Top 5 Document Management Challenges Faced by NBFCs

Naveen Reddy

• 5 min read
Top 5 Document Management Challenges Faced by NBFCs

In the rapidly evolving financial services sector, Non-Banking Financial Companies (NBFCs) play a pivotal role, especially in retail lending, MSME credit, consumer finance, and niche segments. However, with high volumes of lending, stringent regulation by the Reserve Bank of India (RBI), and a growing digital footprint, NBFCs face acute operational pressure on one key area: document management.

Whether it’s KYC documents, loan application forms, supporting financials, property valuations, or audit trails, poor document practices slow down operations, elevate risk, and reduce customer satisfaction. The NBFC sector report by KPMG and Confederation of Indian Industry (CII) emphasises cyber and data security/privacy as major challenges across the value chain of NBFCs. Technology and risk governance are highlighted as essential building blocks for resilient NBFCs.

At DocsNow, we believe that efficient, scalable document management is not a luxury but a strategic enabler for NBFCs. Let’s explore the top five document-management challenges NBFCs face, why they matter, and key ways to mitigate them.

1. Legacy Systems & Fragmented Workflows

Why it matters

Many NBFCs still rely on outdated, disconnected systems that were not designed for scale or real-time integration.  The NBFCs need to adopt digital tools in collections, fraud management, and cyber and data security/privacy across the value chain.

When documents are stored across multiple platforms – physical cabinets, shared network drives, email inboxes, spreadsheets – retrieval becomes slow, audit preparation is manual, and version control is weak.

Impact on NBFCs

  • Longer turnaround times for loan disbursal, leading to customer drop-off
  • Higher operational cost (staff time spent searching/re-filing)
  • Audit readiness suffers; regulators expect timely traceability.
  • Increased risk of duplication, errors, or missing paperwork

Mitigation strategies

  • Adopt a unified Document Management System (DMS) with a centralised repository, search capability, and version tracking.
  • Migrate legacy documents (scanning/ OCR) into the central DMS for digital access.
  • Standardise folder structures and metadata tagging (loan ID, customer ID, document type, date).
  • Ensure integration of the DMS with core lending/underwriting systems so docs flow seamlessly through workflows.

2. Compliance, Audit & Regulatory Pressure

Why it matters

For NBFCs, document management isn’t “nice to have”; it’s mandated. The NBFCs face data-security and customer protection standards increasingly akin to banks. Non-compliance can lead to fines, operational restrictions, or reputational damage.

Impact on NBFCs

  • Audit readiness is delayed; missing documents or unclear trails raise red flags.
  • Regulatory inspections become cumbersome and time-consuming.
  • Customer trust erodes if the NBFC is seen as less reliable or compliant.
  • Legal risk when documentation is weak, especially in default/recovery cases

Mitigation strategies

  • Implement automatic audit logs in your DMS: who accessed a doc, when, what action was taken.
  • Maintain retention schedules and deletion policies in line with RBI regulations.
  • Deploy document verification tools (OCR, tamper-detection) to validate authenticity and ensure KYC norms.
  • Conduct periodic internal audits of the document landscape (gaps, missing files, broken workflows) and fix root causes.

3. Data/Security Risks & Access Control

Why it matters

Document management in the NBFC context collects and stores personally identifiable information (PII), financial statements, property valuations, and sensitive contracts. With digital lending, remote uploads, and cloud access, the exposure to data breaches, fraud, or non-compliance increases substantially.

Impact on NBFCs

· A data breach can cause huge reputational damage and regulatory fines.

· Weak access control may lead to unauthorised modifications to documentation.

· Lack of encryption or backups increases the risk of data loss (fire/flood)

· Inconsistent document handling makes audit trials unreliable.

Mitigation strategies

  • Enforce role-based access control (RBAC) and multi-factor authentication (MFA) for document repositories.
  • Encrypt data both at rest and in transit
  • Keep strong backup and disaster-recovery plans for document archives.
  • Use a modern DMS that supports audit trail, tamper detection, version history, and logging.
  • Train employees on secure document handling, phishing risks, and internal policies.

4. Scalability & Operational Efficiency under High Volume

Why it matters

As NBFCs scale via digital channels for MSME and consumer segments, document volumes balloon: applications, supporting proofs, underwriting, and collections. NBFCs need to revamp business models, rapidly embrace digital technologies, and bolster governance and risk controls. Manual and semi-automated workflows can become bottlenecks when volume increases rapidly.

Impact on NBFCs

  • Loan processing times lengthen, hurting customer experience and conversion.
  • Operational costs rise as more staff are required to handle paperwork.
  • Higher risk of errors, duplication, and missing documents under pressure
  • Strategic growth can be hampered by the inability to process large volumes efficiently.

Mitigation strategies

  • Deploy automation in document ingestion: OCR, intelligent document processing (IDP) to extract metadata and classify documents automatically.
  • Use workflow automation: e.g., once documents are uploaded, trigger next steps (verification, underwriting) automatically.
  • Monitor key metrics: time to document retrieval, document-to-approval ratio, and number of missing docs per application, and aim to reduce systematically.
  • Partner with specialist document-management providers/solutions (like DocsNow) to outsource parts (scanning, indexing, archiving) and scale flexibly

5. Collaboration, Version-Control & Document Integrity

Why it matters

Document workflows in NBFCs often span multiple stakeholders: sales/DSA agents, underwriting teams, legal, collections, external valuers, and auditors. With many versions, email chains, and offline copies, there is a high risk of version mismatches, lost updates, or conflicting documents.

Impact on NBFCs

  • Incorrect/inconsistent documents may slip into loan files, leading to compliance violations.
  • Version confusion increases legal risk (e.g., wrong contract version, outdated valuations)
  • Collaboration delays slow down decision-making, especially in underwriting or collections.
  • Document integrity (knowing which version is final, who signed off) is compromised.

Mitigation strategies

  • Implement a DMS that supports version control, check-in/check-out, change logs, and audit trail
  • Define clear document-lifecycle workflows: upload → verify → approve → archive.
  • Use secure cloud platforms enabling collaboration (internal + external) with permissions and tracking.
  • Standardise templates and naming conventions to reduce confusion
  • Provide training and governance: establish “who can modify/approve documents”, set SLAs for each workflow step.

How DocsNow Supports NBFCs

At DocsNow, we specialise in providing a fully managed document-management solution tailored for financial services, including NBFCs. Here’s how we help address the five challenges above:

  • Centralised digital repository with metadata indexing, search capabilities, and role-based access
  • Compliance-ready audit-trail and retention workflows, ensuring RBI-readiness and streamlined inspections
  • Robust security architecture: encryption, MFA, backups, disaster-recovery plans
  • Scalable ingestion & indexing: we support scanning, OCR, and classification of large volumes of documents, enabling fast growth without operational bottlenecks
  • Collaboration-enabled workflows: version-control, shared access, template libraries, and external stakeholder access for valuers/agents, with full traceability

By partnering with NBFCs, DocsNow helps transform document burden into a strategic asset, driving faster decisions, better compliance, reduced cost, and improved customer experience.

Conclusion

In today’s competitive and regulatory-intensive lending environment, document management is no longer a back-office afterthought. It’s a strategic enabler for NBFCs. From legacy system constraints to compliance, security, volume-scale, and collaboration issues, the five challenges we discussed are real and pressing.

By recognising these pain points and applying modern solutions digitisation, structured workflows, automation, and secure DMS platforms, NBFCs can turn documentation from a bottleneck into a competitive advantage. And that’s precisely where DocsNow comes in: helping NBFCs streamline document flows, improve efficiency, and stay audit-ready, all while keeping costs in check.

FAQs

Q1. What qualifies as a ‘document-management challenge’ for an NBFC?

It includes issues around collection, storage, retrieval, versioning, security, audit trail, and workflow of documentation, including KYC, loan applications, valuations, contracts, and regulatory filings.

Q2. Why are NBFCs specifically more exposed to document-management risk than banks?

NBFCs often operate leaner; they may serve segments with thinner documentation (MSMEs, self-employed) and may have less mature infrastructure. Also, regulatory expectations and audit-readiness can be more challenging due to high volumes and diverse use cases.

Q3. How much time/cost can NBFCs save by digitising documents?While figures vary, digitising records can reduce retrieval errors, speed up audits, cut physical storage needs, and lower manpower costs, especially critical when volumes are high and compliance frameworks are tight.

Q4. Are there regulatory requirements for document archiving for NBFCs?

Yes. NBFCs must comply with RBI guidelines, maintain audit-ready records, retention schedules, and ensure the integrity, confidentiality, and retrieval of documents. Non-compliance can lead to penalties.

Q5. Can smaller NBFCs implement these document-management practices affordably?

Absolutely. Cloud-based SaaS solutions or outsourcing partners (like DocsNow) allow smaller NBFCs to adopt robust DMS without the heavy upfront infrastructure costs. The key is pairing the right workflow design, training, and governance.