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Difference between banking and non banking financial institutions

And every organization now involved attracting the retail customers that means the middle income group people of the country. To draw their attention the sells persons of different organization try to knock every possible door.

These activities of different organization increase the interest about this sector. As both commercial banks and the non financial institutes are in the market, so it makes confusion to the general people about the activities of these organizations. This article helps the customers to makes differentiate between these.

The Difference between NBFCs and Banks

Banks, usually a corporation, that accepts deposits, makes loans, pays checks, and performs related services for the public. The Bank Holding Company Act of 1956 defines a bank as any depository financial institution that accepts checking accounts checks or makes commercial loans, and its deposits are insured by a federal deposit insurance agency. A bank acts as a middleman between suppliers of funds and users of funds, substituting its own credit judgment for that of the ultimate suppliers of funds, collecting those funds from three sources: A bank earns money by reinvesting these funds in longer-term assets.

A Commercial Bank invests funds gathered from depositors and other sources principally in loans.

An investment bank manages securities for clients and for its own trading account. In making loans, a bank assumes both interest rate risk and credit risk. The commercial banks are described now a day by many agents of economic development and social change. Their functions and roll are undergoing revolutionary changes client coverage and extended beyond imagination. While many people believe that banks play only narrow roll in the economy taking deposit and making loans the modern banks has bad to adopt new roles to remain competitive and responsive to public needs.

Transforming saving received primarily from household into credit for business firm and others in order to make investment in new building, equipment and other goods. Carrying out payment for goods and services on behalf of their customers.

Standing behind their customers to pay off customer debts, when those customers are unable to pay. The risk management role: Assisting customer in preparing financially for the risk of lost to property and persons.

  • A NBFC Non Banking Financial Company is an organization that does not accept customer cash deposits but provides all financial services except bank accounts;
  • Yet, as the number of financial institutions increases, there is increased competition among them, which has resulted in a variety of products being offered to banking as well as non-banking customers at competitive prices;
  • A Commercial Bank invests funds gathered from depositors and other sources principally in loans;
  • A NBFC Non Banking Financial Company is an organization that does not accept customer cash deposits but provides all financial services except bank accounts;
  • The commercial banks are described now a day by many agents of economic development and social change.

Aiding customers in fulfilling their long rang goals for a better life by building, managing, and protecting savings. Acting on behalf of customers to manage and protect their property or issue and redeem their securities. Saving as a conduit for govt.

  • While many people believe that banks play only narrow roll in the economy taking deposit and making loans the modern banks has bad to adopt new roles to remain competitive and responsive to public needs;
  • Assisting customer in preparing financially for the risk of lost to property and persons;
  • Traditionally, our banking financial institutions are involved in term lending activities, which are mostly unfamiliar products for them;
  • Institutions with good market standing often charge a relatively higher price for their product;
  • The Bank Holding Company Act of 1956 defines a bank as any depository financial institution that accepts checking accounts checks or makes commercial loans, and its deposits are insured by a federal deposit insurance agency.

Non-bank financial institutions represent one of the most important parts of a financial system. A total of 25 NBFIs are now working in the country. The financing modes of the NBFIs are long term in nature.

Traditionally, our banking financial institutions are involved in term lending activities, which are mostly unfamiliar products for them. Inefficiency of BFIs in long-term loan management has already leaded an enormous volume of outstanding loan in our country.

  1. Transforming saving received primarily from household into credit for business firm and others in order to make investment in new building, equipment and other goods.
  2. A total of 25 NBFIs are now working in the country. This will not only allow you to plan effectively, but will also enable you to make adjustments in your plan in case any change occurs that is not in your control.
  3. There is no requirement for NBFCs to maintain a reserve ratio in order to function in the economy, but it is obligatory for banks to do so because it affects the supply of money in a country at a particular time period.

At this backdrop, in order to ensure flow of term loans and to meet the credit gap, NBFIs have immense importance in the economy. In addition, non-bank financial sector is important to increase the mobilization of term savings and for the sake of providing support services to the capital market.

The basic difference may include: A NBFC Non Banking Financial Company is an organization that does not accept customer cash deposits but provides all financial services except bank accounts. If the both play positively than it can be said that, the development of the country is sure.