Question

Consider the following statements regarding Non-Banking Financial Companies.

1. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.

2. NBFCs cannot accept demand deposits.

3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.

Which of the above statements is/are correct?

1. 1 and 2 only
2. 1 and 3 only
3. 2 and 3 only
4. 1, 2 and 3

Answer 1

Correct Answer - Option 4 : 1, 2 and 3

The correct answer is 1, 2 and 3

• NBFCs lend and make investments and hence their activities are akin to that of banks; however, there are a few differences as given below:
• NBFC cannot accept demand deposits; (The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and a maximum period of 60 months. They cannot accept deposits repayable on demand.) Hence, statement 2 is correct.
• NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself. Hence, statement 1 is correct.
• The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks. Hence, statement 3 is correct.

 

• The Reserve Bank of India (RBI) has decided to merge three categories of Non-Banking Financial Companies (NBFCs) into a single category to provide greater operational flexibility to non-banking lenders.
• NBFCs categorized as Asset Finance Companies (AFC), Loan Companies (LCs) and Investment Companies (ICs), will be merged into a new category called NBFC - Investment and Credit Company (NBFC-ICC).

Non-Banking Financial Company (NBFC)

• A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature.
• NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of the immovable property.
• A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner is also a non-banking financial company (Residuary non-banking company).