One such option besides banks is NBFCs when taking an education loan or looking for other banking services. NBFC refers to a Non-Banking Financial Company. They play an important role in the financial system by providing credit and other financial services to a wider range of people and businesses. They are similar to banks but have different regulations. In this blog, we will know all about the full form of NBFC, their features, functioning, working, and other details.
What is NBFC?
NBFC is a Non-Banking Financial Company. They are registered under the Companies Act of 1956 for advancing loans, acquisition of shares/ stocks/ bonds/ debentures/ securities, etc. They are similar to banks in terms of providing banking services, but they do not hold a bank license. This means they can’t offer services like debit cards and checking accounts. Check out some features of NBFCs:
- They offer a wide range of services like loans for business, education, and home, investment products, money transfers, and payment processing.
- Unlike banks, NBFCs do not hold a banking license. This restricts them from offering services like demand drafts, checking accounts, debit cards, etc.
- They are subject to regulations by government bodies but regulations differ from those of banks.
- They raise funds through various channels like public deposits by issuing bonds or borrowing from banks.
- NBFCs can be private companies, government-owned entities, or joint ventures.
Also Read: Check out the full form of RLLR and understand RLLR-based education loans, calculations, and much more in the given blog.
Examples
There are different types of NBFCs which include mutual benefit finance companies, investment companies, loan companies, housing finance companies, equipment leasing companies, etc. Based on their types, they provide different types of financial services. For example- Bajaj Finance, Muthoot Finance, Aditya Birla Finance, PNB Finance, etc. provide services related to finance, mutual funds, investments, gold loans etc.
Other examples include Auxilo, MPower Finance, Prodigy Finance, Incred, HDFC Credila, etc. which are popular for providing education loans to study abroad. Check out the education loan details of these NBFCs-
- Auxilo Education Loan
- HDFC Credila Education Loan
- MPower Finance Education Loan
- InCred Education Loan
- Prodigy Finance Education Loan
NBFC Services
NBFCs offer a wide range of services, not just education loans or investment options. They provide services to fulfil the financial needs of individuals, small businesses, rural segments and other underserved segments of the market. These services include microfinancing, payment processing, lease financing, insurance products, and investment options.
- Micro-financing- NBFCs provide microloans to small businesses and entrepreneurs, especially in underserved areas. These help them to start and grow their business.
- Payment processing- NBFCs are also involved in payment processing services, facilitating digital transactions for businesses and individuals. These include mobile wallets, online payment gateways, and POS (point-of-sale) solutions.
- Lease financing- If you need equipment or machinery for your business, NBFCs also offer lease financing options. This enables businesses to acquire assets without large upfront investment and grow their startups.
- Insurance products- Some NBFCs act as distributors for insurance products and offer their customers student travel insurance, life insurance, vehicle insurance, and other services.
- Investment options- Customers who plan to grow their wealth can avail of investment products from NBFCs. They offer options like mutual funds, fixed deposits, and debentures that offer higher gains than traditional banks.
Advantages of NBFCs
With so many services offered that are similar to banks, one might face challenges as to which is the best option. Both have their advantages and disadvantages, but in this section, we will explore how NBFCs benefit customers as compared to traditional banks. Check them out-
- Personalised solutions- The top advantage of choosing NBFCs for their services is that they provide tailored solutions. They are customised as per individuals needs and requirements.
- Faster loan approvals- Loans from NBFCs are approved quickly. They have simpler approval processes, leading to quicker loan disbursement, making it extremely beneficial for individuals with urgent requirements. For example, HDFC Credila’s education loan processing time is 10-15 days with funds disbursed within 48 hours and the disbursement process of HDFC Credila is online and hassle-free.
- Competitive interest rates- NBFCs may offer competitive interest rates on loans and deposits. You may choose to compare the education loan interest rates of NBFCs and Banks.
Also Read: Ever heard of NPA in banking? Check out its full form, types, and examples.
NBFCs vs Banks
As discussed above, NBFCs and banks are similar in terms of offering financial services. NBFCs lend and make investments and hence their activities are akin to those of banks. However, major differences between them lie based on incorporation, service offers, regulations, ownership structures, and other parameters. Let’s look at the difference between a bank and a NBFC-
| Banks | NBFCs |
| Banks are incorporated under the Banking Regulations Act of 1949. | NBFCs are incorporated under the Companies Act of 1956. |
| They need a full banking license to operate. | They need a limited/ no banking license for operation. |
| They offer services like checking accounts, savings accounts, debit cards, loans, investments, etc. | They offer services similar to banks, excluding demand drafts, checking accounts, and debit cards. |
| They have a broad customer base. | They can cater to niche markets or underserved segments. |
| They have more stringent regulations. | They have varied regulations compared to the banks. |
| They are mostly private or government-owned. | They can be private companies, government-owned, or joint ventures. |
FAQs
Full Form of NBFC is Non- Banking Financial Company. They are registered under the Companies Act of 1956 for advancing loans, acquisition of shares/ stocks/ bonds/ debentures/ securities, etc.
NBFC refers to a Non-Banking Financial Company. They play an important role in the financial system by providing credit and other financial services to a wider range of people and businesses.
Banks and NBFCs are similar to banks in terms of providing banking services, but they do not hold a bank license. This means they can’t offer services like debit cards and checking accounts.
NBFCs offer a wide range of services like loans for business, education, and home, investment products, money transfers, and payment processing. Unlike banks, NBFCs do not hold a banking license. This restricts them from offering services like demand drafts, checking accounts, debit cards, etc.
NBFCs offer a wide range of services, including microfinancing, payment processing, lease financing, insurance products, and investment options. They offer these services to fulfil the financial needs of individuals, small businesses, rural segments and other underserved segments of the market.
This was all about NBFC’s full form, its features, and its advantages. They are not just substitutes for banks but are financial institutions that play an important role in the financial system by providing credit and other financial services to a wider range of people and businesses.
To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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