NBFC Loan Against Securities

Non-Banking Financial Companies (NBFCs) play a significant role in providing financial services in India, offering a variety of products, including loans against securities. Unlike traditional banks, NBFCs offer greater flexibility in loan processing and eligibility criteria, making them an appealing choice for individuals and businesses seeking quick access to funds without selling their investments.

What is an NBFC?

An NBFC (Non-Banking Financial Company) is a financial institution that provides services similar to banks, such as loans, asset financing, and credit facilities, but without having a banking license. NBFCs are regulated by the Reserve Bank of India (RBI) and play a key role in extending credit to individuals and businesses, especially those who may not qualify for traditional bank loans. However, NBFCs cannot accept demand deposits like banks.

Benefits of taking a loan against securities from NBFCs

Taking a Loan Against Securities from NBFCs offers several advantages for borrowers:

• Quick access to funds: While NBFCs often have streamlined processes and can offer faster loan approvals compared to traditional banks, the exact processing time can depend on various factors such as the type of loan, the borrower's profile, and the specific NBFC.
• Retain ownership of securities: You can borrow against your investments without selling them, allowing you to continue earning dividends or interest.
• Flexible loan terms: NBFCs offer flexible loan amounts and repayment options, catering to the borrower’s financial needs.
• Lower interest rates: Loans against securities typically carry lower interest rates compared to unsecured loans, reducing your overall borrowing cost.

Types of securities eligible for loans

• Shares and stocks of listed companies
• Mutual funds (both equity and debt)
• Government bonds
• Fixed deposits
• Insurance policies with surrender value
• Corporate bonds

Eligibility criteria for NBFC loan against securities

• Age requirement: Typically between 21 and 65 years old.
• Ownership of securities: Borrowers must hold eligible securities such as shares or bonds.
• KYC documents: Aadhaar/ passport/ voter’s ID, PAN card, DEMAT holding statement, depending on the NBFC one is dealing with.
• Credit history: A good credit score may enhance your chances of approval and better interest rates.
• Income proof: Required in some cases to assess repayment capacity.

Process for availing a loan against securities from an NBFC

• Submit a loan application online or at the NBFC branch.
• Pledge your shares, bonds, or mutual funds as collateral.
• Provide KYC, income proof, and security ownership documents.
• The NBFC will assess your application and approve the loan based on the value of the pledged securities.
• Upon approval, the loan amount is disbursed into your account, typically within a few working days. According to RBI one can get loan of upto maximum 50% of share value.

Interest rates & charges

• Interest rates: Generally range between 10% to 14%, depending on the securities pledged and borrower profile, and depending on the NBFC one is dealing with.
• Processing fee: Typically ranges from 0.5% to 1% of the loan amount, depending on the NBFC one is dealing with.
• Prepayment charges: Some NBFCs may charge a fee for early repayment.
• Penal charges: Applicable for late payments or defaults.

Key differences between loans from banks vs. NBFCs

Feature	Banks
Regulation	Strictly regulated by RBI
Approval time	Longer due to stricter guidelines
Interest rates	Generally lower
Eligibility	Stricter credit score and income requirements
Loan customisation	Limited customisation options	Highly customised to borrower’s needs

Conclusion

NBFCs provide a flexible and efficient way to access funds through loans against securities, allowing borrowers to leverage their investments without selling them. By offering quicker approval processes, competitive interest rates, and flexible terms, NBFCs serve as a valuable alternative to traditional banks. Understanding the eligibility criteria, interest rates, and charges can help you make an informed decision when seeking a loan against your securities.