If you fulfil the qualifying criteria, getting a loan in India is no longer difficult, but many people are unsure whether to get a loan from a bank or a non-banking financial company (NBFC). NBFCs have shown to outperform banks, according to research and studies. In comparison to banking clients, NBFCs’ ongoing improved performance has resulted in a 15% increase in customer satisfaction. According to the most recent Financial Stability Report, the RBI has agreed to this. Banks and Non-Banking Financial Companies (NBFCs) are both financial intermediaries with similar services. This is one of the primary reasons why most borrowers find themselves in a bind when it comes to obtaining a loan.
Banks and non-bank financial institutions (NBFCs) provide loans and personal lending products. The Banking Companies Act, however, governs all banks in India, whereas the Companies Act of 1956 governs NBFCs. Despite the fact that most of the services provided by banks and NBFCs are comparable, the Indian Government and Companies Act do not allow NBFCs to provide services such as receiving demand deposits, demand drafts, and issuing checks. When it comes to exchanging money, they are also not included in the settlement or payment systems.
What are Non-bank Financial Companies (NBFCs)?
- NBFCs are financial institutions that provide banking services without the necessity for a banking license.
- The RBI and other government authorities regulate NBFCs, which are privately held financial organizations.
- NBFCs must follow RBI rules in order to provide services similar to banks.
- Except for lending money, NBFCs are unable to accept demand deposits, provide savings accounts, issue checks drawn on themselves, or perform any other banking operations.
- NBFCs serve a critical role in addressing small companies’ financing needs that aren’t addressed by traditional banks.
What Exactly are Banks?
- A bank is a financial entity that has been granted a banking license and is able to take deposits and make loans.
- Scheduled banks come in a variety of shapes and sizes, including central and cooperative banks. We have Commercial, Small Finance, Payments, and other sorts of banks under unscheduled.
- The RBI regulates and registers banks under the Banking Regulation Act of 1949.
NBFCs are Better than Banks, Here’s Why:
- Fast Processing:
Borrowing money from a bank often requires a significant amount of documentation and a long loan application process. Because of their minimum paperwork requirements, most NBFCs make it simple to apply for, approve, and distribute money. You won’t have to go through any lengthy screening procedures with tech enabled NBFCs to receive a small business loan online, and you’ll be able to get cash sooner.
- Documentation Required:
NBFCs’ paperwork needs might be simple and adaptable. A bank, on the other hand, demands far more proof and documentation.
- Looking Beyond Credit Scores:
Many NBFCs have a less rigorous criterion that goes beyond credit scores. They usually evaluate loan applications using technology and data in addition to credit scores.
- Quick Disbursement:
With NBFCs, you can get a loan much quicker than from a bank. The loan processing time with a bank might take weeks or months, not to mention the loan payout time.
Both banks and NBFCs have their respective advantages and disadvantages. If you’re a small firm looking for a small business loan online, though, an NBFC is a better alternative. This is due to the fact that NBFC lending packages are better tailored to meet the needs of small enterprises. Furthermore, you will benefit from fewer paperwork, less documentation, and no demand for property collateral.