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In a financial system, there are two main intermediaries first is bank and second is NBFC. The traditional institutions that accept public deposits and give them back as a loan to the general public are known as banks. They are backed by the government and other big companies. So, to operate the business a bank license is required.
NBFC on the other hand, provides services to those people who can’t access banks and other big financial institutions. An NBFC registration is compulsory to set up a business, although it doesn’t require a bank license. So, before starting a business, you must be aware of all the functions of banks and NBFC to choose the right option. So, here in this article, below we shared the difference between NBFC License vs. Bank License.
NBFC full form is a Non-Banking Financial Company. These companies are involved in financial activities such as providing loans, investment, marketplace lending, or information service providers or for any other business purpose specified in Section 45-1A of the RBI Act 1934 & Companies Act, 2013.
The NBFCs do not require any cooperative or commercial bank license but should follow the rules and regulations given by the Reserve Bank of India, in a timely manner. There are two types of categories of NBFC which are as follows:
Must follow the guidelines set by RBI about receiving the deposits from general public. Based on the size of the deposit, it further divides into three groups:
The business must have a minimum Net Owned Fund (NOF) of minimum Rs. 2 crore. The total capital given by shareholders, including free reserves, and other instruments is known as NOF. For the registration of NBFC, so that it operates, the RBI has additionally made some laws and regulations.
In most legal jurisdictions, a bank must obtain a license to operate a banking business. Until the bank holds a license, cannot mention the words like bank, insurance, national, etc. words.
The banks function by receiving deposits from the public and further giving them as a loan to earn interest. The Central Bank Government and RBI check the laws and regulations of the banking sector.
For safe and secure money deposits, the public chooses banks as the best option. But mainly you will see the major part of banks in urban areas. Based on the banking regulations, the jurisdiction allows these three types of banking licenses:
The banks are divided into three categories and these are as follows:
The main difference between an NBFC license and a Bank license is that Bank is an authorised government financial institution, that performs financial activities by having a license only. On the other hand, an NBFC performs financial operations without a banking license. The other differences between an NBFC license and a bank license are as follows:
So, the above are some differences between NBFC licenses and Bank licenses. On one side where NBFC focused on providing credit to underprivileged sections of society. On the other hand, Bank has strict licensing requirements.
After knowing the functions of both institutions, individuals and businesses can follow the right approach to choose the right institute as per their financial needs.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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