Are you looking for the best financial institutions for an education loan? Let’s talk about NBFCs! The full form of NBFC is Non-Banking Financial Company. These companies are registered with the RBI under the Companies Act of 1956 and offer services similar to banks but are not officially recognized as banks. NBFCs are involved in providing loans and advances, as well as investing in shares, stocks, bonds, etc.
Picture this: you’re a student, worn out from running after banks for an education loan. But you discover NBFCs that provide education loans based on pledged collateral, just like banks. But if it is as good as it sounds, then what is the catch? It’s often easier to get a loan from an NBFC, but be prepared for higher interest rates as it is not set by the RBI but by the company itself.
If you are in desperate need of an education loan and banks are not approving your application, then you should consider taking a loan from one of the NBFCs in India. However, you should first learn all the essential information about NBFCs so that you can make an informed decision. Keep on reading below to learn what NBFCs are, how they function, and what their benefits are.
Pro Tip: Always opt for a company from the RBI-approved NBFC list to ensure you’re making a safe choice.
Quick Facts about NBFCs
- NBFCs do not function like regular banks but can extend loans for different purposes.
- NBFCs need to register themselves with the RBI to function legally in India.
- Certain NBFCs, like housing finance companies and insurance companies, are exempt from RBI registration as other authorities, such as the IRDA or SEBI, regulate them.
- An NBFC must have a minimum net owned fund of ₹2 crore to register with the RBI. For specialized NBFCs like NBFC-MFIs or NBFC-Factors, specific requirements are defined separately.
- NBFCs with an asset size of ₹500 crore or more are classified as “systemically important,” as their activities can impact the overall financial stability of the economy.
NBFCs vs Banks – Major Differences
Banks and NBFCs may seem similar to students, but they have some major differences. Check the table below for NBFC and bank differences.
NBFCs | Banks |
Regulated by the RBI under the Companies Act of 1956. | Regulated by the RBI under the Banking Regulation Act. |
Can not open savings and current accounts for customers. | You can open savings and current accounts for customers. |
NBFCs can’t issue cheques or participate in payment/settlement systems. | Banks can issue cheques or participate in payment/settlement systems. |
They are not required to maintain a cash reserve ratio (CRR) or a statutory liquidity ratio (SLR). | As per RBI norms, banks are required to maintain CRR or SLR. |
They can not give loans more than their deposits. | Can give out loans more than their deposit. |
Origin of NBFCs
The origin of Non-Banking Financial Companies (NBFCs) in India can be traced back to the 1960s. During this period, the Indian economy was growing, and there was a rising demand for financial services that traditional banks couldn’t fully meet. To bridge this gap, private companies emerged as NBFCs, providing services similar to those of banks.
In 1961, the Reserve Bank of India amended the RBI Act of 1934. This allowed NBFCs to primarily help people and businesses buy things by paying in installments or renting equipment. Traditional banks couldn’t fully meet these needs, so NBFCs stepped in as an alternative. Since there weren’t many strict rules at the time, NBFCs could operate more freely and adapt quickly, which facilitated their rapid growth. As the sector expanded, regulatory concerns emerged, pressing the Reserve Bank of India (RBI) to introduce guidelines to govern NBFC operations.
Types of NBFCs in India
The Reserve Bank of India (RBI) has classified Non-Banking Financial Companies (NBFCs) into 10 categories based on their liabilities, size, and financial activities. The types of NBFCs in India mentioned below are as per RBI guidelines.
Asset Finance Company (AFC) – An Asset Finance Company primarily finances physical assets that support economic activities. This includes vehicles, industrial machines, construction equipment, and other movable assets. To qualify as an AFC, at least 60% of its total assets and income must come from financing these physical assets.
Investment Company (IC) – An Investment Company is an NBFC that focuses on acquiring and holding securities as its main business activity. These companies primarily invest in shares, bonds, and other financial instruments rather than lending directly to individuals or businesses.
Loan Company (LC) – A Loan Company provides financial assistance by offering loans and advances to individuals and businesses. However, it does not engage in asset financing like AFCs. These companies cater to various sectors, including personal loans, business loans, and working capital financing.
Infrastructure Finance Company (IFC) – Infrastructure Finance Companies specialize in funding large-scale infrastructure projects such as highways, airports, power plants, and urban development projects. To qualify as an IFC, an NBFC must follow the following points:
- Allocate at least 75% of its total assets to infrastructure loans.
- Have a minimum net owned fund of ₹300 crore.
- Maintain a credit rating of at least ‘A’.
- Have a Capital to Risk-Weighted Assets Ratio (CRAR) of 15%.
Systemically Important Core Investment Company (CIC-ND-SI) – These NBFCs primarily invest in shares and securities of group companies. To be classified as a CIC-ND-SI, the NBFC must follow these points:
- Hold at least 90% of its assets in equity, preference shares, or debt of group companies.
- Ensure at least 60% of its total assets are in the form of equity investments in group firms.
- Have an asset size of ₹100 crore or more.
- Not engage in trading of securities, except for dilution or disinvestment purposes
- Accept public funds
Infrastructure Debt Fund (IDF-NBFC) – These NBFCs raise long-term funds for infrastructure projects by issuing bonds with a minimum maturity of five years. Only Infrastructure Finance Companies (IFCs) are allowed to sponsor IDF-NBFCs.
Micro-Finance Institution (NBFC-MFI) – These provide small loans to low-income individuals, particularly in rural and semi-urban areas. However, there are a few conditions that must be met by the NBFCs, such as:
- Loans can be provided to rural households with annual incomes up to ₹1,00,000 and urban households up to ₹1,60,000.
- The loan amount is capped at ₹50,000 for the first cycle and ₹1,00,000 for subsequent cycles
- There is no requirement for collateral.
- At least 50% of total loans must be for income-generating activities.
NBFC-Factors – These companies specialize in factoring, which involves purchasing accounts receivables from businesses to improve their cash flow. To be classified as an NBFC-Factor, at least 50% of the company’s assets and income must come from the factoring business.
Mortgage Guarantee Companies (MGC) – These companies primarily engage in mortgage guarantee business, where they assure lenders against default on housing loans. To qualify, at least 90% of their business turnover and income must come from mortgage guarantees. Additionally, they must maintain a minimum net-owned fund of ₹100 crore.
Non-Operative Financial Holding Company (NOFHC) – These NBFCs act as holding companies that own and control banks and other financial service firms. They ensure regulatory compliance and governance across financial entities under their ownership. Promoters looking to establish new banks must set up a NOFHC to hold and regulate their financial ventures.
How Companies Become NBFCs
To become an NBFC in India, a company must adhere to the Reserve Bank of India (RBI) guidelines, which begin with meeting the eligibility criteria, including incorporation under the Companies Act, 2013 (or 1956) and maintaining a minimum Net Owned Funds (NOF) of ₹2 crore.
The company’s main business must involve financial services. Also, 50% of the company’s total assets should be financial assets, and 50% of its income must come from those financial assets. Once these criteria are met, the company can proceed with the registration process with RBI and declare itself as an NBFC.
Why Students Choose NBFCs for Education Loans
- Flexible eligibility criteria: Banks have stricter rules, while NBFCs often consider future earning potential rather than just credit history.
- Higher loan amounts: Banks usually cap education loan amounts, while NBFCs may offer higher amounts with flexible repayment options.
- Faster processing: Less paperwork, quicker approval, and online application facilities.
- Collateral for Loans: NBFCs often provide secured and unsecured education loans, making it easier for students without collateral to secure funding.
NBFCs Offering Student Loans
NBFCs are a great choice for students who need education loans to complete their studies. In India, many NBFCs grant education loans to students, and we have mentioned details regarding some of the popular ones below.
Credila Education Loan
Previously known as the HDFC Credila Education Loan, it is offered by Credila and assists students who want to complete their higher education in India and abroad. Details for the Credila Education Loan are provided below.
Particulars | Details |
Loan amount | Get an education loan up to ₹1.5 crore. |
Loan processing fees | 0.75%-1.25% of the sanctioned amount |
Interest rate | 10.50% – 12.25% |
Loan repayment tenure | Up to 15 years |
Is collateral needed? | No collateral for loans up to ₹80 lakhs. |
Avanse International Education Loan
Are you looking for an education loan to help you study in foreign countries? Avanse, an education-focused NBFC, is offering an international education loan for students who have secured admission to higher educational institutions abroad. Check the table below for more details on Avanse International Education Loan Programme:
Particulars | Details |
Loan amount | There is no upper cap for the loan amount, but the minimum amount must be ₹1 lakh. |
Loan processing fees | 1% to 2% of the loan amount (depends on case to case) |
Interest rate | Avanse Base Rate (14.55%) + Spread (it is subject to change as per risk factors) |
Loan repayment tenure | Up to 15 years |
Is collateral needed? | Yes. |
Propelld Education Loan
Students looking for a collateral-free education loan from NBFCs in India can check the Propelld Education Loan, which offers 100% course fee financing without any collateral. Detailed information like loan amount, interest rate, and more are available in the table below.
Particulars | Details |
Loan amount | Get education loans up to ₹50 lakhs |
Loan processing fees | 1% to 2% of the total loan amount. |
Interest rate | The interest rate ranges from 11% – 14% per annum |
Loan repayment tenure | Pay off your loans in instalments for up to 10 years |
Is collateral needed? | No collateral is needed for 100% fee financing |
Auxilo Education Loan
Auxilo Finserve Private Limited is one of the leading NBFCs in India that offers education loans to students to study abroad and in India. You can get up to ₹2 crore as a student loan and choose to pay it back within 10 years of getting the loan. Read the Auxilo Education Loan details below.
Particulars | Details |
Loan amount | Get education loans ranging from ₹10 lakhs to ₹2 crore |
Loan processing fees | 2% of the sanctioned loan amount or as mentioned on the loan documents. |
Interest rate | Auxilo Benchmark Lending Rate (ABLR) which is 10.25%* + Spread* *ABLR is subject to change, and the spread value will vary depending on risk factors. |
Loan repayment tenure | Up to 10 Years |
Is collateral needed? | Yes |
Also Read: Scholarships vs Education Loans: Which is the Best Funding Option?
How to Apply for a Student Loan from NBFCs?
The application process for student loans in a bank and NBFC are similar. You must choose an NBFC for the loan first and then follow the process mentioned below.
- Visit the official website of the NBFC or your choice.
- Go to their education loan section and choose what type of loan you need (study abroad education loan or study in India education loan).
- Now check the eligibility criteria and then click on Apply Now.
- Next, fill in all the details, such as your name, educational qualification, loan amount required, collateral details, etc.
- Upload supporting documents and right-click on the submit button.
- The NBFC will take a few days to process your application. If it is approved, you will receive a confirmation letter from them with details like the approved amount, interest rates, EMI details, etc.
Also Read: How to Apply for an Education Loan
List of NBFCs Approved by RBI
Students must exercise caution when selecting an NBFC for their education loan, as many fraudulent websites and unauthorized entities falsely pose as legitimate NBFCs in India. Check below the RBI approved NBFC list:
Aditya Birla Finance Limited | Auxilo Finserve Private Limited | Credila Financial Services Limited |
Cholamandalam Investment and Finance Company Limited | Avanse Financial Services Ltd | Ishan Finlease Limited |
Access the full list of RBI approved NBFCs by clicking here.
Pros & Cons of NBFCs When Applying for an Education Loan
Merits | Demerits |
Loan processing time is shorter | Higher interest rates compared to banks |
NBFCs have much lenient eligibility criteria | Unlike bank loans, NBFC loans do not qualify for tax benefits under Section 80E of the Income Tax Act. |
NBFCs may cover a wider range of expenses, including tuition fees, living costs, travel, and other related expenses. | NBFC loans are not eligible for government schemes that provide subsidies on interests |
You can get bigger loans much more easily through NBFCs |
Conclusion
NBFCs play a crucial role in bridging the gap between traditional banking and financial needs. They serve diverse sectors, from infrastructure financing to microloans, providing essential financial support to individuals, businesses, and students seeking education loans.
FAQs
What is the difference between an NBFC and a bank?
Banks have the authority to open savings and current accounts and offer loans, but NBFCs cannot open such accounts; they can offer loans.
Can NBFCs provide education loans?
Many RBI-approved NBFCs offer education loans with quick approvals, flexible repayment options, and higher loan amounts, often covering domestic and international studies. A few such NBFCs are Auxilo Finserve Private Limited, Avanse Financial Services Ltd, Credila Financial Services Limited, etc.
How to ensure an NBFC is legitimate?
Always check if the NBFC is listed on the RBI-approved NBFC list and verify its website and credentials to avoid fraud.
Are NBFC education loans secured or unsecured?
NBFCs offer both secured (collateral-based) and unsecured education loans. Unsecured loans by NBFCs like Propelld Education are ideal for students without assets.
What happens if I fail to repay my NBFC education loan?
Non-repayment of a loan from authorised NBFC can affect your credit score and may lead to legal action. If it was a secured loan, then the collateral will be seized.