[amp_mcq option1=”A bank interacts directly with customers, but NBFI interacts with banks and governments” option2=”Credit creation is one of the primary functions of commercial bank in India” option3=”Banks generally grant long-term loans to industries” option4=”To purchase and sell securities is also one of the function of scheduled bank” correct=”option3″]
The correct answer is: C. Banks generally grant long-term loans to industries.
A bank is a financial institution that accepts deposits from customers and uses those deposits to make loans to other customers. A non-bank financial institution (NBFI) is a financial institution that does not accept deposits from customers. NBFIs include investment banks, insurance companies, and pension funds.
Credit creation is the process of creating new money by lending money. Commercial banks in India are allowed to create credit by lending money to customers. The amount of credit that a bank can create is limited by the reserve requirement, which is the percentage of deposits that a bank must keep in reserve.
Banks generally grant short-term loans to businesses. Long-term loans are typically granted by other financial institutions, such as insurance companies and pension funds.
To purchase and sell securities is also one of the functions of scheduled banks. Scheduled banks are commercial banks that are members of the Reserve Bank of India. They are required to maintain certain minimum levels of capital and liquidity, and they are subject to the supervision of the Reserve Bank of India.
Here is a table that summarizes the key differences between banks and NBFIs:
| Feature | Banks | NBFIs |
|—|—|—|
| Type of institution | Financial institution that accepts deposits from customers | Financial institution that does not accept deposits from customers |
| Activities | Lending money, accepting deposits, and providing other financial services | Investing in securities, providing insurance, and managing pension funds |
| Regulation | Regulated by the Reserve Bank of India | Regulated by the Securities and Exchange Board of India |