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Q68 (CDS-II/2022) Economy › Money, Banking & Inflation › Banking structure Answer Verified

Which one of the following statements about Non-Banking Financial Companies (NBFCs) is not correct?

Result
Your answer: —  Â·  Correct: B
Explanation

Non-Banking Financial Companies (NBFCs) are entities engaged in the business of loans and advances, acquisition of shares, and other financial activities [3]. While they perform functions akin to banks, there are critical regulatory differences. Statement 2 is incorrect because NBFCs are explicitly permitted to give loans; in fact, categories like NBFC-Investment and Credit Company (NBFC-ICC) are specifically designed for the business of lending and investment [1]. Conversely, the other statements are correct: NBFCs are prohibited from accepting demand deposits [4]. They do not form part of the payment and settlement system, meaning they cannot issue cheques drawn on themselves [4]. Furthermore, unlike banks, the deposit insurance facility provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to depositors of NBFCs [4].

Sources

  1. [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > NON-BANKING FINANCIAL COMPANIES > p. 184
  2. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > NBFCs Regulated by RBI > p. 185
  3. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.17 Indian Financial System > p. 81
  4. [4] https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=1167
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