By admin on February 9, 2023, Finance NBCFs and banks both perform the function of financial intermediaries and provide services that are fairly comparable.
However, there are numerous distinctions. Banks have more stringent licensing requirements than NBFCs do.
What are NBFCs?
A Non-Banking Financial Company’s primary business activities include lending, financial leasing, hire purchase, accepting deposits, and purchasing shares, bonds, and other securities.
They must obtain a license from RBI before beginning any business, and RBI regulates them.
NBFCs can be either deposit-taking or non-deposit-taking depending on their liability. The following types of NBFC are possible:
Investment company Loan company Asset finance company What is a bank?
Credit is granted, deposits are demanded and withdrawals are made, interest is paid, checks are cleared, and other general utility services are provided to customers by banks.
As a link between borrowers and depositors, they control the country’s financial sector and serve as a financial intermediary.
Key Differences Between NBFCs and Banks Now that we’ve looked at each institution’s activities separately, let’s look at how NBFCs and banks are different in nature and how they work.
In contrast, a bank is registered under the Banking Regulation Act of 1949, while a NBFC is first incorporated as a company under the Indian Companies Act of 1956 and then applies for a NBFC license from the RBI.
Banks are financial institutions chartered by the government to accept deposits and provide public credit. NBFC, on the other hand, is a company that doesn’t have a bank license but still offers banking services to smaller groups of people.
Demand deposits can be accepted by banks, but NBFCs cannot accept deposits that can be repaid at any time.
Due to the Companies Act of 2013, NBFCs are permitted to accept up to 100 percent foreign investments. However, banks can only accept investments from abroad up to 74% of their total value.
Unlike banks, NBFCs in the country do not play a significant role in the payment and settlement process.
The Reserve Bank of India (RBI) requires banks to keep reserve ratios like CRR and SLR. This obligation does not apply to NBFC.
Bank depositors have access to deposit insurance through the Deposit Insurance and Credit Guarantee Corporation (DICGC). In the case of NBFC, such a facility is not available.
Unlike banks, NBFCs do not create credit for their customers.
Overdraft services, traveler’s checks, money transfers, and other services are provided by banks. NBFC does not provide such services.
Unlike banks, NBFCs are not permitted to issue checks drawn on themselves.
