Current set IAS · 1994 Q45

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Q45 (IAS/1994) Economy › Money, Banking & Inflation › Banking structure Answer Verified

The difference between a bank and a Non-Banking Financial Institution (NBFI) is that

A

a bank interacts directly with customers while an NBFI interacts with banks and governments

B

a bank indulges in a number of activities relating to finance with a range of customers, while an NBFI is mainly concerned with the term loan needs of large enterprises

C

a bank deals with both internal and international customers while an NBFI is mainly concerned with the finances of foreign companies

D

a bank’s main interest is to help in business transactions and savings/ investment activities while an NBFI’s main interest is in the stabilisation of the currency

Result

Your answer: — · Correct: B

Explanation

Option 2 is correct. Banks typically undertake a wide range of financial activities for diverse customers (retail, corporate, government) while NBFCs are corporate entities whose principal business is financial intermediation—loans and advances, acquisition of securities, leasing, hire‑purchase and similar activities [2]. NBFCs often specialise in particular finance segments (for example term lending) and many cater to the term‑loan needs of enterprises rather than providing the full suite of banking services offered by banks; this distinction is explicitly noted in comparative descriptions of banks versus NBFIs .

Sources

[1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > NON-BANKING FINANCIAL COMPANIES > p. 184
[2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 18. Non-Banking Financial Companies (NBFCs): > p. 84

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The difference between a bank and a Non-Banking Financial Institution (NBFI) is that

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