What is the Difference Between NBFC and Bank?

The main difference between a bank and a Non-Banking Financial Institution (NBFC) is that a bank is a government-authorized entity that provides banking services to the public, while an NBFC is a company that provides financial services without holding a bank license. Here are some key differences between banks and NBFCs:

• Incorporation: Banks are incorporated under the Banking Regulations Act, 1949, while NBFCs are incorporated under the Companies Act, 1956.
• Demand Drafts: Banks can issue demand drafts, but NBFCs cannot.
• Credit Creation: Banks can create credit, while NBFCs do not have the authority to create credit.
• Deposit Acceptance: Banks can accept demand deposits, but NBFCs cannot.
• Payment and Settlement System: Banks form part of the payment and settlement system, while NBFCs do not.
• Deposit Insurance: Depositors in banks can use the Deposit Insurance and Credit Guarantee Corporation's deposit insurance, but NBFC depositors cannot.

Both banks and NBFCs can provide loans, but banks have broader authority to offer various types of loans, while NBFCs typically focus on specialized lending and investment activities. NBFCs often provide more flexible lending options compared to banks, making them a preferred choice for individuals and small businesses that might not meet the stringent requirements of traditional banks.

Comparative Table: NBFC vs Bank

Here is a table highlighting the key differences between NBFCs (Non-Banking Financial Companies) and banks:

In summary, NBFCs are companies that provide financial/banking services without a bank license and are incorporated under the Companies Act, 1956, while banks are government-authorized financial intermediaries incorporated under the Banking Regulations Act, 1949. NBFCs cannot issue self-drawn cheques, demand drafts, or accept demand deposits like banks can.