While looking for banking products there are two types of institutions you will come across, FBS and NBFC. FBS stands for financial banking sector whereas NBFC stands for Non-banking financial company. Generally uninformed people mistake for either of the two. Both the bank and NBFC are in a way similar in terms of financial products they offer. But there are contrasting differences between the two. Due to the existence of these two financial institutions the general crowd while shopping for a loan tend to get confused who to approach. This article will help you decide which entity to choose while seeking a loan.
While the banks and the NBFCs both have the similar function of providing personal or corporate financial products, the Banks are incorporated by the Banking companies Act in India, where as the NBFCs come under the Companies Act of 1956. As the Banks come under the Banking companies Act they offer more banking services than compared to the NBFCs, like accepting demand deposits, issue of DD and cheques. All the deposits made in the NBFCs are not guaranteed by the Reserve bank of India and hence hold a high risk for the depositor. There are no settlements or payment system set in the NBFCs. Money transfers between accounts can only be done in banking accounts, whether the bank is private or governmental sector.
Loan Application Differences
While applying for loans both the banks and the NBFCs are more or less similar. Based on the applicant’s credit status retail or corporate loans can be offered by the two entities. While the corporate sectors prefer Banks over NBFCs, the main market for the NBFCs is the retail sector. NBFCs facilitates loans that are consumer durables which last for an extended period of time such as home loans, vehicle finance loans, gold loans etc.
NBFCs are more lenient when it comes to its paperwork. They also have reduced eligibility criteria and requirements than compared to its counterpart. In Banks when applying for a loan one must have a good credit score. This will give leverage to the customer and a surety to the bank that the customer can be trusted. Since these processes are fairly low in the NBFCs and it is much easier for people to get a loan from the NBFCs, the result of that is higher processing fees and higher interest rates. Compared to the bank, NBFCs have faster processing time and loan applicants can get an approval and the disbursal of the loan amount is faster.
Now that you have a fair idea of the differences between the NBFCs and the Banks it would be easy to pick the more suitable of the two. Many factors have to be considered before making the decision between the two, such as credit score, tenure of the loan, loan amount, and the Interest rate. Based on these factors it then becomes easier to pick one of the two while looking for a loan.