RBI defined NBFC as "When a company's financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils b

NBFCs play an important role in the Indian financial system by complementing and competing with banks and by bringing in efficiency and diversity into financial intermediation. The Reserve Bank's regulatory perimeter applies to companies conducting non-banking financial activity, such as lending, investment or deposit acceptance as their principal business. The regulatory and supervisory architecture is, however, focused more on systemically important non-deposit-taking NBFCs (with asset size ₹5 billion and above) and deposit-accepting NBFCs with light touch regulation for other non-deposit-taking NBFCs. NBFCs differ from Banks on the following grounds: NBFC cannot accept demand deposits; whereas banks can accept the same. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself, whereas banks can do so. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks. An NBFC is not required to maintain Reserve Ratios (Cash Reserve Ratio, Statutory Liquidity Ratio etc.). An NBFC cannot indulge Primarily in Agricultural, Industrial Activity, Sale-Purchase and Construction of immovable Property.