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

1. NBFCs are required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) like banks.

2. NBFCs can borrow from the Reserve Bank of India (RBI) through the repo (repurchase) window.

3. NBFCs are allowed to lend to individuals and businesses, similar to banks.

4. NBFCs can accept demand deposits from the public.

How many of the above statements are correct?

The correct answer is option 2

Key Points

• NBFCs are NOT required to maintain CRR or SLR, unlike banks. However, some NBFCs may be subject to specific liquidity requirements imposed by RBI. Hence, Statement 1 is incorrect.
• NBFCs can access liquidity from RBI through the repo window, but only those classified as systemically important and meeting RBI criteria can do so. Hence, Statement 2 is correct.
• NBFCs are permitted to lend to individuals and businesses, similar to banks, but they cannot issue cheques drawn on themselves. Hence, Statement 3 is correct.
• NBFCs cannot accept demand deposits (like savings or current account deposits) from the public. They can only accept fixed deposits under strict RBI regulations. Hence, Statement 4  is incorrect.

Additional Information

• NBFCs lend and make investments, and hence their activities are akin to that of banks; however, there are a few differences as given below:
• NBFCs do not have a banking license;
• NBFCs cannot accept demand deposits;
• NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not availableto depositors of NBFCs, unlike in the case of banks.
• Unlike banks, NBFCs are not subjected to stringent and substantial regulations. 
• Regulation:
  • The functions of the NBFCs are managed by both the Ministry of Corporate Affairs and the RBI.
  • The RBI has the authority to issue licenses to NBFCs, regulate their operations, and ensure that they adhere to the established norms and regulations.