How is NBFC different from a bank?

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NBCF and the banks act as financial intermediaries and offer similar services. However, there are many differences. Compared to NBFCs, banks have very strict conditions of license.

What is an NBFC?
The principal business of a non-bank financial corporation is borrowing or leasing or repurchasing, accepting deposits or acquiring shares, stocks, bonds, etc. RBI and are regulated by RBI.

Because of its responsibility, NBFC can accept deposits or not. NBFC may include the following categories:

loan company
Asset Finance Company
investment company
What is a bank?
Banks carry out activities such as loans, deposits and withdrawals, interest payments, clearing controls and other general service services to their clients.
The country’s financial sector dominates and provides a link between borrowers and savers as a financial intermediary.

Main differences between NBFC and bank
Now that the activities of these two institutions have been analyzed separately, let us analyze how the NBFC and the banks differ in their nature and functionality.

NBFC was established as a corporation governed by the Indian Companies Act of 1956 and subsequently applied for an NBFC license from the RBI. In contrast, the bank was registered under the 1949 Bank Act.
Banks are state-authorized financial intermediaries who have been hired to receive deposits and grant credit to the public. However, NBFC is a company that provides banking services to smaller segments of the business without a banking license.
Banks are allowed to accept demand deposits, NBFCs are not allowed to accept deposits, which are refundable upon request.
Since NBFCs are incorporated under the Companies Act 2013, they can accept foreign investments up to 100%. However, banks can only accept foreign investments up to 74% of their total amount.
Like a bank, NBFCs are not an integral part of the country’s payment and settlement cycle.
The RBI requires the maintenance of reserve indices such as CRR or SLR by banks. NBFC does not have this obligation.
The Deposit Insurance and Credit Guarantee Corporation (DICGC) offers depositors deposits in banks. This device is not available in the case of NBFC.
NBFC does not participate in credit creation as banks do for their clients.
Banks offer services such as overdraft, traveler’s checks, money transfers, etc. NBFC does not offer these services.
NBFCs are not allowed to issue checks such as banks.

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