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How Are NBFCs Distinct From Banks?

How Are NBFCs Distinct From Banks?
"""Banks and NBCFs both serve as financial middlemen and provide essentially the same services. But there are a lot of things that are different. Compared to NBFCs, licensing requirements for banks are relatively strict. Describe an NBFC.
A non-banking financial company's primary business activities include lending, financial leasing, hire purchase, accepting deposits, and the acquisition of shares, stocks, bonds, etc. They must obtain a license from RBI in order to start any business, and RBI regulates them. NBFCs can be deposit-taking or non-deposit-taking depending on their liability. The following categories of NBFC exist:
Loan Corporation

asset financing firm

Investment firm

Describe a bank.
Banks carry out tasks like extending credit, accepting demand deposits, enabling withdrawals, paying interest, processing checks, and other common utility services to their clients.
They control the nation's financial industry and act as a conduit for money transfers between depositors and borrowers.
Key distinctions between banks and NBFCs
After examining each institution's activities separately, let's examine how NBFCs and banks differ from one another in terms of nature and functionality.
In contrast to banks, which are registered under the Banking Regulation Act of 1949, NBFCs are first incorporated as businesses under the Indian Companies Act of 1956 before applying to the RBI for NBFC licenses.

Banks are legally permitted financial intermediaries with a public charter to accept deposits and extend credit to the general public. But without having a bank license, NBFC is a business that offers financial services to smaller segments of society.

Demand deposits can be accepted by banks, but NBFCs are not permitted to accept these types of deposits.

NBFCs are permitted to take up to 100% foreign investments because they are legally recognized as companies under the 2013 Companies Act. However, banks are only permitted to accept up to 74% of their entire value in foreign investments.

Unlike a bank, NBFCs are not an essential component of the nation's payment and settlement cycle.

The RBI requires banks to maintain reserve ratios like CRR or SLR. NBFC are not subject to such a duty.

Bank depositors have access to deposit protection through the Deposit Insurance and Credit Guarantee Corporation (DICGC). For NBFC, such a service is not available.

Unlike banks, which create credit for their clients, NBFC does not.

Banks offer services including overdraft protection, issuing traveler's checks, money transfers, etc. This type of service is not offered by NBFC.

Unlike banks, NBFCs are not permitted to issue checks drawn on themselves."""

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"How Are NBFCs Distinct From Banks?" was written by Mary under the Business category. It has been read 29 times and generated 0 comments. The article was created on and updated on 16 November 2022.
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