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Difference between Banks and NBFCs in India


Banks and Non-Banking financial companies are essential establishments in the country. They offer comparable services to the country’s citizens. One comparable service is the co-origination of credits by banks, NBFCS. However, a fundamental distinction exists among banks, NBFCs, and non-banking finance companies.

The banks of India are a piece of the country’s financial system. They pursue towards maintaining the monetary origination of the country. Non-bank organizations complement the Indian banking system. One likeness is the co-origination of credits by banks and NBFCs.

What is a Bank?

  • Banks are financial institutions working under the power of the public authority (Government). They direct financial exercises like accepting deposits, awarding credits, overseeing withdrawals with interest pay, cheque clearance, and general utility to people.

  • Banks dominate the country’s financial system as they help keep up with the income in the country. They act as a conduit between those who make deposits and those who take out bank loans. This ensures that the government’s financial system operates effectively.

  • Banks of India exist in three structures: private sector banks, public sector banks, and foreign banks. These three banks control the country’s cash flow. Responsibility for confidential banks lies with the investors of the bank.

What is NBFCs?

  • NBFCs are non-banking financial institutions in the country. Non-Banking Financial Companies is another name. All NBFCs need to enrol under the Companies Act of 1956 to begin their tasks. 

  • The 1934 RBI Act constrained NBFCs. The Receive Bank of India is the central bank or the peak establishment in the country.

  • A Non-banking financial institution isn’t a bank. In any case, they impart a couple of similitudes to a bank. People are offered loans and advances by NBFCs. They deal in the country’s currency market. Moreover, they have a credit office, giving a spot to store reserve funds and investments.

  • A couple of functions of NBFCs are recruiting for procurement, leasing, funding foundations, investment, etc. NBFCs can acknowledge deposits, but only in restricted-term stores; they don’t take deposits that they need to repay on demand.

Difference Between Banks and NBFCs in India




Regulatory Act

Regulated by the RBI under the Banking Regulations Act, 1949

Regulated by the RBI under the Companies Act, 1956


Offer a wide range of banking services.

Engage in lending and investment activities.

Deposit Acceptance

Accept deposits from the public.

Do not accept demand deposits from the general public.

Issue of Cheques

Issue and accept cheques.

Cannot issue or accept cheques.

Banking License

Require a banking license to operate.

Do not require a banking license to operate.

Credit Creation

Have the power to create credit through fractional reserve banking.

They cannot create credit like banks.

Clearing House Membership

There are members of the clearing house.

No clearing house membership.

Government Guarantee

Government insurance schemes may guarantee deposits.

No government guarantee on deposits.

Access to RBI facilities

Access to various facilities the RBI provides, such as borrowing money and access to payment systems.

No access to such facilities.

Priority sector Lending

They must allocate a certain percentage of their lending to priority sectors per regulatory requirements.

They are not mandated to follow priority sector lending norms.

Functions of Banks and NBFCs in India

Accepting deposits: Individuals and businesses alike can make deposits at banks. Banks offer convenient banking services, safe deposit storage, and deposit interest.

Credit and lending: Banks give loans and credit offices to people and organizations for different purposes, such as individual credits, home credits, vehicle loans, working capital advances, and undertaking support.

Payment Services: Banks work with payment exchanges. They permit clients to make payments, transfer funds, and manage monetary exchanges effectively and safely.

Care of Assets: Banks offer safe storage spaces where clients can securely store significant things like jewellery, documents, and other assets. 

Foreign Exchange Service: Banks work with cash exchanges, wire transfers, and foreign currency accounts.

Venture and Abundance The executives: Banks help customers manage their investment portfolios and provide products such as government bonds, fixed deposits, and mutual funds. 

Letters of Credit and Trade Financing: Banks issue letters of credit, assurances, and funding choices to help importers and exporters in their trade exchanges.

Monetary Intermediation: Banks assemble stores from people and organizations and channel these assets towards lending and investment activities 

Treasury Management: Banks offer depository services like foreign trade exchange, currency market tasks, investment activities in government protections, and dealing with the bank’s monetary resources and liabilities.

Functions of NBFCs

Loaning and Credit: NBFCs give adaptable loaning arrangements and credit offices, including individual, vehicle, housing, etc., to both individuals and companies.

Asset financing: NBFCs participate in asset financing, which includes lending money to buy or rent resources like machinery, gear, vehicles, or land.

Investment and Advisory Service: Many NBFCs offer investment advisory, portfolio the board, and risk evaluation administrations. NBFCs may also work with interests in security, mutual funds, and other monetary instruments.

Leasing and Hire-purchase: NBFCs participate in leasing and hire-purchase exercises, empowering people and organizations to get resources without full, forthright payment.

Microfinance: Some NBFCs represent considerable authority in microfinance, offering small credits and monetary administrations to low-paying people, self-improvement groups, and microenterprises.

Factoring and invoice discounting: NBFCs participate in calculating and invoice discounting administrations. This gives organizations quick liquidity, empowering them to meet working capital requirements.

Foreign Exchange Services: Additionally, NBFCs provide foreign exchange services, making it easier to exchange currencies and send money overseas.


In conclusion, the nation’s financial system includes NBFCs and banks. Co-start of credits by banks and NBFCs is a critical closeness between the two. However, banks of India and Non-banking financial companies are two unique country structures.

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G.Durghasree B.A.B.L (Hons)

G Durghasree B.A.B.L (Hons) is a registered trademark attorney with extensive experience as an Advocate for a period of 8 years. She possesses expertise in trademark law, including trademark filing and trademark hearings. Additionally, she is skilled in contract drafting and reviewing, providing legal advice and opinions, particularly in the areas of Company Law, Insolvency and Bankruptcy Code (IBC), and Goods and Service Tax Law (GST). Her experience encompasses both litigation and non-litigation aspects of these laws.