Banks and NBFCs (Non-Banking Financial Companies) are the key financial intermediaries

and offer almost similar services to customers. The basic difference between banks &
NBFCs is that NBFC cannot issue cheques and demand drafts like banks. Banks take part in
country’s payment mechanism whereas Non-Banking Financial Companies are not
involved in such transactions.

NBFC came into both public and private sector to complement banks in providing finance to
people because banks cannot cater to all sections of the society alone as finance is the basic
requirement of all individuals and businesses.

An Overview On NBFCs
NBFC is a registered company which is regulated by the Reserve Bank of India under RBI
Act, 1934. NBFCs are not banks, but their activities are related to lending and other
activities such as providing loans and advances, credit facility, savings and investment
products, trading in the money market, managing portfolios of stocks, transfer of money,
etc. For commencing the activities of NBFCs, NBFC Registration is mandatory.

Their activities are concerned with hire purchasing, leasing, infrastructure finance, venture
capital finance, housing finance, etc. NBFC can accept deposits, but only term deposits and
deposits repayable on demand are not accepted by NBFC.

Here are some of the examples of popular NBFCs such as Kotak Mahindra Finance, SBI
Factors, Sundaram Finance, ICICI Ventures.

An Overview On Banks
Banks are the financial institution which is authorized by the government to conduct
banking activities such as accepting deposits, granting credit, managing withdrawals,
paying interest, clearing cheques and providing general utility services to the customers.

Banks are considered an apex organization which dominates the entire financial system of
the country. They act as a financial intermediary between the depositors and borrowers.
Banks ensures smooth functioning of the economy in the country.

They can be public sector banks or private sector banks or foreign banks and also
responsible for making loans, creating credit, mobilization of deposits, safe and time-bound
transfer of money and providing public utility services. Its ownership lies with the
shareholder and they operate with the profit motive.
Difference Between Banks And NBFCs
Here are the differences between Banks and NBFCs:

• Banks are the government authorized financial intermediary that aims at providing
banking services to the general people. Whereas NBFCs provides banking services to
people without carrying a bank license.

• An NBFC is incorporated under the Companies Act whereas a bank is registered

under the Banking Regulation Act, 1949[1].

• NBFCs are not allowed to accept deposits which are repayable on demand whereas
banks accept demand deposits.

• In NBFC, foreign Investments up to 100% is allowed. Whereas in the case of private

sector banks they are eligible for foreign investment, but which would be no more
than 74%.

• Banks are an integral part of the payment and settlement cycle while NBFC is not a
part of this system.

• It is mandatory for banks to maintain reserve ratios like CRR or SLR. Whereas in the
case of NBFC it is not required to maintain reserve ratios.

• Deposit insurance facility is allowed to the depositors by Deposit Insurance and

Credit Guarantee Corporation (DICGC). In the case of NBFC, this type of facility shall
not be available.

• Banks can create credit whereas in case of NBFC they are not involved in the
creation of credit.

• Banks can provide transaction services to its customers such as providing overdraft
facility, issue of traveller’s cheque, transfer of funds, etc. Whereas these type of
services cannot be provided by NBFC.

• What is the introduction and concept of SEBI?

• SEBI stands for Securities and Exchange Board of India. It is a statutory
regulatory body that was established by the Government of India in 1992 for
protecting the interests of investors investing in securities along with
regulating the securities market

Functions of SEBI
SEBI has the following functions
1. Protective Function
2. Regulatory Function
3. Development Function
The following functions will be discussed in detail
Protective Function: The protective function implies the role that SEBI plays in protecting the
investor interest and also that of other financial participants. The protective function includes the
following activities.
a. Prohibits insider trading: Insider trading is the act of buying or selling of the securities by the
insiders of a company, which includes the directors, employees and promoters. To prevent such
trading SEBI has barred the companies to purchase their own shares from the secondary market.
b. Check price rigging: Price rigging is the act of causing unnatural fluctuations in the price of
securities by either increasing or decreasing the market price of the stocks that leads to
unexpected losses for the investors. SEBI maintains strict watch in order to prevent such
malpractices.
c. Promoting fair practices: SEBI promotes fair trade practice and works towards prohibiting
fraudulent activities related to trading of securities.
d. Financial education provider: SEBI educates the investors by conducting online and offline
sessions that provide information related to market insights and also on money management.
Regulatory Function: Regulatory functions involve establishment of rules and regulations for the
financial intermediaries along with corporates that helps in efficient management of the market.
The following are some of the regulatory functions.
a. SEBI has defined the rules and regulations and formed guidelines and code of conduct that
should be followed by the corporates as well as the financial intermediaries.
b. Regulating the process of taking over of a company.
c. Conducting inquiries and audit of stock exchanges.
d. Regulates the working of stock brokers, merchant brokers.
Developmental Function: Developmental function refers to the steps taken by SEBI in order to
provide the investors with a knowledge of the trading and market function. The following
activities are included as part of developmental function.
1. Training of intermediaries who are a part of the security market.
2. Introduction of trading through electronic means or through the internet by the help of
registered stock brokers.
3. By making the underwriting an optional system in order to reduce cost of issue

Objectives and their functions in general IDBI, IFCI, SFCs, ICICI, EXIM Bank of India
Chapter 2

Asset/liability management is the process of managing the use of assets and cash flows to
reduce the firm's risk of loss from not paying a liability on time
How do you calculate duration gap analysis?
Duration Gap is the difference between the average duration of assets and the
average duration of liabilities.

What are the operational objectives of monetary policy?

The three objectives of monetary policy are controlling inflation, managing

employment levels, and maintaining long-term interest rates