NBFC vs. Bank: What's the Difference?
Edited by Aimie Carlson || By Janet White || Published on February 2, 2024
NBFCs (Non-Banking Financial Companies) offer financial services without holding a banking license, while Banks are licensed institutions providing a wide range of financial services including deposits.
Key Differences
NBFCs (Non-Banking Financial Companies) specialize in offering loans, credit facilities, retirement planning, and investment services, but cannot accept demand deposits. Banks, licensed by financial authorities, offer a broader range of services, including accepting deposits, offering checking and savings accounts, and providing loans.
NBFCs cannot issue cheques drawn on themselves and do not have access to central bank facilities. Conversely, banks are integral to the payment system, issuing cheques and having direct access to central bank services and emergency funding.
The regulatory framework for NBFCs is typically less stringent than for banks, with NBFCs not required to maintain reserve ratios. Banks, on the other hand, are subject to strict regulatory requirements, including maintaining reserve ratios and adhering to various banking laws and regulations.
NBFCs often cater to the unbanked or underbanked segments, offering specific financial products tailored to these groups. Banks offer a more universal set of financial services, catering to a broad customer base with a variety of financial needs.
In terms of risk, NBFCs usually have a higher risk profile compared to banks, stemming from their credit and market policies. Banks are generally perceived as safer due to stringent regulatory compliance and oversight.
ADVERTISEMENT
Comparison Chart
Deposit Acceptance
Cannot accept demand deposits
Can accept demand deposits
Cheque Issuance
Cannot issue cheques
Can issue cheques
Regulatory Framework
Less stringent
Highly regulated
Core Services
Loans, investments, retirement planning
Deposits, loans, payment services
Risk Profile
Generally higher risk
Lower risk due to regulation
ADVERTISEMENT
NBFC and Bank Definitions
NBFC
They specialize in providing credit and loans, without the typical banking facilities.
This NBFC focuses on providing equipment financing to the construction industry.
Bank
Banks are licensed institutions that accept deposits, offer loans, and provide other financial services.
The bank launched a new savings account with attractive interest rates.
NBFC
These institutions are regulated, but not as strictly as banks.
Our NBFC is expanding services thanks to a more flexible regulatory environment.
Bank
They play a crucial role in the payment and settlement system, issuing cheques and cards.
My bank's online platform makes transferring funds seamless.
NBFC
NBFCs contribute to financial inclusion by reaching underserved customers.
The NBFC played a key role in providing microloans in underbanked regions.
Bank
Banks operate under strict regulatory oversight for safety and soundness.
The bank passed its regulatory compliance audit with flying colors.
NBFC
NBFCs often serve niche markets not extensively covered by traditional banks.
The NBFC tailored its services to meet the needs of rural entrepreneurs.
Bank
They offer a range of services from personal banking to complex financial solutions.
The bank's wealth management division provides bespoke investment advice.
NBFC
NBFCs are financial institutions offering services similar to banks but cannot accept demand deposits.
The NBFC offered a variety of loan products to small businesses.
Bank
Banks are essential in maintaining economic stability and facilitating transactions.
The bank's loan program is vital for local small business growth.
Bank
A piled-up mass, as of snow or clouds; a heap
A bank of thunderclouds.
FAQs
Can NBFCs issue cheques?
No, NBFCs cannot issue cheques.
What regulatory body oversees NBFCs?
NBFCs are regulated by financial authorities but with less stringent requirements than banks.
What defines a Bank?
A licensed institution that provides a wide range of financial services including accepting deposits.
What is an NBFC?
A financial institution offering loans and investment services but not deposit accounts.
Do Banks have access to central bank facilities?
Yes, banks have direct access to central bank services.
What services do Banks offer?
Banks offer deposit accounts, loans, payment services, and more.
What are the reserve requirements for Banks?
Banks are required to maintain certain reserve ratios as per regulatory mandates.
Who can access NBFC services?
Particularly those in unbanked or underbanked segments.
Can NBFCs offer mortgage loans?
Yes, NBFCs can offer mortgage loans among other credit products.
What is the role of Banks in the payment system?
They are integral, offering services like cheque issuance and electronic transfers.
How do Banks contribute to the economy?
By facilitating transactions and maintaining economic stability.
Do NBFCs accept demand deposits?
No, NBFCs cannot accept demand deposits.
Are NBFCs considered high risk?
Generally, NBFCs have a higher risk profile compared to banks.
What is the primary focus of a Bank?
To provide a secure and comprehensive range of financial services.
What is a major difference in regulation between NBFCs and Banks?
Banks face stricter regulations, especially regarding capital and reserve requirements.
Are Bank deposits insured?
Yes, typically up to a certain amount as per regulatory guidelines.
What niche markets do NBFCs often serve?
Markets not extensively covered by traditional banks, like specific loan types.
Do NBFCs contribute to financial inclusion?
Yes, by reaching underserved or specific customer segments.
How do Banks support small businesses?
Through loans, credit facilities, and financial advisory services.
Can NBFCs offer wealth management services?
Yes, many NBFCs offer investment and wealth management services.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
