Both NBFCs (Non-Bank Financial Companies) and banks act as financial intermediaries and provide services that are very comparable to one another. However, there are several areas where we disagree. When compared to the requirements for NBFCs, the licensing requirements for banks are more severe.
What is an NBFC?
Lending, financial leasing, hire purchase, receiving deposits, and the acquisition of shares, stocks, bonds and other financial instruments are the primary commercial operations that are carried out by a non-banking financial company. They are required to get a license from RBI before beginning any kind of company, and RBI is the organization that regulates them.
According to their level of liability, NBFCs may either take deposits or not take deposits. The following are some examples of the types of NBFCs:
- Loan Company
- Asset Finance Company
- Investment Company
What Is a Bank?
Customers depend on banks for a variety of essential services, including withdrawals, interest payment processing, check clearing, and credit and debit card issuance. Banks also provide credit to customers and accept bank deposits on demand. They have the most power in the country’s financial system and connect depositors and borrowers.
Get More Information – Personal loan for CIBIL defaulter
Differences Between NBFCs and Banks in Important Factors
Following individual analyses of the functions carried out by each of these institutions, the next step is to compare and analyze the nature of NBFCs and banks with regard to their various functionalities.
- NBFCs are created as companies under the Indian Companies Act, of 1956, and then seek NBFC licenses from the RBI. Banks, on the other hand, are registered under the Banking Regulation Act of 1949.
- Banks are government-approved financial intermediaries that are permitted to accept deposits and provide credit to the public. NBFC, on the other hand, is a corporation that offers banking services to smaller segments of society without owning a bank license.
- Banks are permitted to take demand deposits; however, NBFCs are not permitted to accept demand deposits.
- Because NBFCs are formed as corporations under the Companies Act of 2013, they are permitted to take up to 100% foreign investment. However, banks may only accept foreign investments up to 74% of their total capital.
- Like banks, NBFCs are not an essential part of the payment and settlement cycle in the country.
Vintage Finance provides details on various types of loans.
- Banks are required by the RBI to maintain reserve ratios such as the CRR or SLR. NBFCs are not subject to this requirement.
- The Deposit Insurance and Credit Guarantee Corporation (DICGC) offers deposit insurance to bank depositors. In the case of the NBFC, such a facility is not available.
- NBFCs do not create a credit for their clients in the same way that banks do.
Banks provide services such as overdraft protection, traveler’s checks, cash transfers, and so on. The NBFC does not provide such services.
Unlike banks, NBFCs are not permitted to issue checks drawn on themselves.
For more posts, Click Here
