Suppose you are someone who has had the experience of taking part in financial services. In that case, it is highly likely that you have either visited a bank like ICICI, HDFC, SBI, or an NBFC like Bajaj Finserv, Mahindra & Mahindra, Muthoot or others. Whether you are looking to invest your money for growth or borrow money as emergency funds, both banks and other non-banking financial institutions offer many options to choose from.
But what is the difference between a bank and an NBFC? What are the benefits, disadvantages, requirements, and offers to consider when choosing between a bank and an NBFC for insta personal loan? Keep reading to learn all you need to know about them and which one is better for you.
What is a bank, and how does it function?
The definition of a bank is a financial institution licensed to receive deposits and make loans. Banks are primarily categorised based on their primary clients and methods of operation, including retail, commercial, and investment banks.
In most countries, banks are regulated by the national government or central bank, with Indian banks and financial institutions being primarily regulated by the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).
The most basic function of a bank has remained unchanged since its inception in the 14th Century: providing a safe place for consumers and business owners to store their cash and offering loans for personal purchases and business ventures. But today, these functions have become more elaborate, consisting of:
- Payments and settlements for transactions made through various payment methods, such as checks, debit/credit cards, electronic transfers, and currency exchange.
- Safekeeping valuables in safety deposit boxes extends beyond monetary assets to storing valuable documents and assets.
- Investment services into investment products like mutual funds, stocks, and bonds, helping customers grow their wealth.
- Internet banking services, such as online and mobile banking, make it convenient for customers to access their accounts, pay bills, and transfer funds.
What is an NBFC, and how do they function?
According to the RBI, a Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities issued by the Government or local authority or other marketable securities.
No NBFC can commence or carry on the business of a non-banking financial institution without obtaining a certificate of registration from the Bank and without having a Net Owned Funds of ₹ 25 lakhs (₹ Two crore since April 1999). However, specific categories of NBFCs regulated by other regulators, such as SEBI, IRDAI, and National Housing Bank, are not required to register with the RBI.
This means that NBFCs, which lend money or offer investment opportunities, are regulated by the same regulatory entity as regular banks but with fewer restrictions. NBFCs provide a wide range of financial services. Some of the essential functions of NBFCs in India are:
- Retail financing
- Infrastructural funding
- Hire purchase services
- Trade finance
- Asset Management Companies
- Venture capital services
What is the difference between banks and NBFCs?
NBFCs lend and make investments, and hence their activities are akin to those of banks; however, there are a few differences as given below based on the RBI’s classification:
- NBFC cannot accept demand deposits.
- NBFCS do not form part of the payment and settlement system and cannot issue cheques drawn on themselves.
- Unlike banks, the deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.
What is the best personal loan app up to 5 lakh?
While there is a structure and function difference between banks and NBFCs, both offer insta personal loans, and some provide breakthrough credit services for the varying needs of Indian borrowers. From no-credit-check loans, where the lender does not carry out a hard credit check, to pre-approved and traditional loans, both banks and NBFCs offer great offers for borrowers to choose from.
Apart from banks, Bajaj Finserv is one of the best lenders in the industry. They are a leading NBFC with around 18 years of existence and offer everything from gold and commercial loans to personal and professional loans. The Bajaj Finserv app is also a financial super app offering various types of loans, numerous investment options, bill payment options, insurance, and even UPI, all in one single feature-packed app.
Conclusion
Remember that while there is a functional difference between banks and NBFCs, they do not have any key regulatory differences and thus function under a similar level of scrutiny as any other financial institution, such as banks. Whether you wish to get the best personal loan app Tamil Nadu, Karnataka, Hyderabad, Maharashtra, or Haryana, definitely check out the Bajaj Finserv app for the best tailored options.
