Difference Between an NBFC and Commercial Bank

Both types of companies are dealing in providing financial services to general public.The critical difference between NBFC and banks is that NBFC's cannot accept deposits whereas banks have licence and RBI approval to accept it. The primary function of a commercial bank is to accept deposits and lending money; some Non-Banking financial companies can accept a deposit if they attain a licence and follow the guidelines established by RBI.

Definition of NBFC’s and Banks

NBFC’s full form can be expanded to Non-Banking Financial Company. It is a company which is registered under Companies Act and attains a license from RBI to carry on business which is similar to banking services, but they are not governed by regulation which is laid down for commercial banks.

Commercial Banks are an establishment which is authorized by the government to accept the deposit, accept and clear withdrawals and provide other financial services such as delivering savings account, Loans Etc.

Key Differences Between NBFC’s and Banks

 

 

NBFC’s

COMMERCIAL BANKS

Definition

 

 

 

 

 

 

An NBFC company is a company that provides services to people that is similar to banking services without holding a license from RBI.

 

Commercial banks are government authorized financial institutions which are incorporated after registering themselves as per government regulation. They provide banking facility for the general public

 

incorporation

An NBFC is incorporated under the Companies Act, 1956 and RBI Act.

A commercial bank is incorporated under the Banking Regulation Act, 1949 and RBI Act.

Payment settlement System

Is not a part of system

It is an essential part of the system

Foreign Investment

It is allowed up to 100%

It is allowed 74% by a Private Bank.

The limitation imposed

No checking facilities are provided to an NBFC’s moreover there is no bar on an NBFC for carrying out an activity other than financial activity.

No non–banking activity should be carried out by commercial banks. Banking Regulation Act prohibits a bank from appointing any director who is on the board of director in any other company.

 

Obtaining license

It is more comfortable for the NBFC to attain registration as the regulations are less stringent as compared to commercial banks.

It is considered to be quite difficult for a bank to attain license as norms are tightly controlled by the government.

 


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