Some NBFCs are bigger than many banks, says CEO Aditya Birla Finance

Giving his opinion on non-banking financial corporation (NBFC)s becoming banks, Executive Vice-Chairman of Shriram Finance Umesh Revankar, said the issue has gained significance in recent times as the differences between banks and NBFCs have come down. Elaborating on the subject, Revankar said, "When we started as an NBFC, we wanted to become banks."

Talking to Manojit Saha of Business Standard at the Business Standard BFSI Summit 2023, Revankar also underlined that Shriram Finance is a deposit-taking NBFC that gives it certain advantages over other NBFCs. "We want to continue to function as an NBFC", Revankar said.

Emphasising the role of the Reserve Bank of India (RBI), Revankar said that NBFCs turning into banks depends on the regulator and the government. India is a large country and needs NBFCs where banks do not have reach and find it challenging to offer their services, he added.

Responding to the same question, MD and CEO of Aditya Birla Finance, Rakesh Singh said that Adiya Birla Finance would like to turn into a bank. He said, "There is a harmonisation of policies and regulations for upper-scale NBFCs and banks in terms of capital requirements and asset categorisation." The size of NBFCs has grown manifold as some NBFCs have outgrown even some large banks, he added.

"NBFCs should be allowed to accept public deposits in order to build a sustainable businesss", Singh said.

Rajiv Sabharwal, managing director (MD) of Tata Capital, said that there are certain products and services that only banks can offer and vice versa. "The Indian credit market is growing over 15 per cent. In this, NBFCs account for 25 per cent of the whole credit system." On current regulations, Sabharwal said, "The current regulations allow both banks and NBFCs to co-exist."

On being an NBFC, he said, "Currently, we have no plans of turning into a bank. In our business model, we will remain as an NBFC."

Talking about the experience of Shriram Finance in accepting public deposits, Umesh Revankar said, not all NBFCs can have access to public deposits. "The brand equity and reputation of the company play a great role in this. Also, public deposits are more sticky," said Umesh Revankar.

Emphasing on a policy decision to allow NBFCs to accept public deposits, Rakesh Singh of Aditya Biral Finance said, "It will not be a problem for the top five to seven NBFCs, it is about the NBFC industry as a whole and as things stand, NBFCs are dependent on banks for capital." This sector provides for 25 per cent of the credit demand. The RBI should look at the customers favourably. NBFCs are taking risks on these customers but the liabilities are not with NBFCs and this should change.

"For the large NBFCS, it will be very, very difficult for them to sustain in a longer period. The liabilities become very, very important and significant," Rakesh Singh said.

 He added, "The NBFC industry is still dependent on the banking system from a liabilities point of view, and I think that is what we need to really solve for."

Umesh Revankar discussed the challenge of high lending turning into NPAs and said, "Without credit growth, we can not have GDP growth. While we engage in relatively higher risks, NBFCs have higher margins too that provide cushion for challenging situations. "I don't see any challenges with the lending done by the NBFCs."

Sabharwal said, "There are some banks facing issues of rising liabilities than NBFCs. In order to help the ecosystem, one should create more sources of liabilities."

Talking about the credit going up in the country, Rakesh Singh said, RBI is right in thinking that when things are good, we should plan for the rainy days. Singh highlighted the impact of improved technology infrastructure in the country and said, "Consumer behaviour has changed. They are transacting online more and more. They are buying financial products on the internet as well. This has led to small ticket credit requirements. 50-60 per cent of small ticket demand for credit is to buy smartphones."

The cost of delivery of credit has come down for lending institutions and the Aadhar KYC and other verification tools have helped the industry, Rakesh Singh said.

Regarding margins, Rakesh Singh agreed with Revankar and said that cost of capital is rising, and we can not go for margins going down. "Margins are very, very important. The entire model is based on the margins. The consumer is not shying away from giving a bit extra if one can provide the convenience of taking a loan. Making the customer journey simple and seamless. We don't want to sacrifice margins for growth", Singh added.

On the importance of customer experience, Sabharwal said, ''Customers are becoming more demanding as they have more choices. Today, customers want an instant decision rather than a prolonged decision-making period.'' He added, ''Our majority of the services are digitised. Close to about 90 per cent of our services are self-service, where customers do not have to interact with us to get services.''

Rakesh Singh also echoed Sabharwal on the question of customer experience and said customers have multiple options, and we have to provide the best customer experience to retain our customers.