Consider the following statements about the Non-Banking Financial Companies (NBFCs) in In…

Approach: *Distinguish NBFCs from Banks by focusing on their regulatory framework, deposit-taking capabilities, and role in the payment system.*

- **Correct Answer:** (a) 1 and 4
- **Statement 1 is correct:** NBFCs are legally prohibited from accepting 'demand deposits' (deposits repayable on demand, like savings or current accounts). They can only accept term deposits.
- **Statement 4 is correct:** The DICGC covers banks, but it does *not* extend insurance cover to depositors of NBFCs. This makes investments in NBFCs riskier than bank deposits.
- **Why Statement 2 is incorrect:** While most NBFCs must register with the RBI, certain categories are exempted because they are regulated by other statutory bodies (e.g., Venture Capital Funds/Merchant Banks by SEBI, Nidhi companies by MCA, and Housing Finance Companies by NHB/RBI).
- **Why Statement 3 is incorrect:** NBFCs are not part of the payment and settlement system. Consequently, they cannot issue cheques drawn on themselves (unlike banks, which provide cheque facilities to customers).

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