There are two primary categories of financial intermediaries present in every given financial system. These are banks and non-banking financial services companies (NBFCs). NBFCs are typically firms that are privately held, and when government-owned businesses are included, the resulting organizations are referred to as NBFIs (Non-Banking Financial Intermediaries).
The Reserve Bank of India (RBI) and other government agencies oversee the operations of NBFCs in India, which are largely financial organizations that are privately held. Both of them play extraordinary roles in their respective fields of expertise. A comparison of the two is essential at all times, not only from the perspective of monetary policy but also from the perspective of the interests of financial institutions.
The degree of authorization is the primary distinction between being an NBFC and a bank, and it is also the most important. In order to provide banking services to the general public, NBFCs in India are not required to maintain a banking license. On the other hand, governments are the ones that grant permission for banks to operate, and the primary objective of these institutions is to serve the general public.
The FDIC does not insure deposits that are kept with NBFCs, including fixed deposits. The main reason is due to the fact that NBFCs are not included in the payments system operated by the RBI. In the event that a non-bank financial company (NBFC) goes bankrupt, depositors have really no credit guarantee for the money they had saved with that NBFC in India. However, the Deposit Insurance as well as Credit Guarantee Scheme covers deposits held with practically all banks (with the exception of Primary Agricultural Credit Societies, or PACS). A payment equal to rupees five lakhs will be paid out by the Deposit Insurance & Credit Guarantee Corporation of India. If you wish to understand the NBFC in detail from an expert, then you must click here to know more.
One more important distinction Another significant distinction between NBFCs and banks is their ratings. For instance, non-bank financial companies (NBFCs) have their deposits rated, but bank deposits are not rated. In contrast, the former also isn’t thought to be extremely safe, whereas the latter is. It is also important to keep in mind that deposits made with non-banking finance companies are not guaranteed, but deposits made with banks are guaranteed. Before making any investments, it is recommended that you look into the ratings of the NBFC in India first. In most cases, the high-quality ones have a rating of AAA, which guarantees the safety of investments as well as the one-time payment of interest and principle. Therefore, it is imperative that you examine the same before investment.
Reserve to total ratio
The reserve ratio is a portion of the depositor’s balance that is expected to be retained by a cash bank in accordance with the guidelines established by the central bank in the majority of nations. NBFCs do not have to maintain a reserve ratio in order to participate in the economy; nevertheless, banks are required to do so since this factor affects the amount of money that is available in a nation over a certain time period.
When non-banking institutions loosen their requirements on so many different fronts in order to provide customers with loans and other banking choices, there is sure to be some kind of payoff for those institutions as well. They accomplish this goal by imposing a significantly higher interest rate on loans. Sometimes it could appear exorbitant, but the client would not have a choice while no banks are willing to give them money. In such a case, the customer’s only option would be to check with these non-banking companies in the hopes of finding some type of relief.