Financial Viability and Operational Efficiency of Non-Banking Financial Companies in India: A Decade-Long Analysis (2014-2024)

Abstract

This study examines the financial viability and operational efficiency of Non-Banking Financial Companies (NBFCs) in India over a ten-year period from 2014 to 2024. As integral components of India’s shadow banking sector, NBFCs play a crucial role in providing credit to underserved segments of the population. However, their reliance on debt financing and vulnerability to economic disruptions pose significant challenges to financial stability and profitability. Using secondary data from major NBFCs, this paper analyzes key financial and operational metrics, including Return on Assets (ROA), Return on Equity (ROE), Cost-to-Income Ratio, and Non-Performing Assets (NPAs).

The study employs a quantitative approach, incorporating descriptive statistics, correlation analysis, and regression models to assess the impact of leverage, credit risk, and operational efficiency on financial performance. Key findings reveal that higher debt ratios negatively impact profitability, while efficient cost management and higher operating profit margins contribute positively to financial stability. The analysis also highlights the importance of maintaining a strong interest coverage ratio to ensure financial resilience during economic downturns.

The study’s findings have important implications for NBFC management, investors, and policymakers. For NBFCs, the emphasis on optimizing capital structure, improving cost efficiency, and implementing robust credit risk controls is essential for sustainable growth. Policymakers are encouraged to consider regulatory measures that balance risk management with growth support, particularly in light of the sector’s critical role in financial inclusion. Overall, this research provides a comprehensive view of the factors influencing NBFC performance, offering actionable insights for enhancing financial viability and operational resilience in the sector.