The End Of The NBFC Era?

In comparison to banks, non-banking financial companies ("NBFCs") have always enjoyed higher net interest margins ("NIM") which is the amount of money that it is earning in interest on loans compared to the amount it is paying in interest on deposits. One of the reasons for this is that banks must comply with higher capital requirements in line with Basel III norms, which in turn increases the cost of lending. NIM is an important indicator of profitability and growth. However, NBFCs have also suffered from higher non-performing assets ("NPA") as compared to banks because they tend to lend to lower income segments and the informal sector, while banks do not prefer lending to such segments given that this increases the chances of a default. Today, as NIM drops and NPA classification norms for NBFCs are tightened, NBFCs will require a higher level of provisioning even though NBFCs in general are not well capitalized. NBFCs have also found it difficult to raise capital