How Is NBFC Different From a Bank?
NBCFs and edges both act as financial intermediaries and offer fairly similar sets. But, there are many points of difference. There are very stringent licensing regulations for edges as compared to NBFCs.
What is an NBFC?
Principal business activities of a Non- Banking Financial Company consist of lending or financial leasing or hire buy, accepting place or acquisition of shares, stocks, bonds, etc. To begin any business they are required to acquire a license from RBI and they are regulated by RBI.
Based on Liability, NBFC can be place-taking or Non-place taking. NBFC can be of following categories:
- Loan Company
- Asset Finance Company
- Investment Company
What is a Bank?
edges perform activities like granting credit, need deposits and provide withdrawals, interest payment, cheque clearing and other general utility sets to their customers.
They rule the financial sector of the country and provide a link as a financial intermediary between borrowers and depositors.
meaningful Differences between NBFC and Bank
Now that we have separately analyzed the activities undertaken by both these institutions, let us analyze how NBFCs and edges differ in character and their functionalities.
- NBFC is first incorporated as a company under the Indian Companies Act, 1956 and then apply for NBFC license from RBI, however bank is registered under Banking Regulation Act, 1949.
- edges are government empowered financial intermediary which are chartered to receive deposits and grant credit to the public. However, NBFC is a company that provides banking sets to smaller sections of the society without holding a bank license.
- edges are empowered to accept need deposits, but NBFCs are not empowered to accept deposits which are repayable on need.
- As NBFCs are established as companies under Companies Act, 2013 they are allowed to accept up to 100% foreign investments. But, edges are can only accept foreign investments up to 74% of their total amount.
- Like a bank, NBFCs do not form an integral part of payment and settlement cycle in the country.
- RBI mandates the maintenance of save ratios like CRR or SLR by edges. NBFC have no such obligation.
- place Insurance and Credit Guarantee Corporation (DICGC) provide place insurance facility to the depositors of edges. Such facility is unavailable in the case of NBFC.
- NBFC is not involved in credit creation like edges do for their customers.
- edges provide sets like overdraft facility, the issue of travellers cheque, move of funds, etc. Such sets are not provided by NBFC.
- NBFCs are not allowed to issue cheques drawn on itself like edges can.