Banks are financial institutions with the authorization to provide banking services by the government. They offer banking services to the public. So, banks conduct a diverse range of banking activities, including accepting deposits, providing credit and withdrawal management, interest payments, cheque clearance, and other general utility services to the public. Moreover, they are the apex financial institutions that dominate the country's overall ecosystem. They are financial intermediaries as they act as mediators between depositors and borrowers. Therefore their primary function is to ensure a smooth flow of money.
In India, there are various banks such as public sector banks, cooperative banks, private sector banks, and foreign banks. Their primary functions are:
NBFCs are companies registered under the Companies Act of 1956 or 2013. The Reserve bank of India regulates them under the RBI Act of 1934. Although NBFCs are not banks, they still carry out equally important banking activities such as:
Generally, non-banking financial companies are private. However, when the government-owned entities merge with them, in such cases, they become Non-Banking Financial Intermediaries. Non-banking financial companies need to register themselves with the RBI and maintain minimum capital. However, some NBFCs also have to keep statutory liquidity ratio (SLR) and Capital to Risk Asset Ratio (CRAR).
NBFCs are privately-owned companies regulated and monitored by RBI and other government entities such as the Ministry of Corporate Affairs and IRDAI. Both banks and NBFCs perform exceptionally well in their respective fields. However, a comparison between NBFCs and banks is always significant to deeply understand various angles of monetary policy and the interest of depositors and investors.
Here are the key differences between banks and NBFCs in India
Here, we have compiled the key differences between banks and NBFCs in a tabular form:
Area of Comparison
Banks are financial institutions that have authorization from the government. So, they offer banking services to the public.
NBFCs are companies registered under the Companies Act of 1956 or 2013. Moreover, they are regulated by the Reserve bank of India under the RBI Act of 1934.
Banks are registered and monitored by RBI under the Banking Regulation Act of 1949.
NBFCs are registered under the Companies Act of 1956. Also, a company needs to get an NBFC license from RBI.
Payment & Settlement System
Compulsory 4% CRR, 18% SLR
SLR of 15% for deposit accepting NBFCs
15% CRAR for Deposit accepting NBFCs and Non-Deposit accepting but Systemically Important NBFCs. Systemically important NBFCs are considered too big to fail.
In conclusion, non-banking financial companies play an excellent role in the economy by carrying out numerous economic activities. Lastly, the NBFCs ecosystem comprises a heterogeneous group of companies offering various types of services. These services include microfinance, insurance, personal and infrastructural loans, finance infrastructure, etc.