Many of us would have wondered, Are there any trusted places apart from Banks to take a loan to buy a property? Well, the answer is Yes. Have you ever come across the term "NBFC" through your financial journey? If not, then no worries. Because in this article we will see What are NBFCs? and How NBFCs impact the real estate industry? in detail.
A Non-Banking Financial Company (NBFC) is a financial institution that provides banking services but does not have a banking license. However, these companies are regulated by the Reserve Bank of India (RBI) and are still subject to similar regulations as banks.
NBFCs play a crucial role in the development of the real estate industry. Because, in situations where traditional banks are unable to provide financing to real estate promoters or developers, NBFCs step in to help the developers by providing them with various financial services such as project financing, construction financing, and term loans.
This helps real estate developers or promoters increase the availability of funds for their real estate projects, thereby expanding their business.
Furthermore, NBFCs also provide home loans at competitive interest rates, which makes it easier for individuals to purchase a property. This in turn drives demand for real estate and helps boost the real estate sector.
Between the years 2018-2019 many major NBFCs like DHFL (Dewan Housing Finance Limited), Reliance Home Finance, etc... defaulted the loan repayment of more than 1 lakh crores to banks due to the liquidity crisis and high borrowing rates. This led to the crisis that devastated the NBFCs sector crashing the overall Indian share market.
Luckily, the Government of India stepped in and took several steps to address the NBFC crisis thereby controlling the situation. And to ensure the stability of this sector in future, RBI has introduced several measures to improve the liquidity and solvency of NBFCs, such as the introduction of the Liquidity Coverage Ratio and the Net Stable Funding Ratio.
Most importantly, the government has also introduced several measures to improve the ease of doing business to attract more foreign investment in the real estate sector.
Currently, NBFCs are one of the rapidly growing sectors with the number of NBFCs in India increasing from around 4,000 in 2000 to more than 11,000 in 2020. This Growth is due to the increasing demand for credit in the country and the growing number of businesses as well as individuals looking for an alternative source of funding.
In conclusion, NBFCs play a vital role in the real estate sector by providing an alternative source of funding, making it easier for individuals to purchase property. In future, NBFCs are expected to highly benefit the real estate sector and the economy as a whole.