The Reserve Bank has also been encouraging NBFCs to adopt digital solutions for seamless customer interface.
NBFCs have been leading in the rapidly evolving digital lending space, leveraging technology to reach wider audiences and streamline the user experience, RBI has said in its report.
Interestingly, it said when compared to banks that sanctioned 5.6% of loans through digital channels, NBFCs sanctioned 60% of loans digitally in 2019-20.
Riding on this momentum, new-age NBFCs are integrating Artificial Intelligence/Machine Learning (AI/ML) tools in their operations to improve business processes and decision-making.
The Reserve Bank has also been encouraging NBFCs to adopt digital solutions for seamless customer interface.
In this regard, the central bank has mandated NBFC-UL and NBFC-ML with 10 or more fixed point service delivery units to implement a ‘Core Financial Services Solution (CFSS)’, akin to the Core Banking Solution (CBS) adopted by banks, on or before September 30, 2025.
“Digital payment data is verifiable and untampered data on borrowers, which gives an insight into the overall cashflows of the business. AI/ML-based data science models convert this raw transaction data into intelligent, credit go/ no-go decisions. These models significantly increase the accuracy of determining the credit risk associated with a borrower,” Arun Nayyar, Managing Director & CEO, NeoGrowth said on how UPI has strengthened risk management in NBFCs.
RBI further mentioned that NBFCs need to develop strong governance and risk management standards and be more vigilant about cybercrimes, as the growing digital lending space offers huge opportunities, but also presents novel challenges.
The report also highlighted that the domestic NBFCs, especially those in the upper-layer category, are increasingly relying on bank borrowings as their primary source of funding.
NBFCs primarily finance their operations through a mix of market borrowing and bank loans, constituting around 75% of total borrowings.
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Advanced analytics and AI can power NBFCs with robust collections of payments and monitoring decisions.
NBFCs have relied on customer account balances and credit scores to prioritise non-performing and delinquent accounts and formulate strategies for collections.
But with the next level of growth slated to come from accounts with little or no credit history, NBFCs would need to leverage wider data sets and big data processing ability to derive and synthesise insights from existing and previously used data sets of non-performing or delinquent accounts, by looking at large sets of information.
