NBFCs (also called shadow banks) in comparison to Banks are not heavily regulated barring few prudential norms. They are regulated by different regulatory agencies depending upon their nature of work e.g. SEBI, IRDA, State Government etc. NBFCs over the years have become an important cog in the financial wheel of the economies around the world, they fill in the gaps left by traditional banks as financial markets have evolved and become complex over the years.
NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
Source: RBI
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