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Unveiling the Power of Technology in Indian NBFCs: A Journey to Financial Brilliance

In the dynamic landscape of financial services, non-banking financial companies (NBFCs) have strategically embraced technological advancements, including Artificial Intelligence (AI), Machine Learning (ML), and big data. These innovations are not merely tools but integral components reshaping credit processes, enhancing operational efficiency, and championing financial inclusion. This article delves into the strategic integration of technology in Indian NBFCs, illuminating the transformative impact on financial products and operational strategies.

The Significance in India

If financial inclusion is a battle, then non-banking financial companies (NBFCs) are its foot soldiers. Yes, banks power economic activity but without the active participation of non-banking financial entities, all that economic power shall go underutilized. The Reserve Bank of India (RBI) acknowledges the importance of NBFCs in complementing the mainstream banking system, especially in a country like India with limited banking penetration. Last year’s RBI report revealed that NBFCs sanctioned 60% of loans through digital platforms, highlighting their pivotal role in reaching the unbanked.

Rise of NBFCs and the Role of Technology

They have kept pace with the rapid advancement in technology, leveraging Artificial Intelligence (AI), Machine Learning (ML), and big data to develop groundbreaking credit products and processes that have brought formal lending to the masses.

Over the last decade, Indian NBFCs have undergone a transformative journey, aligning themselves with the rapid evolution of technology. In the 1960s, they began their journey, but it’s in recent years that they’ve truly come into their own. With changing customer demands, increased digitization, and a technological leap, NBFCs are now at the forefront of innovation, leveraging Artificial Intelligence (AI), Machine Learning (ML), and big data to reshape the financial landscape.

Challenges Faced by Traditional NBFCs

Traditional NBFCs have faced challenges such as longer lead generation and processing time, reliance on income and credit score for lending decisions, manual work, high-cost models, and limited data handling capabilities. These challenges are further exacerbated by regulatory tightening, asset quality concerns, and increased competition from traditional banks, making it imperative for NBFCs to evolve and adapt.

Emerging Technologies Reshaping NBFCs

Emerging technologies such as artificial intelligence (AI), machine learning (ML), and big data are helping in overcoming some of the challenges mentioned above.

AI, RPA, advanced analytics, and blockchain are disrupting traditional financial models, offering automated end-to-end credit management, paperless processing, 24/7 customer support, integrated accounting engines, dynamic workflow management, and powerful rule engines. By adopting these technologies, traditional NBFCs can revolutionize their models, ushering in faceless and paperless e-KYC and onboarding, faster loan processing, and credit models based on diverse data sources.

Implications for India

Emerging technologies can help NBFCs reach underserved and unserved customers, providing them with the financial services they need.

In India, where the financial sector is rapidly growing, emerging technologies can bridge the gap, allowing NBFCs to cater to a large population that traditional models fail to reach. AI-powered credit scoring and RPA-driven automation can address risk assessment challenges and improve efficiency.

AI and ML Transforming Credit Decisions

AI/ML models help non-banking financial companies simplify credit decisions by drawing on a varied set of alternate data, assessing creditworthiness, and revealing insights about delinquency risk.

In the B2B landscape, where underwriting is intricate, AI-driven pre-approval processes streamline operations, reducing decline rates and optimizing loan authorization rates. Deep personalization of loans based on alternative data segments customers effectively, ensuring relevant loan products and repayment guidelines.

Robotic Process Automation (RPA): Accelerating Operations

Speed is a defining trait of NBFCs, and RPA plays a crucial role in maintaining this advantage. Automating repetitive processes, RPA enables auto-capture of data, instant KYC verification (taking only 3-5 seconds), eligibility checks, and swift loan disbursement. This not only enhances operational speed but also cuts costs, generates leads, and improves customer service.

A Call to Transform Finance

As we navigate the intricate landscape of financial services, one truth stands evident: the future of lending demands an alliance between tradition and technology. Non-banking financial companies are not merely adapting to this digital revolution; they are at its forefront, wielding AI, ML, and big data as their tools of transformation.

In the relentless pursuit of financial inclusion, non-banking financial companies have emerged as the vanguards, reaching where traditional banks falter. Yet, the journey is far from over. The urgency to embrace technology resonates not just as a choice but as an imperative.