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NBFC VS. BANK – A CRITICAL STUDY

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Introduction

In today’s scenario, loans have become more approachable to borrowers once they satisfy the necessary eligibility criteria. The foremost concern comes forth when we have to choose between banks and NBFCs. In the Financial Stability Report, the RBI confirmed that NBFCs are better than banks, mounting customer satisfaction by fifteen percent.

There are many differences and advantages of NBFCs over banks. Some of them are mentioned below:

  1. The banks fall under RBI-Banking Act, 1956 whereas NBFCs are registered under the Companies Act, 1956.
  2. Unlike banks, NBFCs cannot accept demand deposits.
  3. The maintenance of reserve ratio is obligatory only for the banks.


Some of the pros of NBFCs over banks consist of the below mentioned:

  1. Fast loan authorizing process.
  2. Ductile terms and conditions.
  3. The attractive features and benefits for both new and existing borrowers.
  4. It offers a wide range of customized loans and other financial products.
  5. It also offers better customer services.
  6. It brings cheaper loans at relatively lower rates.

Differences in Home Loan Interest Rate

The banks function very strictly and directly under the prescribed regulations of the RBI, whilst NBFCs were created under the Companies’ Act, 1956. This fundamental difference has a direct inference in terms of the interest offering for loans that banks and NBFCs approval. This permits the banks to generally apply floating interest on your home loan, the rates for which are directly connected to MCLR. The rates, in this case, enhance or diminish based on the policy changes of RBI that are determined by economic factors. So, one must check out all the factors that may impact the home loan interest rate before time.

Conversely, NBFCs fix the interest rates on home loans as per PLR, which is not connected to the RBI. Here one can bargain with the lender to get a high amount approved at an insignificant rate of interest as the lender has the power to decide the interest with considerable versatility. This, however, depends on a good credit score and also after the eligibility criteria have been satisfied.

Differences in flexibility of terms

The Non-Banking Financial Companies sometimes have an upper hand over the banks in terms of the ease they offer on the loan terms. Unlike banks, the paperwork involves while taking a loan from NBFC is less. The application submission procedure is also quite flexible. Apart from the application flexibility, one can gain the approval of up to Rs. ten crores for a tenor of twenty-five years within seventy-two hours of your application with well-known NBFCs.

Differences in Eligibility Criteria

The repayment capacity, credit score, income, the residence and workplace, and the assessment of the home one intends to buy are the parameters on which the home loan approval rests. These are the deciding factors for both banks and non-banking financial companies. However, each financial institution has its own home loan eligibility criterion.

Differences in processing time

Both the banks and the non-banking financial companies are very meticulous with their loan dispensation steps, which also includes rigorous verifications. Although, along with online application facilities where one can even upload the scanned copy of all the necessary documents, the dispensation time for Non-banking financial companies are generally lower than banks. Usually, one can get an approval within seventy-two hours of your application in case of an NBFC.

Differences in customer services

The complete financial sector is a service-led industry. Both banks and non banking financial companies function day and night to meet the loan requests. However, when it comes to dedicated customer service NBFCs can sometimes outrun banks. With every home loan approval, they allow you to keep a tab of all your loan details, payments, and charges using your online account. Plus a customer relationship manager is appointed who attends to all the queries related to the loan to help the administration of the loan comfortably during the tenor.

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Author
Sanya Arora
Highly motivated and innovative Environment MS graduate, highly effective at developing creative content and writing persuasive legal briefs. Expertise in writing E-waste, recycling, EPR, legal compliances articles, blogs, press releases and whitepapers etc. Excellent command over English Language with natural flair for writing. Excellent analytical skills and structured thinking capability.