[UPSC Prelims PYQ 2010] NBFCs in India — which statements are correct?
With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements:
- They cannot engage in the acquisition of securities issued by the government.
- They cannot accept demand deposits like Savings Account.
Which of the statements given above is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Explanation
- Statement 1 is incorrect: NBFCs are explicitly defined under the RBI Act, 1934, as companies engaged in the business of acquisition of shares, stocks, bonds, debentures, or securities issued by the government or local authority, among other activities. They can, and do, invest in government securities as part of their business and portfolio management activities.
- Statement 2 is correct: A key distinction between banks and NBFCs is that NBFCs cannot accept demand deposits (such as Savings Accounts or Current Accounts). They are allowed to accept only term deposits (e.g., fixed deposits) for a minimum period of 12 months, and these do not form part of the payment and settlement system, so they cannot issue cheques drawn on themselves.
Answer: (b) 2 only
