In this article, we will analyze the difference between banks and NBFCs in great detail considering their meaning, types and other considerations.<\/p>\n\n\n\n
The term NBFC<\/a><\/strong> refers to Non-Banking Financial Company and for NBFC Registration<\/strong> <\/a>the company is registered under the Companies Act, 1956 and it is governed or regulated by the Reserve Bank of India<\/strong> under RBI Act, 1934<\/strong>[1]<\/strong><\/a><\/sup>. Basically, the non-banking finance company is not banks but they are involved in lending <\/strong>and other activities like a bank, it is involved in the activities of hire purchasing, leasing, infrastructure finance, venture capital finance, housing finance, etc. In India, nonbanking finance company emerged during the middle of 1980. Kotak Mahindra Finance, Capital First, Muthoot Finance, Bajaj Capital, ICICI Ventures are some of the examples of popular Non-Banking Finance Company<\/p>\n\n\n\n Whereas Banks<\/strong> are the traditional financial institution, which is involved in lending the money and other financial. Banks are regulated by Banking Regulation Act 1948. Examples of Bank are Punjab National Bank, ICICI Bank, HDFC Bank etc.<\/p>\n\n\n\n NBFC Registration<\/strong> can be done in any of the following categories-<\/p>\n\n\n\n Whereas Banks<\/strong> are divided into the following categories-<\/p>\n\n\n\nTypes or Categories<\/h2>\n\n\n\n
Other differences are listed below in the table (Banks and NBFCs)<\/h2>\n\n\n\n
Particular<\/strong><\/td> NBFC<\/strong><\/td> BANK<\/strong><\/td><\/tr> <\/strong><\/td> <\/td> <\/td><\/tr> Incorporating Body<\/strong><\/td> NBFCs are incorporated as a company under the Companies Act, 2013.<\/td> Banks are incorporated under the Banking Regulation Act, 1949.<\/td><\/tr> License requirement<\/strong><\/td> NBFC is issued Certificate of Registration (CoR) by RBI<\/td> They hold Bank License.<\/td><\/tr> Acceptance of demand deposit<\/strong><\/td> NBFC cannot accept deposit repayable on demand.<\/td> Acceptance of demand deposits is one of the main functions of banks.<\/td><\/tr> Foreign Direct Investment<\/strong><\/td> 100% FDI is allowed in case of NBFC<\/td> Only Private Sector banks are allowed to accept FDI and that too only up to 74%.<\/td><\/tr> Payment and Settlement system<\/strong><\/td> NBFC does not form a part of payment and settlement system.<\/td> Banks are an integral part of payment and settlement cycle<\/td><\/tr> Maintenance of Reserve ratio<\/strong><\/td> NBFCs are not required to maintain any reserve ratios.<\/td> It is mandatory for the bank to maintain the reserve ratios like CRR or SLR<\/td><\/tr> Insurance Deposit Facility<\/strong><\/td> Not available in case of NBFC.<\/td> It is allowed to the depositors of banks by Deposit Credit Guarantee Corporation (DICGC)<\/td><\/tr> Credit Facility<\/strong><\/td> Credit creation is not allowed in case of NBFC.<\/td> Credit creation is allowed in case of Bank.<\/td><\/tr> Overdraft Facility<\/strong><\/td> NBFC is not allowed to provide any overdraft facility to its customers.<\/td> Overdraft facility is provided by Banks.<\/td><\/tr> Transaction Services<\/strong><\/td> NBFC is not allowed to provide transaction facilities like transfer of funds, issuance of traveler’s cheque.<\/td> Banks can provide transaction services like transfer of funds, issuance of traveler’s cheque to its customers.<\/td><\/tr> Client Base for a Loan facility<\/strong><\/td> NBFC target client bases are startups and unprivileged class of society which are not entertained by Banks. Thus making lending more approachable to them.<\/td> Banks provide loans to established players and MSMEs which have good credit scores and high CIBIL Scores<\/td><\/tr> Interest Rate<\/strong><\/td> NBFCs charge higher interest rates. No capping for Interest rates is defined.<\/td> In the case of Banks capping for interest rates are defined by Reserve Bank of India.<\/td><\/tr> Loan Processing<\/strong><\/td> As Non-Banking Financial Company which are based on Fintech model, here loan processing is much faster. NBFC process loan within six to twelve hours.<\/td> Banks are more traditional in their approach. After document verification, it will take almost 5 to 6 days to complete.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n