In an interaction with CIOTechOutlook magazine, Shabeer Kozhakkaniyil, Cloud Senior Sales Director, Oracle India shares his views on how NBFCs play a pivotal role in India's financial inclusion efforts, leveraging technology to serve underserved populations. Also, he explains how cloud technology is facilitating streamlined services, enabling tech-driven products for low-income sectors.

What are your thoughts on India’s NBFC sector’s contribution towards financial inclusion?

Financial inclusion is a key priority for the Government of India as a large number of India’s population is still underserved or unbanked. With its implementation, everyone including those belonging to the less fortunate sections of the society will be able to avail facilities implemented by Tier 1 and 2 banks. Considering that technology is a key driver, the cloud makes it more streamlined for NBFCs to provide financial services to the underserved. Given the importance of cloud and how it can benefit the sector, NBFCs now are laying greater emphasis on creating cutting-edge products and serving low-income urban customers in unorganized sectors by using business and operational models supported by technology that slickly simplify the creation, introduction, and execution of specialized goods and services. While attempting to combat the rising formal credit penetration in a growing economy, NBFCs can reduce their costs by investing in new technologies and forming strategic alliances with Fintechs and incumbent financial institutions. NBFCs also contribute significantly to economic activities by generating employment and encouraging overall development and entrepreneurship in the country.

What is the importance of leveraging technologies such as cloud for the sector to sustain momentum?

Technology is a key driver for NBFCs to compete in the market and is now working more swiftly towards financial inclusion. With the use of cloud technology, lenders may scale their operations cost-effectively for big volume operations. With technology like autonomous warehouses from Oracle cloud, customers are able to set up a complete data warehouse with the underlying technologies also automated. The prospects of escaping the stress of infrastructure maintenance, updates, backups, and disaster recovery are also welcomed by the financial lending industry. As a result, when they use cloud-based solutions, they can concentrate on their objectives for business innovation and create wonderful client experiences. More operations will now be automated using AI and ML, and blockchain will be used for safe and transparent online transactions. Big data analytics will be employed to learn more about consumer behavior and preferences, enabling NBFCs to provide more pertinent and individualized services.

With the introduction of a new data protection act, how will regulatory constraints impact the adoption of IT solutions by NBFCs?

The introduction of a new data protection act will likely have significant implications for the adoption of IT solutions by NBFCs. These regulations will aim to safeguard the privacy and security of individuals' personal data, which is of paramount importance in today's digital landscape.

NBFCs will be compelled to ensure that their IT solutions are compliant with the new data protection requirements. This will necessitate a thorough review and potential restructuring of their existing IT infrastructure and systems to meet the enhanced security and privacy standards. The adoption of robust encryption, access controls, and data anonymization techniques will become imperative to safeguard sensitive customer information. Moreover, the new regulations might encourage NBFCs to invest in advanced cybersecurity measures and data protection mechanisms. This could lead to increased collaboration with IT security firms and technology consultants, boosting the growth of this sector.

Oracle helps Banks and NBFCs with multiple options for their solution deployment in the form of Public and Private cloud options. We are also the most secure cloud platform in the industry with adherence to all the required industry compliance norms. Overall, while the regulatory constraints may initially pose challenges, they will ultimately foster a culture of responsible data management and security within NBFCs. By prioritizing data protection, NBFCs can enhance customer trust, mitigate the risk of data breaches, and contribute to the long-term sustainability of their operations. Clearly, hybrid infrastructure is a reality, and financial institutions must focus not only on leveraging the modern infrastructure model to gain efficiencies, resilience and agility, but also on taking the necessary steps to manage such environments, including the security and compliance of cloud services.

How can the sector further enhance by leveraging technology?

Technology has various advantages for NBFCs and they have been able to cut expenses and increase operational efficiency to a large extent by implementing technology driven services. Technology enables NBFCs to automate operations like loan approvals and disbursements, which reduces time and lowers the possibility of errors. NBFCs are also equipped to provide personalized services to their clients   to elevate client loyalty and satisfaction.

What are the expected trends in the sector?

NBFCs in India appear to have a bright future. Between 2021 and 2026, the sector is anticipated to expand at a CAGR of 18.5%. Several causes, including the rising demand for credit, the government's attempts to support financial inclusion, and the increase of digitalization, are anticipated to fuel the growth.

The latest developments and trends expected in the NBFC sector are as follows:

❖       Digital Modernization: One of the major themes that has had an impact on the financial services sector, especially NBFCs in India, is digital transformation. Digital platforms are now an essential delivery method for financial services due to the widespread use of smartphones and the internet.

❖       Innovations: To meet the changing needs of customers, NBFCs in India have been providing Innovations. For instance, gold loans have grown in popularity as a tool to raise short-term capital, with NBFCs dominating this market.

❖       Regulatory environment: New rules were put in place by the Reserve Bank of India (RBI) in 2018. The cost of complying with the new regulations has gone up for NBFCs, which has temporarily slowed expansion.

❖       One tendency that has been seen is that India's mortgage ecosystem is gradually going digital. The government's adoption of technology and digital efforts, including the allocation of unique property IDs with geolocation data and the digitization of property records, has completely changed the market.