Non-banking financial institutions (NBFCs) and small finance banks (SFBs) are an important source of the Indian financial system. The Non-banking financial institutions and Small Finance banks both offer financial services, there is a stark contrast between their structure, functions, and regulatory environment. In this article, we are giving in-depth explanations of NBFCs and SFBs to give you an understanding of their roles and operational variations.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956, or the Companies Act, 2013, which carries on financial business like lending, investments, leasing, hire-purchase, insurance, or chit funds. They are governed by the Reserve Bank of India (RBI) as per the RBI Act, 1934.
A Small Finance Bank (SFB) is a specialised bank licensed by the RBI to offer basic banking services with emphasis on financial inclusion for unbanked and underserved sections. SFBs were launched in 2015 to fill the gap in rural and semi-urban regions with deposit and lending services. SFBs are governed by the Banking Regulation Act, 1949, and are subject to more stringent regulations compared to NBFCs.
| Parameter | NBFC | Small Finance Bank |
| Definition | Non-banking entity providing financial services without a banking license. | Licensed bank focusing on financial inclusion with basic banking services. |
| Regulation | Regulated by the RBI under the RBI Act, 1934; less stringent norms. | Regulated by the RBI under the Banking Regulation Act, 194, stricter norms. |
| Banking License | No banking license; cannot accept demand deposits. | Holds a banking license; can accept demand and time deposits. |
| Services | Loans, leasing, hire-purchase, investments and microfinance. | Savings/current accounts, loans, fixed deposits, basic banking. |
| Deposits | Can accept fixed deposits (if permitted); no demand deposits. | Accepts both demand (savings/current) and time deposits. |
| CRR/SLR Compliance | Not required to maintain CRR or SLR. | Must maintain CRR (4%) and SLR (18%) as per RBI norms. |
| Target Audience | Small businesses, retail customers, niche markets. | Unbanked, underbanked, low-income groups and small enterprises. |
| Capital Requirements | Lower capital requirements (minimum ₹2 crore for some NBFCs). | Higher capital requirements (minimum ₹200 crore). |
| Payment Systems | Cannot issue chequebooks or participate in payment systems. | Can issue chequebooks and participate in payment systems like NEFT/RTGS. |
| Priority Sector Lending | Not mandatory, though some NBFCs voluntarily lend to priority sectors. | Mandatory 75% of Adjusted Net Bank Credit to priority sectors. |
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No, only banks (including SFBs) can issue credit cards, though NBFCs can issue co-branded cards through partnerships.
Yes, deposits are insured up to ₹5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC).
No, NBFCs cannot open savings or current accounts.
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