What is the difference between NBFC and Bank?
Now a day, Non-Banking Financial Companies are doing exceptionally well in the economy by delivering numerous type of financial funding along with some value-added services. These Non-Banking Financial Companies are actually a financial institution that provide several services extending from micro finance to insurance. They provide insurance, gives MFI loans etc.
India Bulls, DHFL, Aditya Birla, Edelweiss, Fullerton, Capital First, IIFL, HDB, Cholamandalam, Tata Capital, Bajaj etc. are some of the popular NBFCs.
In the past years, the RBI has put a lot of regulations on NBFCs. These reformed scenarios due to extensive regulations are as hard as that of the banks. Recently, the norms have been further changed and there has been a pattern of imposing and implying almost all regulatory requirements of the banks on the NBFCs. This has been happening because of the fact that, if a big NBFC fails, then it will have adverse effects on the economy. The NBFCs are often referred as shadow banking sector.
Since 1997, RBI has been regulating all the NBFCs under the RBI Act of 1935.
Procedure to be followed: all NBFCs have to register with the RBI, keep minimum capital, maintain SLR etc. There are other strict norms which are also detailed by the RBI. The above stated NBFCs which are important and popular are identified by the RBI by categorizing them into systemically important NBFCs, deposit taking NBFCs, NBFC- MFI etc.
What is a Bank?
Bank is a financial institution or a financial intermediary that collects deposits and further channels the deposits into lending activities. RBI is the commanding authority i.e. the Central Bank in India that regularizes all the banks in India.
What is an NBFC?
“A Non-Banking Financial Company (NBFC) is a financial institution registered under the Companies Act of 1956, committed to the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business but does not include any institution whose main business is of the following type agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.” – RBI.
What is difference between banks & NBFCs?
Banks and NBFCs are financial intermediaries. The Banking Regulation Act regulates all the existing Banks in India. There are a lot of laws under the Companies Act, that are also applicable to the Banks. NBFCs are registered and categorised under the Companies Act. RBI regulates both – NBFCs and Banks.
Main differences between Banks and NBFCs are stated below:
- Demand Deposits are not accepted by NBFCs.
- NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
- Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
- Bank is a financial institution whose liabilities (i.e., deposits) are widely accepted as a means of payment in the settlement of debt. Non-bank financial intermediaries, on the other hand, are those institutions whose liabilities are not accepted as means of payment for the settlement of debt.
- Banks are termed as creators of credit through money multiplier activity whereas NBFCs are not.