Explained: Do NBFCs have a better future than large, diversified players?

Non-banking financial companies may have entered a comfort zone years after having been put through the wringer

The impending merger of HDFC Ltd and HDFC Bank has reignited a hoary old debate — is the non-banking financial company (NBFC, or shadow bank) model past its sell-by date? After all, if market leader HDFC Ltd — albeit a mono-line business entity — thought it fit to vacate this space by merging into its offspring, 45 years into its existence, isn’t it possible that others may be unable to hold out much longer? But the reality on the ground points to a brighter dawn.

Reserve Bank of India (RBI) data show that NBFCs have emerged stronger, with reasonable balance-sheet