Previous Year Question
With reference to the Non-Banking Financial Companies (NBFCs) in India, consider the following statements:
They cannot engage in the acquisition of securities issued by the Government.
They cannot accept demand deposits like Savings Account.
Which of the statement(s) given above is/are correct?
Only 1
Only 2
Both 1 and 2
Neither 1 nor 2
Correct Answer: B
Detailed Solution
Statement 1 is incorrect. NBFCs can acquire securities. The RBI’s description of an NBFC includes financial activities such as the acquisition of shares, stocks, bonds, debentures and securities issued by the Government or a local authority. Therefore, the claim that NBFCs cannot acquire government securities is incorrect.
Statement 2 is correct. NBFCs cannot accept deposits repayable on demand. Savings and current accounts are important examples of bank deposits from which money can be withdrawn on demand, subject to the applicable conditions.
Some NBFCs may be specifically authorised by the RBI to accept public deposits. Even such NBFCs cannot accept demand deposits like banks; the public deposits permitted to them have prescribed maturity periods.
Additionally:
NBFCs do not form part of the payment and settlement system.
They cannot issue cheques drawn on themselves.
Deposits held with deposit-taking NBFCs do not receive the same DICGC deposit-insurance protection available to bank depositors.