India, May 24 -- NBFCs or non-banking financial companies emerged in the 1960s primarily to fill the massive void left by the banking system. The banking system was urban-centric, rigid and traditional in their approach. They would not lend to risky customers such as those in the large informal sector of India. NBFCs provided localised credit and serviced borrowers with low collateral, farmers and small and medium-sized entrepreneurs in semi-urban/rural areas.

Over the years, NBFCs have evolved from being a set of loosely regulated, informal lenders to a highly sophisticated and critical arm of the mainstream Indian financial system. The need for credit exploded post-liberalisation in 1991 and although this led to massive expansion of NB...