NBCFs and banks both serve as financial intermediaries and provide services that are very comparable. However, there are numerous differences. In comparison to NBFCs, banks have far stricter licencing requirements.
What is a non-bank financial company (NBFC)?
A Non-Banking Financial Company's main business activities are lending, financial leasing, and hire purchase, as well as receiving deposits and buying shares, stocks, and bonds. They must obtain a licence from the RBI before starting any business, and the RBI regulates them.
NBFCs can be deposit-taking or non-deposit-taking, depending on their liability. NBFCs can fall into one of the following categories:
Loan Company
Asset Finance Company
Investment Company
What is the definition of a bank?
Banks provide services to their customers such as credit, demand deposits, withdrawals, interest payments, cheque clearing, and other general utility services.
They control the country's financial industry and act as a financial intermediary between borrowers and depositors.
NBFC vs. Bank: What's the Difference?
Now that we've looked at the activities of both of these organisations independently, let's look at how NBFCs and banks differ in nature and function.
NBFCs are formed as companies under the Indian Companies Act, 1956, and then apply to the RBI for an NBFC licence, whereas banks are registered under the Banking Regulation Act, 1949.
Banks are government-licensed financial intermediaries that are authorised to accept deposits and extend credit to the general public. NBFCs, on the other hand, are companies that provide banking services to smaller segments of society without having a bank licence.
Banks are permitted to accept demand deposits, however, NBFCs are not permitted to accept demand deposits.
Because NBFCs are incorporated under the Companies Act of 2013, they are permitted to take up to 100 percent foreign investments. Banks, on the other hand, are only allowed to take foreign capital up to 74 percent of their total assets.
NBFCs, like banks, are not a necessary part of the country's payment and settlement cycle.
The Reserve Bank of India requires banks to maintain reserve ratios such as CRR or SLR. No similar obligation exists for NBFCs.
Deposit insurance is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) to bank depositors. In the case of NBFC, such a facility is not available.
NBFCs do not create a credit for their customers in the same way that banks do.
Banks offer services such as overdrafts, traveller's checks, and money transfers, among others. NBFC does not give such services.
NBFCs are not permitted to issue checks drawn on themselves in the same way that banks are.
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