How do lending software requirements differ between banks and NBFCs?

A small business owner applies for a 7 Lakh loan at a traditional bank, requiring 15+ documents and a 7-12 day wait for approval. In contrast, an NBFC approves and disburses the loan faster with less documentation. This is possible because of different business models and lending software architecture.

Banks and NBFCs select software based on regulatory needs, customer segments, and operations. Banks prioritize regulatory complexity and risk management, while NBFCs focus on speed, flexibility, and customization.

Before diving into specific software use cases, let's summarize how the regulatory environment differs for a bank from an NBFC (as of writing).

Aspect	Banks	NBFCs
Governing Laws	Banking Regulation Act, 1949; RBI Act, 1934	Companies Act, 2013; RBI Act, 1934
Regulator	RBI	RBI (for financial activities)
Minimum Capital	INR. 1,000 crore (Universal Banks)	INR.2 crore (Base layer); moving to INR.10 crore by 2027 under SBR
CRR & SLR	Mandatory (CRR ~4%, SLR ~18%)	Not applicable
Priority Sector Lending (PSL)	40% of ANBC for commercial banks; 60% for Small Finance Banks (from FY26)	No PSL mandate (banks can classify loans to NBFCs for PSL)
Capital Adequacy	Basel III norms (CET1 ≥ 8%, CAR ≥ 9%)	CRAR ≥ 15% (Tier-I ≥ 10%); CET1 ≥ 9% for upper-layer NBFCs
Regulatory Framework	Unified banking norms	Scale-Based Regulation (Base, Middle, Upper, Top layers)
Deposit Insurance	Covered by DICGC up to INR. 5 lakh per depositor	No deposit insurance

8 Reasons Why Banks and NBFCs Need Different Software?

Reason 1: Regulatory Compliance and Reporting Banks require software that automates report generation in RBI formats, tracks CRR and SLR compliance in real-time/near real-time, reconciles deposit insurance, and monitors priority sector lending (PSL) targets, co-lending or direct assignment if applicable. NBFCs require software that abides by the Scale-Based Regulation (SBR) framework, digital lending guidelines, KYC/AML processes, and capital adequacy monitoring. Reason 2: Loan Origination and Application Processing Banks opt for lending software that integrates with their core banking systems (CBS) to manage multi-tier approval workflows, extensive documentation and simultaneous account opening and loan processing. NBFCs generally opt for cloud-based, standalone Loan Origination Systems (LOS) that enable straight-through processing with minimal manual intervention. There is also a requirement for software with real-time integration with digital KYC systems using Aadhaar OTP and Video KYC to disburse loans quickly.

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Also read:

Understanding the Lending Lifecycle from Application to Repayment Loan Origination System (LOS) for Banks and NBFCs Loan Management System (LMS) for Banks and NBFCs 7 KPIs to Measure the Success of Lending Technology

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Reason 3: Credit Scoring and Risk Assessment

Banks use traditional credit bureau scores from CIBIL as the main input. These systems conduct advanced risk-weighted asset calculations to comply with Basel III and must evaluate various risk types, including credit, market, and operational risks. The models concentrate on documented income and necessitate a 9% capital adequacy across all risk dimensions. Integration with internal credit history databases covering decades provides an additional layer of validation.

NBFCs seek AI and machine learning-driven proprietary scoring models.  This enables them to cater to higher-risk segments with tailored pricing, specifically focusing on near-prime and sub-prime borrowers earning ₹30,000-40,000 per month, a segment that banks don't target extensively.

Reason 4: Integration with External Systems

Bank lending software integrates with payment systems such as RTGS, NEFT, and IMPS, using the CBS as the central integration hub. Banks act as payment gateway providers and handle connections to government payment systems, including e-Treasury and Direct Benefit Transfer programs. NBFCs utilise an API-first, microservices architecture as they do not have direct access to payment systems; they connect through banking partners and depend on third-party payment gateways. Their software is proficient in swift third-party integration, including essential Aadhaar-based eKYC and CIBIL API connections.

Reason 5: Collections and Recovery Management

Bank collections software integrates with core systems to automate EMI deductions, comply with 90-day NPA guidelines, oversee recovery agents per RBI's code, manage litigation, connect with ARCs, and automate write-offs and provisioning via ageing analysis. Despite collection analytics offering early warnings, the process often remains conventional.

NBFCs utilize machine learning to rank accounts, implement omnichannel communications through SMS, calls, WhatsApp, and email, and provide field agents with advanced mobile applications. These features include automated PDC management, digital payment link creation, and proactive reminders ahead of due dates.

Reason 6: Customer Onboarding and KYC

Bank onboarding systems often require in-branch verification, even though Video KYC is available but not widely used. The software checks the Central KYC registry, conducts Aadhaar OTP authentication, and connects account opening with the loan process. There are multiple cross-selling opportunities, and physical signature verification is required for larger loans. The onboarding process typically takes 2 to 5 days.

NBFC software platforms offer fully digital onboarding for loans using Video KYC (V-CIP), Aadhaar-based eKYC, and digital signatures (eSign) instead of wet signatures. Disbursing funds to existing bank accounts ensures efficiency. Facial recognition, liveness detection, and OCR reduce onboarding time to 10-30 minutes, complying with RBI's Digital Lending Guidelines.

Reason 7: Product Configuration and Management

Bank software requires changes to the core system to create new products, followed by testing cycles lasting several months. The system's complexity limits product variety, leading to standardised offerings for customer segments. Interest rates are tied to the Marginal Cost of Lending Rate (MCLR), and product profitability must be evaluated across all risk factors. Launching a new loan product typically takes 3 to 6 months.

NBFC platforms use low-code/no-code engines for parameterised loan schemes, enabling new product launches in 1-4 weeks with personalized terms. They excel in niche offerings like flexible gold loans, vehicle financing, merchant cash advances, loans against property appreciation, and residual value lending through dynamic interest models and adjustable rate mortgages.

Reason 8: Data Analytics and Portfolio Management

Bank analytics platforms serve as enterprise data warehouses focused on regulatory reporting. They manage diverse portfolios, operate ALM systems, conduct Basel stress tests, and improve Return on Equity across the balance sheet. Cross-product analytics connect loans, deposits, and investments for comprehensive insights, usually with a T+1 reporting delay.

NBFC software provides real-time dashboards displaying fund positions, overdue and bounce rates, and collection efficiency. Predictive analytics offer early warnings, while cohort-based performance tracking enables quick strategy adjustments. Key metrics include Turnaround Time (TAT), approval rates, disbursement trends, and portfolio concentration by geography, product, and borrower segment.

Summary:

Banks invest in software for control, compliance, and risk management, focusing on integration and multi-product optimization. NBFCs prioritize software for speed, adaptability, and serving underserved segments, emphasizing quick deployment and personalized experiences.

Each approach fits different business models and regulations, offering software vendors unique opportunities. Financial institutions must select software aligning with their regulatory needs, target segments, and strategic goals, enhancing credit access for both traditional customers and emerging segments like gig workers and small entrepreneurs.

Next Steps: Lending software requirements for Banks and NBFCs

At SimSol Technologies, our lending software solutions support both banks and NBFCs, by meeting the integration and complexity regulatory requirements of a bank and the speed and agility of an NBFC.

Our state-of-the-art solution, Scolend, is an LOS + LMS that not only covers the lending life-cycle end-to-end but also gives leadership valuable insight into business and operations. We help lenders deliver faster approvals, personalised loan experiences, and robust risk management. With compliance-ready workflows and analytics, we ensure your lending business stays agile and future-ready.

LOS + LMS For Banks and NBFCs From loan origination to management and servicing Note: Available as a stand-alone LOS

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