Non-Banking Finance Companies (NBFC) are an important part of the Indian financial system. They come under the direct supervision of the Reserve Bank of India (RBI. However, the Housing Finance Companies are regulated by the National Housing Bank (NHB) a subsidiary of RBI. Personal loans by NBFCs constitute major portions of the overall personal loans market in India. In addition to home loans, personal loans are a major revenue stream for NBFCs in India. There are many NBFCs, registered with the Reserve Bank of India, which are very active in the personal loan by NBFC segment.
Major NBFCs active in the personal loan segment in India
In addition to the banks especially the private banks many NBFCs are very active in this lucrative and risky segment of Personal Loans.
Prominent two NBFCs amongst them are the following:
1 – Bajaj Finserv Limited
This is part of the Bajaj Group having its registered office in Pune. This is a part of Bajaj Holdings and Investments Limited. It is a very aggressive player in the personal loan segment in India. It operates through more than 20,000 employees and 1,400 locations, spread throughout India. It provides a personal loan of twenty-five lakhs. It provides personal loans to meet varying needs ranging from wedding to honeymoon, from a medical emergency to home improvement, etc. It aggressively uses technology to serve its customers. Almost the entire process of personal loans is made online to provide the personal loans at the shortest turnaround time. The use of technology by Bajaj Finserv has ensured that the personal loan process is standardized from submission of documents to let the customers know their eligibility, amount of EMI, etc. The online access to the customer to his loan account ensures better monitoring and servicing from the customer’s perspective.
2 – Tata Capital Limited
This is part of the leading business conglomerate of India based out of Mumbai and established in 2007. It has introduced the novel “Salaam Loan Scheme” to help small people with no credit score and regular documents get a personal loan of Rs. 1 lakhs. It provides personal loans for various needs and occasions like weddings, travel, and for meeting with medical emergencies. It offers innovative products in personal loans by NBFCs sphere. It offers flexible personal loans to match your anticipated cash flow position. So one can get Step up flex personal loans where the EMI goes up progressively for those who are expecting better cash flow in the future. It also offers to step down flex personal loan where the amount of EMI reduces progressively. It is useful for the people who wish to pay a substantial portion of the personal loan at the initial stage itself. It also ensures lower overall interest costs due to a payment of a substantial amount during the initial tenure. It also offers borrowers another innovative personal loan product called “Bullet Flexi EMI plan” where the borrower can pay part of the principal amount along with the EMI.
In addition to the above NBFCs, many other institutions are also engaged in providing personal loans by NBFCs in India. These include Mahindra Finance Limited, Fullerton India Limited, Capital First, etc.
Interest and processing charges
Interest charged on personal loans by NBFCs is generally higher than the banks. The rate of interest on a personal loan from NBFCs varies between 10.99% p.a. to 24% p.a. depending on the credit profile of the borrower. A borrower with a good credit score/history gets a cheaper rate than the one with not so good a credit score. Likewise, the rate of interest for a self-employed person is higher than for a salaried person on the personal loans by NBFCs. Even amongst the self-employed, people with professional qualifications get a lower rate than those not so qualified. Amongst the salaried, those working with reputed top listed companies get better returns than those working for not so reputed companies. In addition to the interested borrower also has to pay a processing fee varying between 0.25% to 3% of the loan amount.
The personal loans by NBFCs have minimum loan tenure of 12 months. The maximum loan tenure available for personal loans by NBFCs is 60 months but some lenders like Tata Capital offer a personal loan for a longer tenure of 72 months. Selecting loan tenure is very important as the loan amount eligibility and the amount of EMI depend on the tenure selected. Though the longer tenure may help you get higher loan amount eligibility at the same time you have to interest for such a long tenure. If you prepay your personal loan from NBFCs, you generally have to pay a prepayment penalty ranging from 1% to 4%. So you have to select the proper loan repayment tenure to ensure that you do not end up paying higher interest or prepayment penalties.
Documents needed for processing the application
The documents needed to be submitted for a personal loan by NBFCs can be divided into two categories. These can be submitted online in case the NBFC has this facility else you will have to submit these documents physically. The first category of documents is the same for salaried and self-employed. These include documents for basic Know Your Customer(KYC) compliance as per the norms mandated by the Reserve Bank of India from time to time. Under the KYC category, you have to establish your identity as well as provide proof of your residence. It can be done with the help of one or more the documents like PAN card, Aadhaar Card, driving license, voter ID, telephone and electricity bills, society maintenance bill, a property tax receipt of the property or leave and license agreement. In the second category are the documents to provide income proof to convince the lender about the proper and timely servicing of the loan. Salaried have to submit documents like salary slip, form no. 16/ITR copy. The self-employed have to submit ITR copies with profit and loss accounts for the last two years to avail of personal loans by NBFCs.