What is the Difference Between Bank and NBFC?
Banks and NBFCs (Non-Banking Financial Companies) play a very crucial role in the financial system. They offer a ton of services to people and businesses. But what is the difference between bank and NBFC?
While they both share a lot of similarities, NBFCs and banks are separate entities and work differently in terms of operations, regulatory requirements, and more. In this article, find out what makes NBFCs different from banks.
Brief Introduction - Banks VS NBFCs
Banks
Banks are those financial institutions that are licensed to receive deposits and approve loans. They are regulated by the Central Banks which ensure their stability and compliance to all rules and regulations. In the case of India, all the banks are regulated by The Reserve Bank of India (RBI).
Banks work by accepting deposits from customers and providing loans to different individuals and businesses using these deposits. At a bank, you can have different kinds of accounts such as savings, current, fixed deposits, loans, etc.
NBFCs
NBFCs on the other hand are those financial institutions that also provide various financial services but do not hold a banking license. Though they are also regulated by the RBI, their framework is far less strict than that of banks.
Sometimes there are cases where your loan does not get approved by the bank because you might not qualify for it. This is where NBFCs come into play with personal loans, vehicle loans, microfinance, and more. They cater specifically to small and medium-sized enterprises, retail customers, and other individuals.
Comparison Between Bank and NBFCs
Take a look at the table below to get a clear understanding of how banks are different from NBFCs.
| Basis | Bank | NBFC |
| Definition | These financial institutions that are authorized by the government of India to accept deposits from their customers and lend money. | NBFCs are companies that provide several services to their customer but without a banking license. They are usually registered under the Companies Act 1956. |
| Variety of deposit acceptance | Banks can accept both demand and time deposits | Time deposits can be accepted under specific conditions but these institutions cannot accept demand deposits. |
| Regulated By | RBI in most cases | RBI |
| Deposit Insurance | It is covered under deposit insurance. | NBFCs have no deposit insurance. |
| Payment and Settlement | Banks avail it through RTGS, NEFT, etc. | NA |
| Maintenance of CRR and SLR | Banks have to maintain ratios like Cash Reserve Ratios and statutory liquidity ratios in all cases. | CRR and SLR are not allowed in the case of NBFCs. |
| DICGC Facility | You get the deposit insurance facility of deposit insurance and credit guarantee corporation at banks. | NBFCs do not have this facility as of now. |
| Liquidity | Banks maintain a higher liquidity ratio as they deal with demand deposits. | Liquidity requirements are less strict at NBFCs when compared to banks. |
| Interest Rates | The interest rate depends on the market standard set by the RBI. | NBFCs usually offer loans at higher interest rates as there is a higher risk associated. |
| Services Offered | Banks offer a wide range of services including deposits, loans, credit/debit cards, net banking, and more. | Services by NBFCs primarily include lending activities but they might offer various insurance and investment services as well. |
Wrapping Up
This was the difference between banks and NBFCs. Both are crucial financial institutions and play an important role in defining the financial ecosystem. I hope after reading this article, you are clear on the different services offered by both.
NBFCs cater to niche markets and audiences whereas banks offer their services to each and everyone in the democracy. If you have any questions, please drop them in the comment section below!
FAQ (Frequently Asked Questions)
Q1. Can NBFCs be regarded as Banks?
NBFCs cannot be regarded as banks because they do not have a banking license. These are established and registered under the Companies Act of 2013.
Q2. Can I take loans from both a bank and an NBFC?
Yes, you can take loans from both a bank and an NBFC. However, you should evaluate your needs, interest rates, and terms before making a decision.
Q3. Do NBFCs accept deposits?
No, NBFCs do not accept deposits. However, in some cases, they may offer fixed deposits with the approval of RBI.
As a writer, my task is not only writing but making tough topics easy to understand. I have the ability to connect with the readers and deliver them the best piece of writing.
