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ClassifiCATion of Banks and Non-Banking Financial Institutions (NBFI)- Economics, UPSC Mains Exam Video Lecture

FAQs on ClassifiCATion of Banks and Non-Banking Financial Institutions (NBFI)- Economics, UPSC Mains Exam Video Lecture

1. What is the classification of banks and non-banking financial institutions (NBFI)?

Ans. Banks and non-banking financial institutions (NBFI) are classified based on their specific functions and activities. Banks accept deposits from the public and provide various financial services like loans, credit facilities, and investment options. On the other hand, NBFI refers to financial institutions that provide financial services but do not have a full banking license. They include insurance companies, mutual funds, pension funds, leasing companies, and more.

2. What is the significance of the classification of banks and non-banking financial institutions (NBFI)?

Ans. The classification of banks and non-banking financial institutions (NBFI) is important for regulatory and supervisory purposes. Regulators need to identify and monitor different types of financial institutions to ensure their compliance with regulations and to maintain financial stability. The classification also helps in understanding the role and functions of each institution and assists in the formulation of appropriate policies and regulations.

3. Are banks and non-banking financial institutions (NBFI) subject to the same regulations?

Ans. While both banks and non-banking financial institutions (NBFI) are subject to regulations, the extent and nature of regulations may vary. Banks, being licensed financial intermediaries that deal with public deposits, are generally subject to stricter regulations to safeguard the interests of depositors and maintain financial stability. NBFI, although regulated, may have certain exemptions or specific regulations based on their specific activities and risks involved.

4. What are the main differences between banks and non-banking financial institutions (NBFI)?

Ans. The main differences between banks and non-banking financial institutions (NBFI) lie in their functions and scope of operations. Banks have a full banking license and can accept deposits from the public, while NBFI cannot. Banks also have the authority to create credit through lending, whereas NBFI primarily act as intermediaries by channeling funds from savers to borrowers. Banks are subject to stricter regulations due to their role in the monetary system, while NBFI may have more flexibility in their operations.

5. How do banks and non-banking financial institutions (NBFI) contribute to the economy?

Ans. Banks and non-banking financial institutions (NBFI) play crucial roles in the economy. Banks provide essential financial services, such as lending to businesses and individuals, facilitating trade, and promoting economic growth. They also act as custodians of public deposits, ensuring safety and availability of funds. NBFI, on the other hand, complement banks by providing specialized financial services like insurance, investment options, and leasing. They contribute to financial inclusion and diversify the sources of funding in the economy. Overall, both banks and NBFI contribute to the efficient allocation of resources and stimulate economic development.

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Jan 16, 2025 Last updated

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