WHAT IS NON-BANKING FINANCIAL COMPANY COLLABORATION
What is this NBFC collaboration? As we know collaboration means coming together for a common goal. Non-banking financial company collaboration is a new business in which NBFC license holders do tier with the bank or the companies which souring of lead funding. These companies along with the non-banking financial license holder will fund the non-banking financial companies with an acceptable non-banking financing company with an acceptable fee amount as consideration they both will be sharing the non-banking financial license and both the parties in consideration also share the revenue.
So, what are the benefits that Non-banking financial companies gain? By collaborating with fintech players?
The first benefit is that the fintech company help in the smooth functioning of NBFC and the second benefit is that the fintech company help in assisting the non-banking financial company provides unique try and product services like the consumer durable loan. And the third benefit is that the fintech company helps the non-banking financial company in providing the paperless digital amount.
What are the main reasons behind the collaboration of Non-banking financial companies?
So, if we are talking about non-banking financial collaboration we need to know the main reason behind the collaboration of a non-banking financial company and the fintech company, the first and main reason is that it helps in insuring and ensuring sufficient liquidity should region the market and reduces the liquidity prices. The second reason is that it helps in increasing the banking outreach through collaboration. The third reason is that it helps in lending the target and priority sector and also helpful in boosting the priority sector and the other sector. And also it helps in advancing the credit to the borrowers.
Is it required for non-banking financial companies to have a glance at the balance sheet of the first loss default guarantee that is FLDG or Fintech? The non-banking financial company should check the background of the fintech company followed by the proper and proper search for the financial capacity of the fintech company along with the promoter profile in case the company that is fintech company is a foreign company means, on the whole, that the non-banking financial company should do proper research or proper financial documentation should be covered by the non-banking financial company to check the fintech company is worth to collaborate or not.
Lead-based model- in this model the fintech company source leads and provide advanced tech-driven and underwriting and risk assessment software, the non-banking financial company usually pays a commission to fintech in the range of one percent to three percent loan amount.
Co-lending model: In this model, the fintech company provides the necessary information and discussion-making tool for quick loan processing by the non-banking financial company. The fintech company is working on the FLDG model. FLDG may be up to seventy percent and the remaining thirty percent loan book financed by the non-banking financial company from its fund. Fintech company shares twenty-four percent to thirty-six percent ROI with a non-banking financial company. Also, a fintech company covers a hundred percent NPA and expense.
First loan default guarantee- the first loan default guarantee that is FLDG is mean to protect the lender’s interest in a non-banking financial company and the lenders ask for collateral in order to safeguard their advances made through a fintech company. So, now let us go through the main inside of the requirement for the non-banking financial company are as follows-
- The verification process of ID, Aadhaar of the borrowers, and pan card verification get completed online.
- Maintain and store records of the borrower’s data for five years.
- Getting live snaps of the borrower.
- After the loan agreement gets executed, pay e-stamp duty.
- In the case of loan inquiries, delay, disbursement, or default, the requirement is to report to credit information companies.
- Confirm the CKYC norms as stated by the reserve bank of India.
- Comply with TDS, GST, RBI act as well as companies act.
- Hire a CA to manage the risks associated with the business, and this can further help in out of the blue check and inspection of the fintech company based in forty-five days or ninety days loan book performance norms, bring out the provisions for NPA.
So, what are the minimum desire technology for the Fintech company?
Mandatory to have a mobile app in conformity with the Indian market. Should be equipped with systems such as loam management system, loan origination, and collection system. Fintech company must own credit and underwriting software. Fintech company must ensure that there is no lag in terms of it security it will safeguard the borrower’s personal information. The loan app must be capable enough to integrate the various APIs but not confined to PAN, Aadhaar, and driver’s license. It must have the verification of live borrowers’ profiles. Analysis of bank statements becomes a necessity for checking the income process. The face of the borrowers and the IDs submitted online by them must be resembling each other. Verification of employment profile online. As directed by Indian law, following privacy norms is a requisite in the case of using social scoring technology. The server should be in India and should not be outside the Indian boundaries.
Now, let us know regarding the process of collaboration means when a non-banking financial company collaborates with the fintech company what is the whole process? First of all the fintech company have to sign the co-origination scheme and after that open a bank account and also open an account for reimbursement and the repayment of the loan. A higher or charted account means the professional charted accountant formalizing fund loans, etc. After that compliance like GST, TDS, CKYC, and Credit reporting. And reconciliation should be done every month along with the CIC report.
What is a Non-banking financial takeover?
The takeover is the process where one company purchases another company. NBFC takeover implies acquiring or gaining control over one non-banking financial company by another company. In the non-banking financial company takeover, the company that takeover the other companies and acquire the target company is called the target company.
What are the types of non-banking financial company takeover- there are two types of Non-banking financial company that is the friendly takeover and another one is a hostile takeover. So, a friendly takeover happens with the mutual consent of both the company means the offer is been made by the acquiring company and the offer is accepted by the target company. The hostile takeover in this type of takeover acquire company try to acquire the target company secretly or it also tries to acquire the company without the concern of the target company or with the corporation of the board of directors of the target company.
Pros and cons of non-banking financial company takeover- hiking up profits of the target company. Sales and revenue climbing up. The scale of the economy shoeing a positive and upward trend. Reduction in the level of competition and competitive pressure. Wide expansion of distribution channels so these are the pros of non-banking financial companies. Now, what are the cons of a non-banking financial company takeover, management conflict, in few cases, the amount paid during the takeover is less in comparison to the actual price. Two different companies joining hands, cultural clashes and sometimes unavoidable. Low employee morale is obvious. After the merge of the masked liabilities of the targeted companies can be problematic in the future.
Conclusion- So, now we understood what is the actual difference between moneymaking financial company collaboration and non-banking financial takeover. As we know that non-banking financial companies have outperformed traditional lenders, banks in the sphere of credit deployment. Non-banking financial companies leverage technology-driven solutions to penetrate credit facilities in the remote sectors. The collaboration with Non-banking financial companies with Fintech startups creates a win-win situation for both parties. Since it boosts the lending capabilities of NBFC’s and provides a competitive edge to fintech.
