Small banks (MFIs) v/s NBFCs - future?

Hi guyzz,

This thread is initiated to have a general understanding of the future of NBFCs in transforming India. With the introduction of small banks like Bandhan (MFI) in Indian markets I see a big threat for the NBFCs operating as of now. There are many reasons/views on this. I note down my points below. Would request others to share their views on the same to help the forum members have a clarity on the future of this financial market niche-MFIs !!

–> Banks have an advantage of low cost funding - they can have current accounts (0% cost), savings accounts (3-5% cost), fixed deposits (8% cost), external commercial borrowings and much more. Now we can argue that who is going to keep deposits in current, savings and fixed accounts - since the target market is low income class people. I have the knowledge that small people invest in VCs (chit fund type) wherein they earn more than 20% p.a. Why would they invest in FDs or mutual funds, etc. But with the increase in the share of organised sector in lending business (like Bandhan) number of people who used to borrow from VCs will reduce (since they will have access to cheaper source of funding - bandhan) - this will eventually lead to end of VCs. This along with level of economic activity and basic education levels will turn people to invest in mutual funds, FDs, etc. (this seems impossible but India is changing). One example - my servant never had a bank account and never believed to even. His son has a business and is having a savings and a FD account. With this assumption - Bandhan can have real low cost funds and can break the NBFC market in future.
Again one point to note is that the housing NBFCs like Gruh, GIC housing get some cheap funds from NHB (at 6% only). This needs to be taken in consideration.

–> Banks can act as one stop solution - you get every service with door step banking. DD, cheque facility, deposits, loans and much more like ATMs. NBFCs can not provide that. You can also invest in mutual funds through these banks. You can take insurance through them.

–> Bandhan has a good reputation and track record. they have been helping people by creating self help groups and advising them on their funding requirements, how to deploy them in their business and bring efficiency. This not only creates a good business, but also helps company build a social brand in market.

I am trying here to compare Gruh Finance, GIC housing with Bandhan. What do you think - who has a bright future !!

Disc - Not invested (none of them). Just want a general understanding of what can happen to this industry niche in coming years.