NBFCs are regulated by the RBI but under a lighter regulatory framework than scheduled commercial banks. This lighter regulation gives NBFCs greater flexibility — and is why they can serve borrowers that banks typically decline.

Key Differences: NBFC vs Bank

When an NBFC Is a Better Option

There are specific situations where an NBFC consistently outperforms a bank as a borrowing option:

• CIBIL score 600–700: Most banks decline or offer punishing rates for borrowers below 700. Specialist NBFCs in personal loans and LAP regularly lend to 600–680 CIBIL borrowers at rates of 14%–20% — higher than banks, but accessible when banks are not.
• Self-employed without 3 years ITR: NBFCs like Lendingkart, NeoGrowth, and Indifi use bank statement and GST data models rather than requiring three years of ITR. See our guide on getting a business loan without 3 years of ITR.
• Unusual income patterns: Freelancers, commission-based earners, and business owners with irregular monthly income may not fit bank income assessment models. NBFCs assess average inflows over 12–24 months rather than requiring steady monthly salary.
• Property in smaller towns: Banks often decline LAP applications for properties in tier-3 cities or rural areas due to limited valuer networks. Specialist HFCs and NBFCs in those areas assess local property values more accurately.
• Speed is critical: For business working capital emergencies, fintech NBFCs can disburse within 24–48 hours with minimal documentation.

Types of NBFCs in India (2026)

• Investment and Credit Company (ICC): General-purpose lending NBFCs — include Bajaj Finance, Muthoot Finance, Cholamandalam
• Housing Finance Company (HFC): Specialise in home loans and LAP — include LIC HFL, PNB Housing Finance, HDFC Ltd (now merged with HDFC Bank)
• Microfinance Institution (NBFC-MFI): Serve low-income borrowers through group lending — include Bandhan (before it became a bank), Cashpor
• Infrastructure Finance Company: Long-tenor project finance — less relevant for individual borrowers
• Account Aggregator: Enable data sharing for credit assessment — not direct lenders

Risks of Borrowing From an NBFC

Higher flexibility comes with risks the borrower should understand:

• Higher interest rates: NBFC rates on personal loans and business loans typically run 2%–6% higher than equivalent bank products for comparable borrower profiles.
• Aggressive recovery: Some NBFCs, particularly smaller ones, use more aggressive recovery practices than banks. Check the NBFC's reputation and reviews before borrowing.
• Less consumer protection: Bank account holders have stronger consumer protection through the Banking Ombudsman. NBFC disputes are handled through the RBI's Integrated Ombudsman Scheme, which is effective but slightly less well-resourced.
• Rate changes: NBFC rates are not linked to external benchmarks like repo rate — they can revise rates at their own discretion (subject to reasonable notice), unlike EBLR-linked bank loans.

How Finvastra Navigates NBFC Selection

With 9,500+ registered NBFCs in India, identifying which ones are reputable, competitive, and appropriate for your profile requires expertise. Finvastra's panel includes 25+ lending institutions — banks, HFCs, and NBFCs — and our advisors assess which combination of lenders is most likely to approve your application at the most competitive terms. We do not steer borrowers toward NBFCs for commission reasons — we recommend them when they genuinely serve the borrower's interest better than a bank for that specific requirement. Visit our NBFC Advisory page for more.

Talk to a Finvastra Advisor