General Knowledge

DIFFERENCE BETWEEN BANK AND NBFC

Nbfc’s  lend  and make investments and  hence their activities are akin to that of banks, however there are a few differences as given below:

  • Nbfc cannot accept demand deposits
  • Nbfcs  do not form part  of  the  payment and settlement sysytem  and  cannot issue cheques drawn on self
  • Deposit  insurance  facility  of  deposit  insurance  and  credit  guarantee  corporation  is  not available to depositors  of nbfcs, unlike  in  case of banks.
  • The NBFC is a financial institution which carries out the following operations as their principle business
  • Hire purchase finance
  • Housing finance
  • Investment
  • Loan and Equipment leasing
  • The Reserve Bank of India (Amendment Act) 1997 demands compulsory registration with the RBI of all the NBFCs irrespective of their public deposits for commencing and carrying out business
  •  Norms to be followed by the NBFCs operating in India
  • They should maintain a portion of their deposits in liquid assets
  • They should create a Reserve Fund and transfer 20% of profit after tax annually to the fund
  • No NBFC can carry on business without obtaining a Certificate of Registration (COR) from the RBI

A new NBFC seeking registration with the RBI should satisfy the entry point norm of Rs. 2 crores as the minimum Net Owned Fund (NOF)