Official Question UPSC 2026
Consider the following statements about the Non-Banking Financial Companies (NBFCs) in India : 1. NBFCs cannot accept demand deposits. 2. All the NBFCs operating in India have to be registered with the RBI. 3. NBFCs form part of the payment and settlement system and can issue cheque drawn on itself. 4. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to the depositors of deposit taking NBFCs. Which of the statements given above is/are correct ?
Solution & Analysis
Answer: A
To differentiate an NBFC from a commercial bank, we must look at the Reserve Bank of India (RBI) operational guidelines:
•Statement 1 is Correct: By legal definition, an NBFC is strictly prohibited from accepting demand deposits (like savings or current accounts). While some authorized NBFCs can accept term/fixed deposits, demand deposits remain the exclusive privilege of banks.
•Statement 2 is Incorrect: To prevent dual regulation, not all NBFCs register with the RBI. Entities regulated by other apex bodies are exempt from RBI registration. For example, Venture Capital Funds and Merchant Banks register with SEBI, while Chit Funds are regulated by State Governments.
•Statement 3 is Incorrect: NBFCs are deliberately excluded from the national payment and settlement system. Because they do not hold demand deposits, they cannot issue cheques drawn on themselves.
•Statement 4 is Correct: The safety net of the Deposit Insurance and Credit Guarantee Corporation (DICGC)—which secures deposits up to ₹5 lakh—is exclusively designed for banks. Depositors placing money in a deposit-taking NBFC do so at their own risk without DICGC cover.
Conclusion: Statements 1 and 4 accurately describe the regulatory limitations placed on NBFCs.