Difference Between NBFI & Banks

Submitted by :- Sunny Mervyne BaaRoll No 22

PGDM 16-18Tri Sem II

What Is NBFI

• NBFC expands to Non-Banking Financial Company is a company registered under the Companies Act, 1956 and regulated by the Central Bank i.e. Reserve Bank of India under RBI Act, 1934. These entities are not banks, but they are engaged in lending and other activities, akin to that of banks like providing loans and advances, credit facility, savings and investment products, trading in the money market, managing portfolios of stocks, transfer of money and so on.

• It is indulged in the activities of hire purchasing, leasing, infrastructure finance, venture capital finance, housing finance, etc. An NBFC accepts deposits, but only term deposits and deposits repayable on demand are not accepted by it.

• In India, these companies emerged in the mid-1980’s. Kotak Mahindra Finance, SBI Factors, Sundaram Finance, ICICI Ventures are examples of popular NBFC’s.

NBFC is divided into three categories,

Investment Companies

Loan Companies

Asset Companies

What Is A Bank

• Banks are the financial institution, authorised by the government to conduct banking activity like accepting deposits, granting credit, managing withdrawals pay interest, clearing cheques and providing general utility services to the customers. Banks are the apex organisation, which dominates the entire financial system of the country. It acts as a financial intermediary, between the depositors and borrowers, that ensures smooth functioning of the economy.

• Banks can be public sector banks, private sector banks or foreign banks. They are responsible for making loans, creating credit, mobilisation of deposits, safe and time bound transfer of money and providing public utility services. Ownership of a commercial bank lies with the shareholder and they are operated with the profit motive.

Basic DIfference

NBFI

Bank

Meaning

An NBFC is a company that provides banking

services to people without holding a bank license.

Bank is a government authorized financial

intermediary that aims at providing banking services

to the general public.

Incorporated under

Companies Act 1956

Banking Regulation Act, 1949

Demand Deposit

Not Accepted Accepted

Foreign Investment

Allowed up to 100%

Allowed up to 74% for private

sector banks

Payment and Settlement system

Not a part of system.

Integral part of the system.

Maintenance of Reserve Ratios

Not required Compulsory

Deposit insurance facility

Not available Available

Examples Of NBFC

• HDFC• Although HDFC is into core banking however it also gives

Non Banking Financial Services like providing small loans and other things like micro finance. HDFC keeps NBF services separate from its core services.

• Establishing Year: 1977 by Hasmukhbhai Parekh • Core Services: Mortgages, Life Insurance, Mutual Funds,

Micro Finance etc• Total Assets: $3.44 Billion • Employees and Operations: 2000+, All over India and

overseas • Head Office: Mumbai• Website: www.hdfc.com

• . Power Finance Corporation• Power Finance corporation is financial backbone of power

sector. This company enjoys the status of Navratna Company in India. It is an ISO certified company.

• Establishing Year: 1986• Core Services: Financial Consulting, Investment Banking,

Loan Management etc • Total Assets: $2.36 Billion • Employees and Operations: 330 to 400, Operations

restricted to India only • Head Office: New Delhi, India• Website: www.pfcindia.com

• Reliance Capital• Reliance Capital is among top 3 private financial services

and banking companies in terms of net worth. Reliance Capital comes under the Anil Ambani Group.

• Establishing Year: 1986 by Dhirubhai Ambani • Core Services: Asset Management, Insurance, Broking and

Distribution, Commercial Finance, Mutual Funds etc • Total Assets: $1.1 Billion • Employees and Operations: 11,000+ across all major

cities in India • Head Office: Mumbai, India • Website: www.reliancecapital.co.in

• Shree Global• Shree Global is an iron manufacturing company but it is

also in the asset management business.• Establishing Year: Incorporated in 1986• Core Services: Iron and Steel and financial services • Total Assets: Rs 847 Crore to Rs 900 Crore • Employees and Operations: 2000 and operations in

India • Head Office: Mumbai, India• Website: www.sgtl.in

• Muthoot Finance• Muthoot Finance is one of the largest NBFC in India. It is

number one when it comes to selling gold coins.• Establishing Year: 1939• Core Services: Muthoot Finance includes small

businesses, vendors, farmers, traders, SME business owners, and salaried individuals.

• Total Assets: Rs 23,000 Crores+ • Employees and Operations: 30,000+ with over 4,400

branches all over the country • Head Office: Kochi, India • Website: www.muthootfinance.com

• LIC Housing Finance• LIC Housing Finance has provided financial assistance to

over 1 million house owners.• Establishing Year: 19 June 1989• Core Services: Real Estate and Housing Finance and

Loans• Total Assets: Rs 500 Crore to Rs 600 Crore• Employees and Operations: 1500 employees, with over

13 offices and 181 marketing units and 7 regional offices.• Head Office: Mumbai, India• Website: www. Lichfl.com

References

• http://keydifferences.com/difference-between-nbfc-and-bank.html

• http://companiesinindia.in/non-banking-financial-companies-in-india/