Consider the following statements about Non-Banking Financial Companies (NBFCs) in India:
- NBFCs cannot accept demand deposits.
- All NBFCs operating in India have to be registered with RBI.
- NBFCs form part of the payment and settlement system and can issue cheques.
- Deposit insurance of DICGC is not available for NBFC deposits.
Which of the statements given above is/are correct?
- 1 and 4
- 1, 2 and 3
- 4 only
- 2, 3 and 4
Explanation
Statement 1 is correct
- NBFCs are explicitly prohibited from accepting demand deposits (like savings or current accounts deposits that can be withdrawn at any time). Only banks are authorised to accept demand deposits. Some NBFCs can accept deposits, but only term deposits (fixed deposits) for a specified period.
Statement 2 is incorrect
- Not all NBFCs have to register with the RBI. To avoid dual regulation, certain categories of NBFCs regulated by other financial regulators are exempted from RBI registration. For example, Venture Capital Funds, Merchant Banking companies, and Stock Broking companies are registered with SEBI; Insurance Companies are regulated by IRDAI; Nidhi companies are regulated by the Ministry of Corporate Affairs; and Chit Fund companies are regulated by the respective State Governments.
Statement 3 is incorrect
- Unlike banks, NBFCs do not form part of the payment and settlement system. Consequently, they cannot issue cheques drawn on themselves.
Statement 4 is correct
- The deposit insurance facility provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which currently insures bank deposits up to ₹5 lakh per depositor, is only available for commercial and cooperative banks. It is not available for depositors of NBFCs.
