In Kerala’s financial ecosystem, Non-Banking Financial Companies (NBFCs) and Commercial Banks play crucial roles in providing credit to businesses and individuals. Their primary income comes from the interest generated on loans and advances. However, a recent analysis of loans and advances data from 2022-2023 has revealed an interesting trend: certain NBFCs outperform some traditional banks in performance.
Notably, two of Kerala’s leading NBFCs—Muthoot Finance Limited and Manappuram Finance Limited—have surpassed three commercial banks in terms of loans and advances. This shift in the lending landscape highlights the increasing competitiveness of NBFCs, suggesting they are becoming key players in Kerala’s financial market.
How NBFCs are posing a threat to Banks?
Unlike banks that require extensive paperwork, NBFCs streamline the process by asking for minimal documentation, making it easier and faster for businesses to secure loans. This ease of access attracts more borrowers, especially small businesses.
Banks often have strict eligibility criteria, limiting access for many applicants. In contrast, NBFCs offer more lenient requirements, allowing more businesses to qualify for loans. This flexibility gives NBFCs an edge, particularly among underserved segments.
NBFCs are known for their quicker loan processing times, offering immediate access to funds compared to banks’ often slower approval processes.
Most NBFCs do not require collateral for business loans, whereas banks typically demand assets as security. This no-collateral approach makes NBFCs more appealing, particularly to startups and small businesses that lack significant assets.
As NBFCs continue to offer more flexible eligibility criteria and provide faster access to funds without collateral requirements, they are increasingly becoming a preferred choice for businesses and individuals in the state. Their ability to cater to underserved segments, such as small businesses and startups, gives them a competitive edge over traditional banks. Thus, with their customer-centric approach and adaptive lending practices, NBFCs are set to play an even more prominent role in shaping the state's future credit access and financial services.
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