Correct Option
The correct option is A. 1 and 4
[as per provisional answerkey]
Explanation
Non-Banking Financial Companies (NBFCs) are entities registered under the Companies Act, 1956 (or 2013), engaged in the business of loans and advances, acquisition of shares/stocks/bonds, and other financial activities. While they perform functions similar to banks, they are distinguished by specific regulatory limitations under the Reserve Bank of India (RBI) Act, 1934.
- Statement 1 is Correct: NBFCs are prohibited from accepting demand deposits (deposits payable on demand, such as current or savings accounts). They can only accept public deposits for a fixed tenure (term deposits).
- Statement 2 is Incorrect: While most NBFCs are regulated by the RBI, not all are required to register with it. Certain categories of NBFCs are regulated by other statutory regulators to avoid dual regulation. For example, Venture Capital Funds and Merchant Banking companies are regulated by SEBI, Insurance companies by IRDAI, and Nidhi companies by the Ministry of Corporate Affairs.
- Statement 3 is Incorrect: NBFCs do not form part of the payment and settlement system. Consequently, they cannot issue cheques drawn on themselves, unlike commercial banks.
- Statement 4 is Correct: The deposit insurance facility provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) is exclusively available to depositors of banks. It does not extend to depositors of NBFCs, including those authorized to take public deposits.
Key Takeaway
Key Takeaway: NBFCs differ from banks primarily because they cannot accept demand deposits, cannot issue self-drawn cheques, and their depositors are not covered by DICGC insurance.