The following are the differences between Banking companies and Non-Banking companies (NBCs) which includes Non-Banking financial companies (NBFCs).
1. Governing Act: Banking companies are Governed by Banking Companies Act, 1949. Non banking companies are Governed by RBI Act,
2. License: Banking companies must obtain license from RBI for commencement. No license is required for NBCs.
3. Ceiling on deposits: No ceiling on deposits mobilization in banking company. Whereas for NBCs there is a ceiling on acceptance of deposits which is based on the net worth of the company.
4. Capital Structure: For a banking company, Capital structure is decided by RBI, which has a two-tier 1. core capital and 2. risk-weighted capital. But for NBCs, Capital structure is decided by RBI, which is purely based on business such as lending or Hire Purchase finance or Leasing, etc.
5. Balance Sheet: The Balance sheet proforma should be as per the format provided by RBI for a banking company. But for non banking company, the balance sheet is as per the Companies Act.
6. Negotiable instruments: There is use of negotiable instruments such as cheque, bill of exchange for various transactions in a bank. But Negotiable instruments cannot be used for withdrawal of money from Non Banks.
7. Credit Rating: Credit rating is not required for accepting deposits in a banking company. But NBCs has a mandatory requirement of Credit rating for accepting deposits from the public.
8. Types of Accounts: Different types of accounts can be opened by a bank for the benefit of customers in a banking company. A non-banking company can only accept deposits of different duration as prescribed by RBI.
9. Interest on deposit: The interest charged by a bank` on deposits is decided by the banks themselves. It is based on Prime Lending Rate (it is the interest rate charged by the banks while lending on Government securities which have no risks). But for a non banking company, the interest rate on deposits is decided by RBI.
10. Insurance coverage on deposit: All bank deposits are insured up to a certain limit compulsorily with Deposit Insurance Credit Guarantee Corporation. But there is no insurance cover for non banking company deposits.
11. Lending policy: The lending policy of commercial banks is influenced by the monetary policy of RBI. But for the other, Lending policy is more decided by the security offered by the borrower.
12. Joint Operation: All banking companies are necessarily joint stock companies. NBCs can be in the form of Nidhis, Benefit societies etc. However, partnership firms are prohibited now.
13. Forex Transaction: Commercial banks can undertake transactions in foreign exchange as Authorized Dealers. NBCs cannot undertake transactions in foreign exchange unless they are licensed by RBI.
14. Suspension of operations: Banking companies’ operations can be suspended only by RBI. But for NBCs, RBI will only notify the cancellation of registration from accepting deposits in leading newspapers
15. Merger of banks: A banking company can be merged with other commercial banks as per RBI orders. Merger of non-banking will be as per the Companies Act.
16. Periodical Inspection: There can be inspection of banks by RBI periodically. No such approval is required from RBI. But, non banks should comply with the provisions of the Companies Act.
17. Appointment of Chairman & Directors: Appointment of Chairman, and Managing directors in a banking company requires prior approval of RBI. But no such approval is required from RBI for a NBC. But, they should comply with the provisions of the Companies Act.
18. Audit: All commercial banks will come under Statutory audit, in addition to RBI audit. For a non banking company, audit is as per the Companies Act.
19. Public Sector: There are public sector commercial banks. But there are no public sector non-banking companies.,
20. Type of Advertisements: Commercial banks can choose any type of advertisement for inviting public deposits. For non banks, advertisements for inviting public deposits should be as per RBI regulations.
21. Customer grievance: For a banking company, consumers’ Grievance Cell of respective banks will look after the grievance of customers. Company Law Board is the regulatory authority for non-banking companies in case of non refund of deposits.
22. Recovery of bad debts: Debt-recovery Tribunals are set up by banks for the recovery of bad debts. No such provisions are there for non banking companies.
23. Rate of Interest: Consumer credit is cheaper with banks as interest charged is on a declining rate of interest. But hire purchase finance of NBCs has a flat rate of interest and hence costlier.
24. Legal disputes: Banks are covered under the Bankers’ Book Evidence Act by which the statement provided by banks will be taken as an ultimate evidence in any legal dispute. But only provisions of Companies Act are applicable for non banks.
25. Evidence between banker and customer: Savings account and current account are operated in a bank and entries of the savings account are recorded in the pass book and the pass book is regarded as the conclusive evidence between a banker and customer. But there are no such accounts in non-banking companies.
26. Public vs Private limited: All banks have to be necessarily public limited companies. There can be private limited non banking companies.