New Delhi - Though Indian non-banking financial companies (NBFCs) are growing in market share at a time when the banking system is grappling with the bad loans issue, they will have to keep pace with new technologies to attract investment, industry chamber Assocham said.
Citing its joint study "Fuelling NBFCs through Private Capital", conducted in association with British advisory multinational PricewaterhouseCoopers (PwC), Assocham said in a release that NBFCs need to consider "tweaking their current business models to grow in a hybrid world - digital plus physical".
"With banks tightening their purse strings owing to increasing bad loans, Indian NBFCs are growing their market share, however, they will have to keep pace with new technologies and changing customer aspirations to attract timely private equity (PE) investments," it said.
The report suggested that NBFCs must find funds to invest into operating models with the potential to disrupt the industry and challenge the status quo in their business.
The report also said that in order to ride the wave of increasing formal credit penetration in a growing economy, NBFCs will need to invest in new technologies to lower the cost of acquiring new segments, "including thin files, servicing existing customers and de-risking the portfolio".
"Besides, in order to fulfil demands of the new-age customer in terms of credit facilities, NBFCs will have to invest in analytics and artificial intelligence (AI) capabilities to be able to connect to the customer in a hyper-personalised manner," it said.
"New tech-based business models have the potential to crunch the learning period substantially and re-balance the strategic advantage of information access by inserting themselves into the value chain with technology," it added.
State-run banks grappling with the non-performing assets (NPAs), or bad loans, for the last many years, has generated a tremendous opportunity for NBFCs to ramp up its scale, according to Assocham.
"In fact, in the last two years, they have doubled their market share in small and medium enterprises and wholesale loans and have made substantial inroads in other consumer loan categories," it said.
"Coupled with lower cost, a focused approach on limited credit products and strong underlying risk management capabilities help NBFCs to not only underwrite credit to a targeted set of customers but also to control bad debts, making them one of the attractive sectors for PE funding," it added.
"... can provide the necessary capital and financial muscle to undertake strategic decisions, right from expanding existing markets, building newer capabilities, improving efficiency or even to refinancing existing high cost debt," it said.
The report, however, said that private equity (PE) firms firms look to invest in NBFCs which can build scale that provides cost reduction opportunities, market access and operational efficiencies which then give PE firms higher returns when they monetise their stakes.
Also, consolidation of smaller NBFCs will therefore become an attractive target for PE firms in the future as they will have the opportunity to demonstrate a successful exit with substantial multiples, the statement added.