What is the Difference Between Bank and NBFC?

If you're wondering, “What is the difference between Bank and NBFC?”, you're not alone. These two types of financial institutions often confuse people, especially when both offer loans, FDs, and talk about interest rates. But they’re not the same. Let's understand the difference between them

Brief Introduction: Banks VS NBFCs

Imagine a Bank like a full grocery store, you can buy dal, rice, biscuits, and even milk. Everything in one place. Now imagine an NBFC (Non-Banking Financial Company) like the snacks vendor near the station, who doesn’t sell rice or milk, but you’ll get samosas and tea fast. Not full service, but still useful.

What is a Bank?

A Bank is a licensed financial institution that can:

Accept all types of deposits (like savings, current, FDs)
Offer loans
Provide UPI, NEFT, IMPS
Issue cheques, debit/ATM cards

For example: SBI, HDFC Bank, ICICI Bank

Banks are tightly controlled by the RBI under the Banking Regulation Act, 1949.

What is an NBFC?

An NBFC is a financial company that:

Offers loans (like personal, vehicle, gold)
May offer FDs (but not savings/current accounts)
Doesn’t give you a cheque book, UPI, or debit card

For example: Bajaj Finance, Muthoot Finance, LIC Housing Finance

NBFCs are also regulated by the RBI, but their rules are lighter, like coaching classes instead of a strict school.

Comparison Between Banks 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 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.
A 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 the 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.

What Rules Do Banks Follow That NBFCs Don’t?

Banks and NBFCs don’t play by the same rulebook, and that makes a big difference.

Banks:

Have to keep a part of your money with the RBI. This is called: CRR (Cash Reserve Ratio) or SLR (Statutory Liquidity Ratio).
This money can’t be used for loans; it's locked for safety.

NBFCs:

Don’t follow CRR or SLR rules.
That means they can use more of their money to give loans or invest.

Conclusion

In conclusion, Banks are safe, slow, and full of rules, great for saving and steady financial needs. NBFCs are fast, flexible, and riskier, great for instant loans and higher returns. Use Banks if you: Want stability, need payment services like UPI, or don’t want to take risks. Or use NBFCs if you: Want quick loans, are okay with higher interest, or want to earn better FD returns.

About the Author

Khushi Singla

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.

View All Articles by Khushi Singla