The Difference Between NBFC and Bank

What is NBFC?

An NBFC, or Non-Banking Financial Company, is a financial institution that offers various banking services but does not have a banking license. It is registered under the Companies Act, and its primary business activities include lending, investment, and development of the financial market.

Examples of NBFC

• Bajaj Finance Limited
• HDFC Asset Management Company
• Muthoot Finance

Uses of NBFC

1. Providing loans and advances

2. Asset financing

3. Investment in securities

4. Acquisition of shares and stocks

What is a Bank?

A bank is a financial institution that is authorized to accept deposits, provide credit, and offer various financial services to individuals and businesses. It is licensed by the regulatory authorities and operates under specific banking regulations.

Examples of Bank

• JPMorgan Chase & Co.
• Bank of America
• HSBC

Uses of Bank

1. Safekeeping of money through deposit accounts

2. Provision of loans and credit facilities

3. Foreign currency exchange

4. Online banking services for easy financial transactions

Differences Between NBFC and Bank

Difference Area	NBFC	Bank
Regulation	Registered under the Companies Act	Regulated by the Reserve Bank of India (RBI)
Banking License	Does not have a banking license	Requires a banking license
Deposit Acceptance	Cannot accept demand deposits	Authorized to accept demand deposits
Insurance Services	Cannot offer insurance services	May offer insurance services
Restrictions on Ownership	No restriction on foreign ownership	May have restrictions on foreign ownership
Type of Company	Registered as a company under the Companies Act	A separate legal entity from the individuals who own it
Primary Business Activities	Lending, investment, and development of the financial market	Accepting deposits, providing loans, and offering banking services
Role in Monetary Policy	Not directly involved in the implementation of monetary policy	Plays a crucial role in the implementation of monetary policy
Eligibility to Issue Checks	Cannot issue checks	Authorized to issue checks
Statutory Reserve Requirement	Not required to maintain a statutory reserve requirement	Required to maintain a statutory reserve requirement

Conclusion

In summary, NBFCs and banks differ in terms of regulation, licensing, services offered, ownership restrictions, and their role in monetary policy implementation. While NBFCs provide financial services similar to banks, they are registered as companies and have certain limitations on their operations compared to banks.

People Also Ask:

• What is the main difference between NBFC and bank?

The main difference between NBFC and a bank is that NBFCs are registered under the Companies Act and do not have a banking license, while banks are authorized financial institutions that accept deposits, provide credit, and offer various financial services.

• Are NBFCs safe?

NBFCs can be safe for investing and borrowing, but it is important to research and choose reputable and well-regulated NBFCs. Customers should look for NBFCs registered with the regulatory authorities and follow best practices in terms of transparency and customer protection.

• Can NBFCs accept deposits?

NBFCs cannot accept demand deposits like banks. They primarily raise funds through other means such as borrowing from banks, issuing bonds, or accepting term deposits from customers with a minimum lock-in period.

• Can I get a loan from an NBFC?

Yes, NBFCs provide loans and advances to individuals and businesses. They can be an alternative financing option for those who may not meet the strict requirements of banks or prefer a more flexible lending approach.

• What is the role of banks in the economy?

Banks play a vital role in the economy by facilitating financial intermediation, mobilizing savings, providing credit for personal and business needs, facilitating international trade, and contributing to the overall economic growth and stability.