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Banks vs NBFCs- Which Is Best For Personal Loan In India

2021-06-08
3 Min Read
Author - Megha Khanna
Banks vs NBFCs- Which Is Best For Personal Loan In India
129 views

Today, Personal Loans are the general type of loan in India. People are in search of the best personal loans. But, customers are in endless doubt in choosing Banks or Non-Banking Financial Companies (NBFC).

To clear all the doubts of readers, this article will provide you with a perspective to choose an appropriate option by clearly stating the benefits and features of Banks and NBFCs.

NBFCs have been a popular alternative among borrowers due to lenient lending and flexible rules. The fact that funds are transferred instantly and application processes are simple adds the icing on the cake.

On the other hand, banks continue to provide competition to rising NBFCs through their strong and governed plans and policies.

What is Bank?

  • The banking industry leads finances, including cash and credit.
  • Banks are the institutional structures that take deposits and issues credit to individuals,
  • They play an important part in a state's financial standing.
  • In India, the Reserve Bank of India (RBI) is the apex banking structure that takes care of India's fiscal policy.

What is NBFC?

  • A Non-Banking Financial Company (NBFC) is not a bank, but it runs a money function similar to banks like providing loans, credit facilities, investing and other plans, and so on.
  • NBFCs also offer services to businesses such as the acquisition of government-issued shares, stocks, debentures, bonds, and securities.
  • It also enables the provision of services such as hire purchase, leasing, venture capital financing, housing financing, and insurance.

Similarities between Banks and NBFCs -

  • Both are financial institutions offering various financial functions like lending money to the public and offering individuals investment options.
  • Both banks and NBFCs are regulated by respective authorities.
  • Both banks and NBFCs offer competitive interest rates on loans.

Features and Benefits of NBFCs

  • Offers great loan and credit options
  • Minimum or Nil documentation
  • Faster loan approval.
  • Less strict eligibility criteria
  • Poor credit score may not harm loan eligibility
  • Promotes investment in properties
  • Less processing time for loan application
  • Offer good and personal customer service.
  • It is popular for offering various kinds of loans like mortgage loan, education loan, home loan, gold loan

Features and Benefits of Banks

  • Bank accounts are a safer option for deposits
  • It aims at offering competitive interest rates
  • Banks can provide more loan amount
  • Easy loan application online
  • Easy documentation
  • Instant disbursal of loans
  • Offers pre-approved loan to specific customers
  • It is flexible EMI options on personal loan attracts more customers
  • Banks offer various other facilities like debit card,credit card, issuing and depositing of cheques, demand draft and ATMs

The Key Differences in Banks and NBFCs

Basis of Difference

Banks

NBFCs

Regulation

Banks are controlled under the Banking Regulation Act 1949

NBFCs are established under the Companies Act of 1956

Demand Deposits

Banks accept demand deposits like in a savings account.

Doesn’t accept deposits that are repayable on demand.

Foreign Investments

Only private banks are allowed up to 74 %

Allowed up to 100 %

Maintaining Reserves.

Compulsory to reserve ratios like CRR or SLR

NBFCs are not required to maintain reserves

Insurance of Deposits

Depositors can avail the deposit insurance service of banks by Deposit Insurance and Credit Guarantee Corporation (DICGC)

Not available

Transaction Services like transfer of funds, OD

Available

Not available

Credit Creation

Involved in credit creation

Not Involved in credit creation

Choose what is right for you.

Both NBFCs and banks provide personal loans. While banks are recognised for their lower interest rates, NBFCs are improving rapidly by giving individuals competitive rates. If you need money quickly and without any difficulty, NBFCs are a good solution.

On the other hand, Banks are reliable and offer more competitive rates to NBFCs. Banks Depositors can avail the deposit insurance service of banks. So, if you want to play safe, you may choose banks.

Every individual's needs and requirements are different. Some prefer faster loan approval, and some prefer large loan amounts, whereas some prefer good customer services. An individual should choose one based on their needs and requirements. What is good for you could be less good for others.

As it said, 'Customer is the king'. Customers can choose between NBFC or Banks based on the research for their requirements.

About Author

Megha Khanna
Megha Khanna | Living, loving and laughing | She loves writing and reading in her free time. Working with MyLoanCare since 2019

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