The Indian financial landscape offers a plethora of choices for borrowers. Among these, Non-Banking Financial Companies (NBFCs) and banks stand out as the primary providers of loans. Both institutions play pivotal roles in driving financial inclusion and meeting diverse borrowing needs.
However, deciding between an NBFC and a bank depends on multiple factors like eligibility, interest rates, loan purpose, and customer preferences. This article delves into the distinctions, advantages, and drawbacks of both NBFCs and banks, helping you make an informed decision.
What is an NBFC(Non-Banking Financial Companies)?
Non-Banking Financial Companies (NBFCs) offer financial services to the public. They are regulated by the Reserve Bank of India (RBI) under the Companies Act of 1956 and must register with the RBI to operate. Unlike banks, NBFCs cannot open regular savings or current accounts for customers. They can accept fixed deposits and recurring deposits but have some restrictions.
NBFCs are not allowed to give loans to the public unless the loans are secured by gold or are meant for specific purposes, like buying equipment or vehicles. Additionally, they are required to pay interest on the public deposits they accept and fulfill other obligations set by the RBI.
What is a Bank?
Banks are regulated financial institutions authorized to accept deposits, offer savings and checking accounts, and provide loans. In India, banks operate under the stringent guidelines of the Reserve Bank of India (RBI), ensuring a high degree of trust and reliability. They cater to individuals, businesses, and corporates with a wide range of financial products. There are many secure banks to provide loans in India.
NBFC VS Bank
Here are the difference between NBFC and banks:-
| Aspect | NBFC (Non-Banking Financial Company) | Bank |
|---|---|---|
| Regulation | Regulated by RBI under specific provisions of the Companies Act. | Heavily regulated by RBI under the Banking Regulation Act. |
| Deposit Acceptance | Can accept fixed and recurring deposits, but not demand deposits like savings or current accounts. | Can accept all types of deposits, including demand deposits. |
| Loan Eligibility | Flexible eligibility criteria, catering to underserved segments. | Strict eligibility criteria, focused on creditworthy customers. |
| Loan Products | Specializes in niche loans, e.g., gold loans, vehicle loans, and SME financing. | Offers a wide range of loans, including personal, home, business, and education loans. |
| Interest Rates | Slightly higher due to limited funding sources. | Lower due to access to cheaper funds like customer deposits. |
| Speed of Loan Processing | Faster due to simplified procedures and less bureaucracy. | Slower due to stricter regulations and more extensive verification. |
| Customer Focus | Targets rural, unbanked, and niche markets, including MSMEs. | Primarily serves the general public, corporates, and established businesses. |
| Technology Usage | Highly innovative, often leveraging fintech solutions. | Traditional but increasingly adopting digital banking. |
| Public Accounts | Cannot open savings or current accounts for the public. | Can open savings, current, and other types of bank accounts. |
| Regulatory Compliance | Moderately regulated with more operational flexibility. | Stringently regulated with frequent audits and compliance checks. |
| Primary Revenue Sources | Interest from loans, leasing, and other financial services. | Interest on loans, transaction fees, and investment activities. |
| Risk Appetite | Higher risk tolerance, lending to underserved and high-risk segments. | Lower risk tolerance, focused on established creditworthy customers. |
Why NBFCs Are Better Than Banks For A Business Loan In India
Here are few key advantages of taking a business loan from an NBFC instead of a bank:
| Aspect | NBFC (Non-Banking Financial Companies) | Banks |
|---|---|---|
| Loan Processing Time | Faster loan approval and disbursal due to minimal paperwork. | Longer approval process with more documentation. |
| Eligibility Criteria | More flexible; accommodates borrowers with low credit scores or irregular income. | Stricter criteria; requires higher credit scores and stable financials. |
| Loan Accessibility | Easier access for small businesses, startups, and rural enterprises. | Prefer lending to established businesses with a proven track record. |
| Product Customization | Offers tailored loans for niche markets like MSMEs and startups. | Standardized loan products with limited flexibility. |
| Collateral Requirements | May offer unsecured loans or accept alternative forms of collateral. | Typically requires substantial collateral for business loans. |
| Loan Amount Flexibility | Can provide smaller loan amounts suitable for small enterprises. | Prefers lending larger amounts, often unsuitable for smaller needs. |
| Customer Support | Focus on personalized service with better customer engagement. | Service can be less personalized due to larger customer base. |
| Technology Integration | Leverages fintech for faster, online loan processing and management. | Slowly adopting digital platforms; still relies on traditional methods. |
| Financial Inclusion | Focuses on underserved markets, including rural and semi-urban areas. | Primarily operates in urban and well-established markets. |
| Niche Lending | Specializes in equipment loans, vehicle financing, and working capital. | Limited specialization in niche lending areas. |
Features of Taking Business Loan From NBFCs
Here’s the key features of business loans offered by NBFCs:
| Feature | Details |
|---|---|
| Loan Amount | Flexible amounts, ranging from ₹50,000 to ₹5 crores or more, based on need. |
| Interest Rates | Generally starts at 12-24% per annum, depending on creditworthiness. |
| Loan Tenure | Short to medium term, typically ranging from 1 to 5 years. |
| Eligibility Criteria | Simplified, with leniency for low credit scores and varied income proofs. |
| Documentation | Minimal; basic KYC documents, income proof, and business registration. |
| Loan Purpose | Business expansion, equipment purchase, working capital, or debt consolidation. |
| Processing Time | Quick, often within 24-72 hours. |
| Collateral Requirement | May be secured or unsecured, depending on the loan type and amount. |
| Application Process | Online and offline options, with a focus on digital convenience. |
| Repayment Flexibility | Multiple repayment options, including EMIs and bullet payments. |
| Prepayment Charges | Typically low or nil, encouraging early repayment. |
| Customer Segments | Suitable for MSMEs, startups, and established businesses. |
| Credit History | Accepts applicants with limited or no credit history in many cases. |
Which is the Safest NBFC in India?
Indifi is considered one of the safest and the best NBFC in India due to its strong focus on transparency, customer-centric services, and robust risk management practices.
Why Indifi is the Safest NBFC:
- Regulatory Compliance: Indifi operates under the strict regulations of the Reserve Bank of India (RBI), ensuring adherence to all financial norms and guidelines.
- Specialized Expertise: It specializes in offering customized loans for small businesses and MSMEs, catering to the unique needs of entrepreneurs.
- Technology-Driven Approach: Indifi uses advanced technology and data analytics to assess borrowers, minimizing risks while providing quick approvals.
- Transparent Processes: All terms and conditions, including interest rates and repayment schedules, are clearly communicated, ensuring no hidden charges for borrowers.
- Trusted Partnerships: Indifi collaborates with leading financial institutions and online platforms, which enhances its credibility and ensures a seamless borrowing experience.
- Focus on Financial Inclusion: By providing credit to underserved small businesses, Indifi contributes to India’s economic growth while maintaining a responsible lending approach.
With its commitment to customer trust, innovative solutions, and regulatory compliance, Indifi has established itself as a reliable and safe NBFC in India.
Key Take Aways
Regarding providing a loan in India, both NBFCs and banks will provide retail, personal, and business loans. And this is completely based on the payback ability of the borrower. The corporate sector usually likes banks; nevertheless, the retail sector selects NBFCs over banks.
NBFCs offer easy business loan such as term loan, merchant cash advances, working capital loan, invoice discounting, etc.
And the ratio of client satisfaction is also high here. NBFC sector will also grow further in the upcoming days. In case you are seeking to get a fast business loan approved, then the first option is an NBFC like Indifi because banks are more rigid in loan approvals.
FAQ
What Are the Different Types of NBFCs?
NBFCs come in various types to meet diverse financial needs:
- Asset Finance Companies (AFCs): These specialize in financing vehicles, machinery, and other equipment.
- Investment Companies: Focus on managing investments in shares, stocks, and securities.
- Loan Companies: Provide personal loans, business loans, and other forms of credit.
Each type of NBFC serves a specific purpose, catering to different financial requirements.
Are NBFCs regulated like banks?
Yes, NBFCs are regulated by the Reserve Bank of India (RBI), but their regulations are less stringent compared to banks.
Can NBFCs provide savings and checking accounts?
No, NBFCs cannot open savings or current accounts. They are restricted to lending and investment services.
Are NBFCs safe for borrowing?
Yes, reputable NBFCs are safe as they follow RBI guidelines. It’s important to verify the NBFC’s credentials before borrowing.
Are NBFCs suitable for long-term financing?
While NBFCs are excellent for quick and medium-term financing, banks might be better for long-term loans due to their structured repayment options and lower rates.
500000lak
Sir, you can apply for a business loan through our online application form on indifi dot com
After filling the form our customer care executive will contact you for further queries and documents.
Sir, Visit our website indifi dot com
After filling the form our customer care executive will contact you for further queries and documents.
Loans chahie
Sir, agar app apne business ko badana chahte h toh aapko hum business loan de sakte h. Uske lie hamari website pe jaiye indifi dot com or application form bhairie, hamari taraf se apko call ayega, jab aap woh form bharoge.
Sir, agar app apne business ko badana chahte h toh aapko hum business loan de sakte h. Uske lie hamari website pe jaiye indifi dot com or application form bhairie.
[…] Also Read: Why Choose NBFCs Over Banks For A Business Loan In India […]
Good article written about difference between NBFC over Bank for business loan..
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