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
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
|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|
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?
- Are NBFCs safe?
- Can NBFCs accept deposits?
- Can I get a loan from an NBFC?
- What is the role of banks in the economy?
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.
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.
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.
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.
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.