There are many financial institutions in our country who work as a bank even without having a bank. They take deposits and lend them too. Such institutions are called non-banking financial companies (NBFCs). NBFCs are not the only financial companies, but companies that make insurance, chit fund, fund, merchant banking, stock broking and investment business are also NBFCs. However, the companies that are engaged in agricultural, industrial activity, procurement of goods, and construction of real estate, procurement and sale are not covered by NBFC.
It is very difficult for a common man to understand what the difference between NBFCs is i.e. Non-Banking Financial Companies and Bank. Now understand this in a simple example: both ICICI Bank and Mahindra Finance are quite different. There is ICICI Bank while Mahindra Finance is in the role of NBFC. Now try to understand some common differences between the bank and the NBFC-
- NBFC List in India does not accept demand deposits
- NBFC does not make payment or payment system anyhow. NBFC does not issue any checks of any kind.
- Like banks, NBFC does not issue any demand draft of any kind.
- Apart from the case of banks, facilities like credit insurance and credit guarantee are not provided in different NBFCs.
- NBFC does not accept demand deposits from small savings.
- NBFC does not invest in the construction of fixed assets. Although providing financial assistance by providing loans for agricultural and industrial activities.
- NBFCs are operated under the Company Act.
- NBFC does not have any insurance on any kind of deposits.
List of NBFC and bank- differences on fixed deposits
As we all know now, NBFC accepts fixed deposits. However, there is a difference between the bank’s fixed deposit and NBFCs. As an example, NBFC Fixed Deposit is generally assessed by the rating agencies of the country. Another difference between the two is that the rating of banks is not done by any agency. Another difference between the two is that the bank has a fixed deposit insurance, while there is no such facility in the NBFC. However, between a big difference bank and fixed deposit of NBFC, that is, NBFC offers you a fixed deposit at a good and breathable interest rate from the bank.
NBFC works like a bank but they are not banks. For example, NBFCs cannot accept demand deposits like the bank. Like the bank, NBFCs cannot issue the check as they are not part of the payment and settlement system. Deposit Insurance and Credit Corporation insures the amount deposited in the bank. Those who make deposits in NBFCs do not get this facility.
Due to being financial intermediaries, non-banking financial companies are engaged in the task of bringing together the savings and investment community. In this role, it is playing a complimentary role, not competitive, for the banks. Since most of the country’s population is still out of reach of mainstream financial products and services including bank account. In such cases, institutions like NBFC-MFI (micro finance institutions) and asset finance companies play a complimentary role in the financial inclusion agenda of the country.