Difference between private bank & NBFCs [Blog 209]

A non-banking financial corporation (NBFC) is a financial entity that performs many of the same duties as a bank, such as offering loans for various purposes, financial leasing, and bill discounting, among other things. NBFCs, unlike banks, cannot accept deposits or write checks drawn on themselves. In most cases, a traditional bank accepts deposits and then lends the money out at a slightly higher rate of interest, generating a spread, also known as interest margin. Because NBFCs cannot accept deposits, they must raise cash from banks and mutual funds, which they then offer out as loans at a slightly higher interest rate.

Local area banks, payment banks, minor finance banks, and foreign banks are among India’s private sector banks. The majority of these banks have been at the forefront of technological adoption, such as ATM network expansion and internet/phone/mobile banking options. They’ve also been employing direct salespeople to market credit products. This has allowed private banks to provide greater services and amenities to their customers, giving them a leg up on their public sector counterparts.

Over the last few years, India’s NBFC industry has undergone a substantial shift, and it is now considered a vital part of the Indian financial system. Infrastructure development has been aided by non-bank financial institutions (NBFIs). NBFCs have been providing a large amount of debt finance for infrastructure projects in recent years. They’ve also been offering credit to retail clients in underserved and unbanked areas, assisting the government’s financial inclusion efforts.

Key differences of private bank & NBFCs are given below:-

  1. Meaning
  • A non-bank financial institution (NBFI) is a corporation that provides banking services to customers without having a bank licence.
  • A private bank is a privately owned and operated financial intermediary that offers banking services to the general population.


  1. Incorporated under
  • NBFCS are incorporated under Companies Act 1956 .
  • The private sector bank are incorporated under Banking Regulation Act, 1949.


  1. Foreign Investment
  • In NBFCs company foreign investment are allowed up to 100%.
  • In the private bank foreign investment are allowed up to 74%.


  1. Deposit insurance facility
  • In the NBFCs Deposit insurance facility are not available.
  • In the private bank Deposit insurance facility are Available.


  1. Credit creation
  • NBFC do not create credit.
  • Private Banks create credit.


  1. Payment and Settlement system
  • In the NBFCs Companies payment & settlement are not a part of system.
  • In the private bank the payment & settlement are integral part of the system.


  1. Maintenance of Reserve Ratios
  • In the NBFCs maintenance of Reserve Ratios such as SLR, CRR not required.
  • In the private bank maintenance of Reserve Ratios are compulsory.


  1. Transaction services
  • Transaction services are not provided by NBFC.
  • Transaction services are provided by private banks.


  1. Demand Deposit
  • NBFCs demand deposit are not accepted.
  • Private bank demand deposits are accepted.


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