NBCFs and Banks each act as financial intermediaries and offer pretty similar services. But, there are many factors of distinction. There are very stringent licensing guidelines for banks as compared to NBFCs.
What is an NBFC?
Principal commercial enterprise activities of a Non- Banking Financial Company encompass lending or monetary leasing or rent purchase, accepting deposit or acquisition of stocks, stocks, bonds, and many others. To initiate any commercial enterprise they are required to gather a license from RBI and they’re regulated via RBI.
Based on Liability, NBFC may be Deposit-taking or Non-deposit taking. NBFC can be of following classes:
Asset Finance Company
What is a Bank?
Banks perform activities like granting credit score, call for deposits and provide withdrawals, hobby price, cheque clearing and other standard software services to their clients.
They dominate the monetary area of the country and offer a hyperlink as a economic intermediary between debtors and depositors.
Key Differences among NBFC and Bank
Now that we’ve one by one analyzed the sports undertaken by both these establishments, allow us to examine how NBFCs and banks vary in nature and their functionalities.
NBFC is first integrated as a company under the Indian Companies Act, 1956 after which apply for NBFC license from RBI, then again financial institution is registered beneath Banking Regulation Act, 1949.
Banks are authorities authorized financial middleman which can be chartered to obtain deposits and supply credit to the public. However, NBFC is a agency that gives banking services to smaller sections of the society with out holding a bank license.
Banks are legal to just accept call for deposits, however NBFCs aren’t legal to accept deposits which might be repayable on demand.
As NBFCs are mounted as companies beneath Companies Act, 2013 they are allowed to accept up to a hundred% foreign investments. But, banks are can most effective take delivery of foreign investments up to seventy four% in their total amount.
Like a bank, NBFCs do now not form an crucial a part of payment and settlement cycle within the us of a.
RBI mandates the upkeep of reserve ratios like CRR or SLR with the aid of banks. NBFC don’t have any such responsibility.
Deposit Insurance and Credit Guarantee Corporation (DICGC) provide deposit coverage facility to the depositors of banks. Such facility is unavailable within the case of NBFC.
NBFC is not involved in credit advent like banks do for their clients.
Banks offer services like overdraft facility, the difficulty of travelers cheque, switch of price range, and many others. Such offerings aren’t provided by means of NBFC.
NBFCs are not allowed to issue cheques drawn on itself like banks can