this segment is that
CRISIL-rated NBFCs have sharpened their focus on risk
management with more stringent credit screening measures.
As a result, their asset quality has improved in spite of the
growth in business volumes. The fact that most of these
NBFCs have completely or at least significantly cut down
their exposures to the plant and machinery segment, which
was responsible for their large non-performing asset levels
in the 1990s, has also contributed to a healthy asset book.
Advantages of the banking business model over
the NBFC one
Even though the universe of CRISIL rated NBFCs has
demonstrated a clear strengthening of their business model,
the banking model continues to have several advantages
over that of NBFCs. CRISIL believes that a bank’s resource
base is considerably more stable because of the high
proportion of retail deposits in the total funding
base.Moreover, banks have the potential to earn a
significant fee income from transaction banking and other
services. The banks’ proportion of fee income (as a
percentage of average funds deployed) has varied between
0.6 per cent and 1.4 per cent*, depending on the nature
of a player’s services.
Banks have cross-selling opportunities to the large retail
population that they tap to raise resources. In India, banks
also enjoy a high level of systemic support given their
strategic importance to the economic system. This has been
demonstrated in the past when some banks faced distress
situations.
Further development of fund industry and
securitization would strengthen the NBFC business
model
CRISIL believes that a further deepening and widening of
the mutual fund industry and the securitization market
would continue to strengthen the NBFC business model by
enhancing their resources profile. In addition if pension
funds come into the market in a large way and if insurance
companies also increase their exposure to the NBFC sector,
it would further improve the latter’s resources profile. The
availability of resources from these varied sources and the
spread over G-Sec yields on their borrowing costs would be
a key factor determining the NBFCs’ competitiveness in a
rising interest rate scenario.
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* CRISIL estimates
Source: CRISIL
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