2 min read
25 March 2026

Banks and Non-Banking Financial Companies (NBFCs) are both financial institutions, but they operate in different ways. Banks have an official licence that allows them to accept deposits like savings or current accounts and offer cheque facilities. NBFCs, however, do not have this permission, which limits the range of services they can provide.

Banks are generally more structured and follow stricter rules, often offering lower interest rates and insured deposits. NBFCs, on the other hand, are known for quicker loan approvals and flexible eligibility. In this blog, we will understand what NBFCs and banks mean, how they differ, and which option may suit your needs better.

What are NBFCs?

NBFCs, or Non-Banking Financial Companies, are organisations that provide financial services similar to banks but without holding a full banking licence. They offer loans, credit facilities, insurance products, and investment-related services. However, they cannot accept demand deposits like savings accounts or provide cheque facilities, which limits their everyday banking functions.

In simple terms, NBFCs mainly focus on lending and specialised financial solutions rather than routine banking services. One of their key advantages is flexibility, as they often cater to individuals who may not meet strict bank criteria. If you have a lower credit score or require quick funds, NBFCs can be a suitable and accessible option.

What are banks?

Banks are well-established financial institutions that provide a complete range of services to individuals and businesses. They allow you to open savings and current accounts, deposit money, apply for loans, use credit cards, and invest in different financial products. For most people, banks are the first choice for managing daily financial needs.

Unlike NBFCs, banks are authorised to accept deposits and issue cheques. They are strictly regulated by the Reserve Bank of India (RBI), ensuring a high level of safety and transparency. This strong regulatory framework helps protect customer deposits and builds trust among account holders.

How is NBFC different from banks?

Nowadays, loans have become more accessible to borrowers once they meet the required eligibility criteria. The primary concern arises with choosing between banks and NBFCs. The RBI confirmed that NBFCs are outperforming banks in a financial stability report, increasing customer satisfaction by 15%.

There are certain differences and several advantages of NBFC over banks. Some of the differences are:

  1. While banks come under RBI-Banking Act, 1956, NBFCs are registered under the Companies Act, 1956.
  2. NBFCs cannot accept demand deposits, unlike banks.
  3. Maintenance of reserve ratio is mandatory only for banks.

Some of the advantages of choosing NBFCs over banks include:

  1. Fast loan sanctioning process
  2. Flexible terms and conditions
  3. Attractive features and benefits for both new and existing borrowers
  4. Offers a range of customized loans and other financial products
  5. Better customer service
  6. Brings cheaper loans at comparatively lower rates

Differences in home loan interest rate

Banks function strictly and directly under the regulation of the Reserve Bank of India, while NBFCs are created under the Companies’ Act, 1956. This basic difference has a direct implication in terms of the interest offering for loans that banks and NBFCs sanction. Therefore, it allows banks to usually apply floating interest on your home loan, the rates for which are directly linked to MCLR. In this case, the rates driven by economic factors increase or decrease based on RBI policy changes. So, check out all the factors that impact your home loan interest rate before time.

On the other hand, the RBI has no link to the interest rates on home loans fixed by NBFCs as per Prime Lending Rate. Here you can negotiate with the lender to get a high amount sanctioned at a nominal interest rate as the lender can decide the interest with greater flexibility. However, it depends on you fulfilling all the required eligibility criteria and having a good credit score.

Differences in the flexibility of terms

NBFCs sometimes have the edge over the banks regarding the convenience they offer on your loan terms. Unlike banks, you can give lengthy paperwork a miss when applying for a loan with NBFCs. Also, lenders like Bajaj Finserv allow you to take a home loan comfortably by applying for it online, though you may be able to apply online with certain banks too. In addition, within 72 hours of your application, you can avail of a sanction of Rs. 5 crore for a tenor of 30 years with renowned NBFCs.

Differences in eligibility criteria

Your repayment capacity, credit score, income, the city you live and work in, and the valuation of the home you intend to buy are the parameters on which your home loan approval rests. These are the deciding factors for both banks and NBFCs. However, each financial institution has its own home loan eligibility criteria. For example, you can check the eligibility parameters for Bajaj Finserv’s Home Loan by using the Home Loan Eligibility Calculator. You’ll see that the simple criteria are a hallmark of NBFCs, which allows you to apply with ease. However, this may not be true of banks. For example, with a low credit score, you may not qualify for a home loan with banks, but may be able to apply with an NBFC, albeit at a higher than average interest rate.

Differences in processing time

Both banks and NBFCs are very comprehensive with their loan processing steps, which also involves stringent verifications. However, along with online application facilities where you can even upload scanned copy of all the required documents, the processing time for NBFCs are usually lower than banks. Generally, you can get a sanction within 72 hours of your application in case of an NBFC. Thus, it allows you to book your dream home without delay.

Differences in customer services

The entire financial sector is a service-led industry. Both banks and NBFCs function day and night to meet your loan requests. However, when it comes to dedicated customer service, NBFCs can sometimes outpace banks. For example, with every home loan sanction, they allow you to keep a tab of all your loan details, payments, and charges using your online account. Added to this, you are assigned a customer relationship manager who attends to all your queries related to the loan to help you manage your loan comfortably through the tenor.

Key differences between NBFCs and banks - A table summary

Here is a simple comparison to help you understand how NBFCs and banks differ across important features:

Feature

NBFCs

Banks

Regulation

Regulated by the RBI but do not have a full banking licence

Fully regulated by the RBI with a banking licence

Deposit acceptance

Cannot accept demand deposits like savings accounts

Can accept demand deposits and offer cheque facilities

Loan issuance

Provide loans, often at slightly higher interest rates

Offer loans at comparatively lower interest rates

Services offered

Focus on loans, credit, insurance, and asset management

Offer savings accounts, deposits, loans, payments, and more

Safety of deposits

Deposits are not fully backed by government insurance

Deposits are insured under the DICGC scheme

Scope of operations

Specialise in selected financial services

Provide a wide range of services for all users

Customers

Target specific or underserved segments

Cater to a broad and diverse customer base


NBFCs and banks - Which one should you choose?

Choosing between an NBFC and a bank depends on your financial goals and requirements.

  • Choose an NBFC if you need quick loan approval or have a lower credit score
  • Choose an NBFC if you prefer flexible eligibility and customised loan options
  • Choose a bank if you want a safe place to deposit your money
  • Choose a bank if you need a full range of financial services under one roof
  • Consider comparing interest rates, fees, and repayment terms before deciding

Keeping this information handy, you can find out about loan terms, related charges, and home loan interest rates apart from benefits like EMI holidays and top-up loans offered by banks and NBFCs before choosing one. Then use an eligibility calculator and a home loan EMI calculator to estimate further whether you qualify, what your possible loan amount will be, and how to plan your repayment.

Bajaj Finserv brings you pre-approved offers for personal loans, home loans, business loans, and a host of other financial products. Not only does this simplify the process of availing of financing, but it also helps you save on time. All you have to do is share a few basic details and check out your pre-approved offer

Need instant financing? Do it with Bajaj Finserv.

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Frequently asked questions

How do the interest rate calculation methods differ between banks and NBFCs?

Banks usually link their floating interest rates to an external benchmark such as the Repo Rate set by the Reserve Bank of India. This means changes in policy rates are passed on to borrowers more directly. NBFCs, however, use their own internal benchmarks like the Prime Lending Rate. This allows them more flexibility to set rates based on borrower risk, though changes may not reflect market shifts immediately.

Can an NBFC help if I have a lower credit score compared to a bank?

Yes, NBFCs are often more flexible when it comes to credit scores. While banks may require a higher score, typically around 750, NBFCs may consider applicants with scores between 600 and 700. They also evaluate factors beyond just credit scores, such as income and repayment ability. However, loans from NBFCs may come with slightly higher interest rates to balance the increased lending risk.

Why do NBFCs typically process home loan applications faster than banks?

NBFCs usually have faster approval systems because they rely on digital processes and simpler documentation. While banks may take around 7 to 14 working days due to detailed checks and strict procedures, NBFCs can often approve loans within 48 to 72 hours. This quicker turnaround makes NBFCs a preferred choice when time is critical, especially in competitive property transactions.

Are there differences in the total loan amount I can get from a bank vs. an NBFC?

Yes, there can be a difference in the total loan amount offered. NBFCs may include additional costs such as stamp duty and registration charges in the overall loan value. Banks usually finance only a portion of the property’s market value, excluding such costs. As a result, borrowers opting for NBFCs may need to pay a lower upfront amount compared to bank loans.

Is it safe to take a home loan from an NBFC compared to a regulated bank?

Both NBFCs and banks are regulated by the Reserve Bank of India, making them reliable lending options. Banks offer deposit insurance up to Rs. 5 lakh, which adds an extra layer of safety for depositors. NBFCs do not provide such insurance, but for borrowers, the risk is minimal. It is still advisable to check the NBFC’s credibility and ratings before taking a loan.

How do eligibility criteria differ for self-employed individuals at banks vs. NBFCs?

Banks generally prefer salaried individuals with stable and well-documented income. Self-employed applicants may face challenges if they cannot provide consistent financial records. NBFCs are more flexible and often cater to freelancers, small business owners, and gig workers. They consider alternative income proofs and overall cash flow, making it easier for self-employed individuals to qualify for loans.

Can I switch my home loan from an NBFC to a bank later?

Yes, you can transfer your home loan from an NBFC to a bank through a balance transfer facility. Many borrowers choose this option after improving their credit score or financial stability. By switching, they can benefit from lower interest rates offered by banks. However, you should consider processing fees and ensure that you meet the bank’s eligibility requirements before making the switch.

What are the typical "hidden" costs or fees associated with both?

Banks usually have lower and more transparent processing fees, typically ranging from 0.25% to 1% of the loan amount. NBFCs may charge higher fees, often between 1% and 3%, along with additional costs such as administrative or service charges. It is important to carefully review all terms and conditions to understand the total cost of borrowing and avoid unexpected expenses later.

Do banks or NBFCs offer better customisation for repayment tenures?

NBFCs generally provide more flexible repayment options compared to banks. They may offer features like step-up or step-down EMIs, allowing repayments to adjust based on your income changes. Some NBFCs also provide longer repayment tenures, sometimes up to 30 years. Banks, however, usually follow standard repayment structures, which may not offer the same level of flexibility for changing financial situations.

How does the customer service experience differ between the two?

NBFCs are often known for their customer-friendly approach, offering personalised support and quicker responses. Many provide dedicated relationship managers and digital-first services for convenience. Banks, especially larger or public sector ones, may have slower processes due to higher customer volumes and formal procedures. If you prefer faster assistance and personalised service, NBFCs may offer a smoother overall experience.

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