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A lot of individuals would come across the word NBFC. Hearing this, they would think that all finance companies established would carry out activities related to a Bank. For example, a layman would not find many differences between a private sector bank such as Kotak Mahindra Bank Limited and Bajaj Finance. However, there are specific differences between a bank and an NBFC. This article describes How are NBFCs different from Banks.
Table of Contents
An NBFC is an abbreviation for Non- Banking Financial Company, which is primarily formed for carrying out financing activities. This type of company is registered under the provisions of the Companies Act, 1956 for carrying out activities related to finance.
An NBFC carries out the following activities:
However, such an institution that goes for NBFC registration in India cannot carry out any industrial activity allied to farming.
A bank is defined as an institution which is governed by the provisions of the Banking Regulation Act.
Apart from this, the activities carried out by a Bank would include the following:
From the above, it can be observed that the activities carried out by an NBFC do not include taking or accepting some form of deposits from the public. However, a bank which is established under the provisions of the RBI[1] can accept any form of deposits from the public.
Previously banks did not take the benefits of modern technologies and artificial intelligence software’s to promote their products. Automation software makes the work easier for finance. However, now the trends are changing, and banks are more aligned to utilize technology to enhance their products.
Hence all the above differences have to be considered by an individual before going for the process of NBFC registration. These differences are crucial in identifying the strengths and weaknesses of these financial institutions.
Read our article:NBFC Registration Procedure with Reserve Bank of India
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