The asset base of non-banking financial companies (NBFCs) has become almost a quarter of the balance sheet of the commercial banking sector, Union Minister of State for Finance Bhagwat Krishanrao Karad said on Tuesday.

As of March 2022, the asset base has scaled past Rs 54 lakh crore and has played a vital role in providing credit to small and medium enterprises.

Addressing a CII-organised NBFC summit, Karad said NBFCs have helped create higher credit growth than the commercial banking sector. NBFCs’ loans grew over 10% last fiscal while for banks, it was just half of that.

NBFCs have helped the MSME sector scale up its operations and create more jobs. The main reason for their success is that they have customised products and become an innovation machine of the financial landscape, Karad said.

Crediting digitisation and customer service for their success, Karad said NBFCs have seen their balance-sheet size more than double to 25% of the balance sheet size of the banking sector as of March 2022 from just 12% in fiscal 2010.

NBFCs are investing in digital technology like artificial intelligence and big data. It will also bridge the financial gap in the coming years due to its low cost of operations, the minister said, adding NBFCs have become a strong alternative to the banking sector.

CII's NBFC forum chairman Abhimanyu Munjal, who also heads Hero Fincorp, said NBFCs disbursed almost 60% of their loans digitally in FY22 and have also achieved real-time customer onboarding.

He said around 11.3 million MSMEs have taken collateral-free loans worth Rs 2.32 lakh crore from NBFCs till June 2022. The credit demand in the NBFC sector is expected to grow to almost Rs 30 lakh crore in the next couple of years.