| Definition |
Financial institutions that are licensed to accept deposits and provide loans. |
Financial entities that offer financial services but cannot accept demand deposits. |
| Regulator |
Regulated by the central bank (e.g., RBI in India). |
Regulated by other financial regulators (e.g., RBI for NBFCs, SEBI for mutual funds). |
| Core Activity |
Accepting deposits and providing loans. |
Providing loans, asset management, insurance, leasing, etc. |
| Deposit Acceptance |
Can accept both demand and term deposits. |
Generally cannot accept demand deposits (some can accept term deposits under limits). |
| Examples |
SBI, HDFC Bank, ICICI Bank. |
Bajaj Finance, LIC, HDFC Ltd., Mutual Funds, Insurance Companies. |
| Payment System Access |
Directly involved in the country’s payment system (NEFT, RTGS, UPI). |
Do not have direct access to payment and settlement systems. |
| Credit Creation |
Can create credit by lending more than deposits held (fractional reserve banking). |
Cannot create credit in the same way as banks. |
| Monetary Policy Role |
Directly influenced by and participates in central bank’s monetary policy. |
Indirectly affected by monetary policy decisions. |
| Account Services |
Offer savings, current, and fixed deposit accounts. |
Do not offer regular savings or checking accounts. |
| Risk Profile |
Generally more regulated, with stricter capital and reserve requirements. |
More flexible but potentially riskier due to lower regulation. |
| Revenue Model |
Interest margin between deposits and loans. |
Fees, commissions, interest from investments or loans. |
| Target Audience |
General public, businesses, government. |
Retail investors, businesses, niche markets. |
| Liquidity Support |
Can borrow from the central bank during crises. |
Limited or no direct access to central bank liquidity. |
| Function Coverage |
Broad financial functions under one roof. |
Specialized financial services or products. |
Banking vs Non-Banking Financial Institutions