NBFCs: Building a More Inclusive Future

Bringing the multitudes of unbanked populat iral india to the formal credit market remains a major policy challenge but the task of financial inclusion has been made easier by the accelerated pace of digitalisation

- V P Nandakumar

Providing last mile credit to consumers has been a shared concern of policy makers and financial intermediaries for long. In the current tightening cycle, this singular issue has been at the centre of attention of not just the central banks but the fiscal policy makers. This was amplified by the RBI Governor's last monetary policy public statement in the current fiscal where he flagged the need for enhancing the last mile credit connectivity to perk up consumer spending to ensure durable growth above the threshold 7% mark while continuing to battle the increase in general price levels to align the headline inflation below the 4% mark.

NBFCs have played a seminal role in this process. These institutions have supplemented and complemented banks in more ways than one by serving the credit needs of the last mile through endevaours like micro finance and now we have specialised NBFCs in this segment. To put things in perspective, total credit extended by NBFCs in India as on December 2023 is approximately Rs 34 lakh crore, constituting 20% of bank credit. Credit by NBFCs grew at a CAGR of 12% in the past 5-year period outpacing bank credit growth of 10.5%. NBFCs have also done well in financial and profitable metrics, making the business a winwin for customers and lenders.