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NBFC vs Bank

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					NBFC Vs Bank

In a country like India with a huge population, it is impossible for banks to
cater to all sections of the society as many areas are inaccessible and
remote. Also, to provide banking facilities to the illiterate and the poor,
finance institutions that work on similar lines as banks are required. In India,
this requirement has traditionally been fulfilled by NBFC, or non banking
financial company. As the name suggests, NBFC is not a bank though it
performs many functions similar to that of banks. This article intends to find
out the major differences between NBFC and banks and other features of
these entities.

NBFC were created by the government of India as it felt the need to provide
banking facilities to the poor and underprivileged who could not get access to
banks. NBFC is required to be registered under the Companies Act 1956 to
be able to perform functions similar to a bank. Normally, a NBFC is engaged
in the business of loans and advances, acquisition of shares, debentures,
stocks, bonds and securities issued by the government. It also indulges in
hire-purchase, leasing, insurance and chit business.

However, there are several notable differences between NBFC and a bank.

1. NBFC cannot collect deposits in the manner of a bank
2. NBFC cannot issue checks drawn on itself
3. NBFC cannot issue Demand Drafts like banks
4. NBFC cannot indulge primarily in agricultural or industrial activity
5. NBFC cannot engage in construction of immovable property
6. NBFC cannot accept demand deposits
7. While banks are incorporated under banking companies act, NBFC is
incorporated under company act of 1956

NBFC is required to register with Reserve Bank of India. There are many
types of NBFC registered with RBI.

Equipment leasing company
Hire-purchase Company
Loan Company
Investment Company

Apart from these NBFC, there are many other residuary types of companies
that are also classified as NBFC under the company act.

In brief:
• NBFC stands for non banking financial company that was created by the
government of India under the Company Act 1956 to provide access to poor
sections of the society to banking facilities.
• Though NBFC performs many of the functions of a bank, there are many
differences.
• NBFC cannot accept money deposits in the manner of banks
• NBFC cannot issue checks drawn on itself.

				
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posted:5/3/2012
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