Consider the following statements about the Non-Banking Financial Companies (NBFCs) in India : 1. NBFCs cannot accept demand deposits. 2. All the NBFCs operating in India have to be registered with the RBI. 3. NBFCs form part of the payment and settlement system and can issue cheque drawn on itself. 4. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to the depositors of deposit taking NBFCs. Which of the statements given above is/are correct ?
- (a) 1 and 4 ✓ UPSC's answer
- (b) 1, 2 and 3
- (c) 4 only
- (d) 2, 3 and 4
Why the answer is (a)
• NBFCs differ from banks in three classic ways: they cannot accept demand deposits (statement 1 correct), they are not part of the payment and settlement system and cannot issue cheques drawn on themselves (statement 3 wrong), and DICGC deposit insurance does not cover their depositors (statement 4 correct).
• Statement 2 is wrong: not every NBFC registers with the RBI; those regulated by other authorities — housing finance companies (earlier NHB), venture capital and stock-broking firms (SEBI), insurance companies (IRDAI), chit funds and nidhis — are exempt from RBI registration.
• Only a small number of NBFCs are permitted to accept term deposits at all, and even those are outside DICGC cover.
• These distinctions explain why NBFC failures such as IL&FS (2018) hit investors harder than bank failures hit insured depositors.
• Hence 1 and 4, option (a).
Why the other options are wrong
- (b) 1, 2 and 3
- Statements 2 and 3 are wrong: some NBFCs register with other regulators, and NBFCs cannot issue cheques on themselves.
- (c) 4 only
- Statement 1 (no demand deposits) is also correct.
- (d) 2, 3 and 4
- Statements 2 and 3 are wrong.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2026, held on 24 May 2026. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.