An NBFC loan Company
is a company that is registered under the company’s act 1956. These companies deal with processing loans, acquiring shares, stocks, bonds, debentures and security issued by the government or other marketable securities.Non banking financial companies
are financial institutions that do not have a proper banking license.
Insurance firms, pawn shops, cashier check issuers, currency exchanges etc. are some of the examples of NBFCs.
Who are the Regulators of NBFCs?
Non-banking financial companies are regulated by different regulators in different countries, for example in India the NBFC loan Company
or companies are controlled by institutions like RBI, SEBI, Irda, National housing bank and department of company affairs.
RBI usually regulates the NBFCs which deal with lending loans, accepting deposits, financial leasing and purchase and acquisition of shares.
SEBI looks after the companies that deal with activities like stock broking and merchant banking.
Department of Company Affairs whereas deals with NIdhi and Chit fund companies.
The non banking financial companies
that are regulated by other regulators are not required to required to register themselves with RBI, but they have to register themselves with other their respective regulators.
What is the difference between Banks and NBFCs?
An NBFC loan Company
and a bank are both are financial institutes. Banks although are regulated under banking regulation Act and NBFCs are regulated under companies act. But the main differences between banks and NBFCs are-
● NBFCs do not accept demand drafts (DD), banks, however, do accept Demand drafts.
● NBFCs do not have the right to issue cheques, unlike banks which have the full rights to issue cheques drawn to itself.
● The liabilities or deposits are widely accepted as methods of payments for the settlement of debts, that is not the case with NBFCs, their deposits are not accepted as any means of payments for debt.
● Banks are the creators of credit by means of the money multiplier, but NBFCs are not creators of credit.
NBFCs and Loan and why they are better than banks
NBFCs can help to make investments or give loans, but unlike banks, they do not accept demand drafts. But in the matter of borrowing money NBFCs are more preferred over banks. Here are the reasons why:
● Banks take longer to process loans and NBFCs are quicker in processing loans and are more convenient.
● The rate of interest is one of the most important things that is considered while taking loans, be it of any kind. NBFCs have lowered their interest rates; this has been done so that borrowers find this more affordable and easy.
● Fewer rules and regulations: NBFCs are under companies act, that is the reason why the rules and regulations are not that stringent like banks. This makes it easy for borrowers to take loans easily and the process is less complicated.
Banks and NBFCs both offer loans. Banks, however, are preferred by the corporate sector, whereas retail sector chooses NBFCs for their loans.
NBFC sector will surely expand and flourish in a few days because of the high satisfaction ratio.