Non-Banking Financial Companies play a vital role in promoting inclusive growth in the country by catering to the diverse financial needs of the customers excluded by the banks. They provide financial services to the micro, small and medium enterprises or those individuals who are not able to take services from banks. They have a generous contribution to the employment generation, wealth creation; provide financial credit in rural segments and to give financial support to the weaker sections of the society. Insurance guidance is also given by them.
NBFCs are financial intermediaries that supplement the role of the banking sector in the increasing financial needs of the corporate sector, the unorganized sector and to the small local borrowers. However, they do not finance services related to agriculture activity, industrial activity, and immovable property.
Benefits of NBFC Operations
NBFCs do not accept demand deposits like banks. But when it comes to borrowing loans, they are mostly preferred over banks due to the ease in their processes.
Some reasons which make them more preferable than banks are:
Competitive Interest Rates: Rate of interest is one of the main considerations while taking any type of loan. NBFCs have focused on this area in recent decades and have brought down the interest rates lower to the bank rates. Thus, borrowers find them easy and affordable. Subsequently, the EMI that the borrower has to pay every month decreases which leads to a lesser burden on him.
Quick Processing: Mostly, people apply for a loan when they are in immediate need of money. While a bank requires the applicant to fulfill the eligibility criteria but NBFCs are lenient in this respect. This makes the loan approval process easier, smoother and quicker. At times for quicker approval, borrowers are even ready to compromise on the interest rates.
Lesser Rules and regulations: NBFCs have to follow regulations prescribed in the Companies Act which are not as stringent as those that have to be followed by the banks. This makes the loan process less complicated and helps the borrower to get loan easily.
Loan available for individuals with poor credit rating: Individuals with a credit score lower than 600-650 generally do not get loans from banks as bank considers the low credit score as high risk. For such individuals for whom it is very difficult to get a loan sanctioned from the banks, NBFCs approve their loans. But such loan is generally issued at interest rates higher than market rates.
To summarize, NBFCs like banks offer business, personal and retail loans on the basis of the repayment capacity of the borrower. Corporate sector prefers banks but the retail sector chooses NBFCs over banks. Vehicle financing loans, gold loans, home loans, and other small loans are also offered by NBFCs. These loans are very convenient to get and are sanctioned quickly. People with low credit score also get a loan from NBFCs. Therefore, customer satisfaction ratio is high with NBFCs.
When it comes to borrowing a loan, most prefer NBFCs over banks as the latter have hard rules and requires more time to approve or sanction a loan. NBFCs ensure the processing is quicker and necessary loan amount is disbursed within days.
NBFC sector has a great scope to expand even further in the coming days. The banking sector has always been the most important sector in the business world and will always remain to be so. But, even then the role of NBFCs today is critical and their presence in our country would only boost the economy in the right direction.
“If someone is looking to get a quick loan approved, Non-Banking Financial Companies are for you.” -Shweta Gupta, Founder, and CEO, MUDS
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