Consider the following statements about the Non-Banking Financial Companies (NBFCs) in India:

Economy ·Previously asked in Union Public Service Commission Civil Services Examination 2026

View the full solved paper: GS Paper I 2026

Question

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?

  1. A. 1 and 4 (Correct answer)
  2. B. 1, 2 and 3
  3. C. 4 only
  4. D. 2, 3 and 4

Correct Answer

Option A — A

Detailed Solution & Explanation

The correct answer is Option A.

Key Points

  • Statement 1 is correct: NBFCs cannot accept demand deposits (chequable/withdrawable-on-demand accounts) — this is a core distinction from banks.
  • Statement 4 is correct: the DICGC deposit insurance (which covers bank deposits up to Rs 5 lakh) is not available to depositors of deposit-taking NBFCs.
  • NBFCs lend and invest like banks but cannot offer demand deposits, are outside the payment system, and their deposits are uninsured — the three big differences from banks.

Additional Information

  • Statement 2 is incorrect: not all NBFCs register with the RBI — some categories are regulated by other bodies (insurance companies by IRDAI, merchant banks/venture-capital funds by SEBI, Nidhi companies by the MCA, chit funds by state governments).
  • Statement 3 is incorrect: NBFCs are not part of the payment and settlement system and cannot issue cheques drawn on themselves.

Exam Tip

  • the 'no demand deposits, no cheques, no DICGC cover' trio is the standard NBFC-vs-bank discriminator.