Factors Influencing the Growth of Assets Under Management (AUM) for NBFCs

 The Non-Banking Financial Companies (NBFCs) in India play an important role in the lending ecosystem by providing both individuals and businesses with financial services. The Assets Under Management (AUM) metric is one of the key metrics used to measure the growth of NBFCs. It reflects the total value of the NBFC's assets, including loans, investments, and financial instruments.

You might be wondering what drives their growth, so here are five factors, along with insights from experts like Abhay Bhutada, MD of Poonawalla Fincorp, and Ganesh Mohan, CEO of Bajaj Finserv Asset Management Company abhay bhutada poonawalla:

Expansion and penetration of the market

Market expansion and penetration are important drivers of NBFCs' AUM growth in lending. NBFCs can tap into underserved or untapped customer bases in existing markets and target new regions and segments. By expanding their reach and increasing their customer base, NBFCs can attract a larger pool of borrowers, resulting in higher loan disbursements and subsequently boosting AUM.

To achieve market expansion, NBFCs can focus on strengthening their distribution network, increasing brand visibility, and leveraging technology to reach customers in remote areas. NBFCs can also increase their AUM by expanding into new geographies or targeting specific industries.

Loan product diversification

NBFCs that offer a diverse range of loan products are more likely to experience significant AUM growth. By expanding their loan portfolio, NBFCs can cater to the diverse needs of different customer segments. NBFCs can reach a broader customer base and capture a larger market share by providing products such as personal loans, home loans, business loans, and vehicle loans.

A leading NNBFC in India, Poonawalla Fincorp, has reported a 37% increase in AUM during FY 2022, according to Abhay Bhutada, its managing director. A healthy mix of secured and unsecured loans, as well as Poonawalla Fincorp's consumer and MSME loan offerings, he believes, is to blame for this.

Practices that promote strong risk management

For NBFCs in the lending sector to grow their AUM sustainably, effective risk management practices are crucial. In order to mitigate credit risks and maintain a healthy loan portfolio, NBFCs must adopt robust credit assessment procedures, implement stringent underwriting standards, and employ the latest data analytics tools.

It is crucial for NBFCs to actively monitor late payments, identify possible defaults at an early stage, and have effective processes in place for recovering unpaid debts. In addition to safeguarding NBFCs from financial instability, robust risk management systems build investor confidence and trust, attracting new funds and resulting in increased AUM.

Digital Transformation and Technological Advances:

For NBFCs to remain competitive and grow AUM, they must embrace technology and digital transformation. The use of automation, artificial intelligence (AI), and machine learning (ML) by NBFCs can streamline lending processes, enhance operational efficiency, and cut costs.

In turn, digital lending platforms, online loan applications, and instant approval processes make access to credit facilities easier for borrowers, leading to higher loan disbursements. By using technology-driven data analytics, NBFCs can assess creditworthiness accurately, identify potential opportunities, and tailor products for their customers.

According to Ganesh Mohan, Chief Executive Officer at Bajaj Finserv Asset Management Company, the company is planning to develop a common technology platform for distributors to handle all financial products. India can benefit from the heavy investment in technology.

A strong customer relationship management system:

NBFCs should provide excellent customer service, timely query resolution, and personalized attention to customers in order to drive AUM growth.

A satisfied customer is more likely to avail of additional loan products and recommend the NBFC to others, thus expanding the customer base. As a result, NBFCs can also increase their AUM by using customer relationship management (CRM) tools and data analytics to better understand customer preferences, anticipate their needs, and offer customized loan solutions.

By focusing on these factors, NBFCs can not only increase their AUM but also enhance their competitiveness, profitability, and overall market presence. In order to ensure sustainable growth in the lending landscape, NBFCs must adapt to the changing market conditions, embrace innovation, and prioritize customer-centric approaches.