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Pallavi Lakshmi Lakra

Pallavi Lakshmi Lakra | Updated: Jul 29, 2019 | Category: Legal

Advantages of NBFC over Bank : Is NBFC more Profitable than Bank?

The NBFC sector is growing at the cost of banks in India, which are saddled by bad loans and poor profitability. Gone are the days when you use to stand in line for getting loans from banks. The Advent of Non-Banking Finance Companies makes it easier for the common people to avail loan facility. The easy accessibility and remote coverage make NBFCs the most opted option for borrowers in comparison to banks. There are many advantages of NBFC over banks in India. Here in this article, we will go into the in-depth advantages of NBFC over banks and the main difference between them.

What is an NBFC? Is it different from a Bank?

A financial company incorporated under the Companies Act, 2013 having a minimum net owned fund of Rs. 2 crores is called a Non-Banking Financial Company.  According to the RBI Act, it deals in the business of loans and advances, shares, bonds, debentures, and securities which are issued by the government agencies or local authority, hire-purchase, and insurance business. In other words, we can say that it is a company having principal business of receiving deposits under the scheme or arrangement.

A bank is a government authorized financial intermediary which aims at providing banking services to the general public.

Advantages of NBFC over Bank

Following are few advantages of NBFC over Bank-

  1. NBFC are more profitable than Banks because of their lower costs. This aids in giving cheaper loans to customers. It is also easier to get a loan from an NBFC as banks have stringent regulations and cumbersome paperwork. Since the need for finance is increasing day by day, banks alone cannot cater to the increasing demand. So NBFCs provide finance to both the public and private sectors.
  2. NBFC registration is easier as compared to Bank license.
  3. Banks look into the financial needs of large business, whereas NBFC are more concentrated on small borrowers.
  4. The loan processing facility of NBFC is faster than what most banks provide. The banks are more stringent when it comes to giving loans. They have long paperwork with strict eligibility and requirements.
  5. Banks put a lot of stretch on the credit score of a person; therefore if the credit score is low, the borrower are denied finances.
  6.  When a borrower takes a gold loan, the NBFc gives leverage to them for repaying their regular interest throughout the term of the loan and pay the principal in the end. But it is different in case of banks, both the principal and interest have to be paid at regular intervals. 
  7. Since NBFC has no penalty clauses, the repayment of loans is easier as compared to banks.
  8. Another key point is that while computing the loan amount over a property during the calculation, they take into consideration the statutory charges like stamp duty and other enlistments. But the same does not happen in the case of banks.

Hence, it can be summarized that NBFC is a hassle-free option for availing a quick loan. It takes around 10 working days to avail the loan facility through NBFCs.

Difference between Banks and NBFCs

The main differences between banks and NBFC

Why are NBFCs better than Banks in terms of shopping for loans? An In-depth Analysis

With load of advantages of NBFC over bank people are choosing NBFC more oftent. NBFC cannot accept demand deposits, but they can make investments and give loans. Even though Banks are more regulated with clear rules and have less rate of interest, borrowers prefer NBFCs over banks as banks have stringent rules and regulations. Moreover, they take more time for approving or sanctioning a loan. On the other hand, NBFCs are quick and disburse the loan in no time. Although the rate of interest is high, still people prefer NBFC due to fewer complicated procedures. 

Here are the main reasons why borrowers prefer NBFC over Banks:

Interest Rates

When taking a loan, the borrower compares the rate of interest; NBFCs have brought down the interest rates. With lower interest rates getting loans from NBFCs are becoming more beneficial, easy, and affordable.

Quick Processing

Loan approval is easier in case of NBFC as they follow lenient eligibility criteria. Generally, people apply for loans when in need of quick money, and NBFCs fast service makes it the best option. Many times borrowers compromise on the interest rates if the loan amount is huge.

Less Stringent Rules

NBFC has less stringent rules and regulations. Since they have less complicated loan processing, borrowers are satisfied.

Loans to people having a poor credit score

Banks usually reject applications from individuals having a very poor credit score. But NBFCs offer loan to individuals having low credit scores. But mostly the interest rates are higher than the market value in NBFC.

Due to these reasons, NBFCs are preferred over Banks. Since they are more accessible as compared to banks, many new NBFCs are coming in the Indian market. Let’s look into the registration procedure of NBFCs in India.

NBFC Registration Process

Following are a step by step process for registration-

  • The applicant has to apply online through the official website of RBI.
  • After the submission of the application form, the applicant will get a reference number for facilitating future inquiry.
  • Furthermore, the applicant has to print the application and submit a hard copy of all the documents with the regional office.
  • The regional office of RBI sends the application to the Central office who examines the application.
  • If the company complies with section 45-I A of RBI, then the certificate of registration is given.

Conclusion

NBFC sector is set to expand further in the upcoming days. If someone is looking to get a quick loan approval, then the first option is NBFCs as banks are more stringent in approving loans. There are so many advantages of NBFC over bank. But both of them have their own disadvantages also, and it is up to the borrower to choose one of them. Because of the popularity of NBFC over Banks these days, many new NBFCs are also being incorporated. Therefore, it is equally important to understand the NBFC registration also.

For more information on NBFC and NBFC registration, contact our team of experts here at LawyerINC.

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Pallavi Lakshmi Lakra

Pallavi Lakshmi Lakra

Pallavi is a Legal Associate at Lawyerinc. She is graduated from Gujarat National Law University having areas of expertise in Legal and financial content writing. She is having keen interest in legal research, drafting and legal advisory. She likes to keep herself updated with the changing face of legal arena.


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