Question 1

What is the full form of NBFC in the context of the Indian financial system?

Accepted Answer

Non-Banking Financial Company. NBFC stands for Non-Banking Financial Company. These are institutions that provide various financial services similar to banks but do not hold a full banking license. They are registered under the Companies Act of 1956 or 2013.

Question 2

Under which act are NBFCs primarily registered in India?

Accepted Answer

Companies Act, 1956/2013. NBFCs are primarily registered as companies under the Companies Act, 1956 or 2013. This registration allows them to engage in the business of loans, advances, and acquisition of shares. However, their financial activities are regulated by the Reserve Bank of India.

Question 3

Which of the following is a core difference between a bank and an NBFC?

Accepted Answer

NBFCs cannot accept demand deposits.. A major distinction is that NBFCs cannot accept demand deposits like savings or current accounts. Banks use these deposits as a primary source of funds for daily transactions. NBFCs typically rely on term deposits or market borrowings.

Question 4

Do NBFCs form a part of the Payment and Settlement System in India?

Accepted Answer

No, they cannot issue cheques drawn on. NBFCs do not form part of the payment and settlement system. Consequently, they cannot issue cheques drawn on themselves like commercial banks do. This limitation defines their role as financial intermediaries rather than full payment service providers.

Question 5

Which facility is NOT available to depositors of NBFCs, unlike bank depositors?

Accepted Answer

Deposit Insurance facility. Depositors in NBFCs do not have the protection of the Deposit Insurance and Credit Guarantee Corporation (DICGC). In banks, deposits up to 5 lakh rupees are insured against failure. This makes bank deposits relatively safer for small retail investors.

NBFCs — Set 1