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With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements:
1. They cannot engage in the acquisition of securities issued by the government.
2. They cannot accept demand deposits like Savings Account.

Which of the statements given above is/are correct?
1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 or 2

1 Answer

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Correct Answer - Option 2 : 2 only

The correct answer is 2 only.

 

  • Non-Banking Financial Companies are those companies that provide banking services without meeting the legal definition of a bank desirous of commencing the business of non-banking financial institution as defined under Section 45-IA of the RBI Act, 1934.
  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956.
  • NBFC is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/ securities issued by a government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business.
  • It does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of the immovable property.
  • They cannot accept demand deposits like commercial banks as they are not a part of the clearance and settlement system.

 

  • All NBFCs are not allowed to take deposits.
  • Only those NBFCs which have specific authorization from RBI are allowed to accept/hold public deposits.
  • NBFCs cannot take demand deposits.
  • They can accept only term deposits with a tenure of a minimum of 12 months.
  • The NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time.
  • The deposits with NBFCs are not insured under Deposit Insurance Scheme.
  • There is no Ombudsman for hearing complaints against NBFCs.
  • However, all NBFCs have in place a Grievance Redressal Officer, whose name and contact details have to be mandatorily displayed on the premises of the NBFCs.

 

  • Difference between NBFC and Banks
  • The major differences between NBFCs and Banks are as follows:
    • NBFC cannot accept demand deposits. They can only accept term deposits.
    • NBFCs do not form part of the payment and settlement system
    • NBFCs cannot issue cheques drawn on themselves
    • Deposits with NBFCs are not covered by Deposit Insurance.

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