14th September 2021

Two things to start with:

1. If by any chance you are following along, then congrats! We have come a long way.

   

2. Day 7 was supposed to be about Payment Instruments, but it feels like the elephant in the room (NBFCs) remains unaddressed.

First things first, do you remember where did we last use the term NBFCs?

On Day 3: All about Account Aggregators or AAs we discussed, only NBFCs are eligible to be an AA. We also talked about how the new ways of digital lending will make life easy for all participants - Banks, Non-Banking Financial Companies or NBFCs, and consumers.

What are NBFCs?

NBFCs or Non-Banking Financial Companies are financial institutions that offer financial services like loans, insurance, deposits, investment, etc. - but do not have a banking license. Ex: Insurance companies, Venture Firms, Finance/MicroFinance companies, etc.

How are NBFCs different from Banks?

Key differences are:

1. NBFCs are not allowed to take traditional demand deposits like banks.
   1. Demand Deposit: Allows withdrawal of money at any time w/o any interest charged. (Current or Savings Accounts)
   2. Time Deposit: Locks in your money for a defined period. Early withdrawal will be charged.
2. NBFCs are listed under the Companies Act, 1956 and are regulated by either entity - RBI, SEBI, IRDAI. On the other hand, banks are regulated by RBI under the Banking Regulation Act, 1949
3. NBFCs operate by investing across the deposited money (think of Mutual Funds or investment businesses) whereas banks rarely do that.
4. Banks are required to maintain a portion of their deposits as reserves. An NBFC is under no such requirement.

Look at more differences below👇🏾

Difference between Banks and NBFCs

Why are NBFCs important for the Indian Economy?