7 basic differences between a bank and NBFC

Financial aid in India is provided at two different places- banks and NBFCs. Many of you can't distinguish the line of difference between them. Not only this, but there exist people in the society who does not know any financial aiding agency other than banks.

Banks and NBFCs are two different sides of the same coin. They have one common objective, that is, to lend money and get it back with some interest charged on the principal amount. Even though, working for the same objective, both banks and NBFCs have a lot of dissimilarities between them.

Today, we have a big List of NBFC in India and also renowned banks. Let's discuss them under specified categories to get a clear contrast between them.

Differences under categories:

• Authority

Banks are institutions that are approved by the government to conduct financial activities like deposits, credit, debit, cheques, interests, and providing general utilities whereas NBFCs are companies that serve the people financially without any license of a bank. That's the reason it's known as a non-banking financial company.

• Participation

Now, participation in the integral source by which we can distinguish between these two institutions. Bank has all the right to interfere in the government system financially while NBFCs hold no such position or inhibit any power over the system. Overall, NBFCs need to work according to the government.

• Issuing credit

These nonbanking institutions do not issue any credit while banks do so. The RBI, that is, the reserve bank of India condemns the possibility of allowing NBFCs to issue any credit due to the possibility of liquidity in such companies.

• Registration

The bank is integrated under the Banking Regulation Act 1949 whereas NBFCs are registered under the Act 1956.

• Transactions facility

NBFCs have no such authority to provide transaction facilities to their customers. They can't provide cheques, drafts or transfer of funds to any of its customers whereas it's opposite in the case of banks. Banks proffer transaction facilities to their loyal customers.

• Foreign financing

Now, NBFCs serves the financial need for the customers related to foreign investments. Anyone who needs money to go to foreign for education or any other criteria is in the advantage of using 100% investment utility whereas banks are not as flexible as these companies to invest in foreign functions.

• Provisions of collateral

Collaterals are a major issue in asking for loans related to education. Now, banks have this permanent policy of asking for collaterals that can be in the form of property gold or financial asset as under the policy above 7.5 lakhs. NBFCs provide you to exceed this set amount by the banks without collaterals.

• Operational powers

Banks can’t perform anyother task other than banking activities of credit and debits whereas NBFCs have full rights to get involved in other activities of business other than proffering loans.

Various categories exist by which one can clearly distinguish between banks and NBFCs. One can choose any of the institutions among thelist of NBFC in India or the list of banks. Therefore, invest accordingly as the need for your financial situation.