The NBFC business has grown stupendously in the last 5 years time frame In India.  Rs 10 trillion bad loan mess of the Indian banking industry created by political influence at different times created the opportunity for the NBFC industry to capitalize on the same. 11,500-odd non-banking finance companies grew their business significantly taking this opportunity. Eight of the 10 NBFCs posted handsome growth in their profits before tax in the five years.  The stellar performance of the NBFC came at the cost of NPA of the banking industry.

The NBFC growth cannot be a sustainable economic growth contributor. Their intricate deals and business model are quite dependent on the economy and once there is slowdown it will impact the assets of the Indian economy. Banks, on the other hand, are liquidated easily by various modes where NBFC have many limitations.

NBFCs plays a pivotal role behind elections and hence I leave the rest for my readers to calculate. All NBFC somehow of the other are PE financed which raises further question who is giving them and why.

The tussle between NBFC, RBI and Government stand to be a complicated situation. But this complication has a logical reason if we look from the RBI point of view.  The Indian banking sector has mostly been cleaned and under Basel III norms liquidity injection will be required into the industry. The current government wants NBFC to be financed and given easy of doing lending etc. Now after the books of the banking industry have been cleaned the banks needs to grow so that they can grow profits and also increase their business.

The huge amount of NPA which were created was mainly driven by political influence on the banking industry.  The same influence is being created now to favor the NBFC. The RBI has taken justified a step of not getting under any influence and be vigilant enough to save the economy.

The NBFC model of business has been very much supportive for the Indian economic growth and they have been filling up the gap of unbanked but the unbanked happened due to political influence. This influence on the banking industry has been so strong that they have kept damaging the industry and let other Financing industries grow.

Today if the Indian banking industry grows and fills up the gap of unbanked then there is substantial change over for the long-term growth of the Indian economy. When an NBFC fails hardly anyone comes for rescue but when a bank fails the government comes to save.

This has a significant impact on the long-term growth of an economy. The recent clean up of books has resulted in enough expansion opportunity and efficient utilization of resources by the banking industry.  More branches and more technological advancements will lead to filling up the gap of unbanked in the coming days. NBFC have been growing their business in a reckless manner and their intricate business deals and models are quite a surprising threat for the Indian economy.

The RBI mode of operation should be free from any government or political influence. The election raises many questions about giving leeway to corporate India. But this may not happen now.

If the NBFC is better placed and doing correct business keeping the regulatory aspect in mind then any storm can be faced. Support by RBI should be given but not under any influence but under the business and economic feasibility sense.