What is NBFC?
NBFC stands for Non-Banking Financial Company. In layman term, it can be thought to be an organisation which offers various banking services but doesn’t follow any legal obligations as followed by the bank. They are an important part of nation-building and are helping to penetrate the financial services to all the corners of our country. When it comes to lending, NBFCs are the ones who lend to small and medium-sized businesses and hence are very important in the overall scheme of things.
NBFCs are companies which are registered under the Companies Act, 1956 and involved in businesses like
- Insurance business
- Business of loan
- Chit business
- Credit business
- Stocking in the market etc.
NBFCs are a great contributor to the country’s GDP. Even though these NBFCs function similar to the banks, they are quite different, some key differentiating factors are:
- NBFCs are not allowed to accept demand deposits
- NBFCs cannot issue the cheques drawn in its name.
- Unlike banks, they do not have any role in the payment and settlement system.
- Unlike banks, depositors of NBFC doesn’t have deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation.
DIFFERENT TYPES OF NBFCs REGISTERED WITH RESERVE BANK OF INDIA
The NBFCs are broadly categorised on account of the following things:
- Type of Liability: Deposit and Non-Deposit accepting NBFCs
- No deposit accepting NBFCs by their size- NBFC-NDSI (systematically important) and NBFC-ND (non-deposit holding)
- Type of activity they conduct
On the basis of these categories, some of the NBFCs are:
- Asset Finance Company (AFC): The core area of this financial institution involves the financing of physical assets which supports production and economic-related activities like lathe machinery, automobiles, generator sets, general-purpose industrial machines etc.
- Investment Company (IC): This time of NBFC is the business of acquisition of securities.
- Loan Company: This NBFC is involved in providing finance either as loans/advances or other credit for any activity apart from its own.
- Infrastructure Finance Company (IFC): It is an NBFC which engages a minimum of 75% of its assets in infrastructure loan, has a minimum of Rs. 300 crore as net owned funds, has CRAR of 15% and has a credit rating of ‘A’ or equivalent.
- Systemically Important Core Investment Company (CIC-ND-SI): This NBFC is involved in business involving shares and securities acquisition.
- Infrastructure Debt Fund: This NBFC focuses on infrastructure debt and focuses on their long term debt.
- Mortgage Guarantee Companies (MGC): This NBFC mainly focuses on mortgage guarantee businesses and has 90% of its turnover through it.
- NBFC- Non-Operative Financial Holding Company (NOFHC): This financial institution is one through which promoter groups will be getting permission to set up a new bank.
NBFCS and PERSONAL LOANs
NBFCs are outperforming banks and are a preferred financial institution among lenders who are seeking personal loans. The personal loans given by NBFCs are attractive in terms of minimal documentation involved, a decent rate of interest and flexible loan tenures. The NBFCs decide upon these factors post taking your credit score, income, age, employment and repayment ability into consideration. NBFCs are giving customers better services and that is why more borrowers are knocking their doors instead of the banks.
Some reasons why personal loan with NBFC is better in comparison to a personal loan with formal banks are:
- NBFCs are offering a competitive rate of interest which is attracting many borrowers towards them.
- NBFCs are quick in loan processing and are not too stringent in terms of eligibility criteria.
- NBFCs approve the loan even if the borrower has a low credit score.
IMPORTANT NBFCs OFFERING PERSONAL LOANS IN INDIA
The Indian banking sector is booming with many key NBFCs. Some of them are:
Bajaj Finserv: This is the leading NBFC with attractive loan products with a competitive rate of interest and other terms. Bajaj Finserv also offers business loan, gold loan, loan against property, child plan, car insurance, personal loan etc.
Mahindra and Mahindra Financial Services Ltd.: Catering to the financial needs of rural areas, Mahindra finance is leading in its league of NBFCs. Its financial products range from fixed deposits, mutual funds, and insurance products offered to SMEs and individuals.
Shriram City Union Finance: This NBFC is a part of Shriram Group and offers various loan products with and without collateral like personal loans, home loans and SME loans.
Tata Capital: A subsidiary of Tata Group, this NBFC is leading in terms of offering great finance options at a competitive rate of interest.
NBFCs are a great option for anyone who wishes to avail the banking services but doesn’t want to get involved in the lengthy processing and documentation which usually comes along with the banks. LoansJagat offers an excellent platform wherein the consumers can compare different NBFCs for their offerings and choose the one which best suits their needs in terms of rate of interest, EMI, loan tenure etc.