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Economy question from UPSC CSE-Prelims, 2026

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.

Last updated Jun 9, 2026
Correct Answer: Option A — 1 and 4
Breakdown of the Statements:
Statement 1 is correct: Unlike traditional commercial banks, NBFCs are strictly prohibited from accepting demand deposits (like current accounts or savings accounts where money can be withdrawn at any time). Certain NBFCs can only accept term/fixed deposits for a specific duration.

Statement 2 is incorrect: Not all NBFCs register with the Reserve Bank of India (RBI). To avoid dual regulation, specific types of NBFCs are regulated by other statutory bodies. For example:

Housing Finance Companies are regulated by the National Housing Bank (NHB).

Merchant Banking, Venture Capital, and Mutual Fund Companies are regulated by SEBI.

Insurance Companies are regulated by IRDAI.

Chit Fund Companies are regulated by respective state governments.

Statement 3 is incorrect: NBFCs do not form part of the Payment and Settlement System in India. Consequently, they cannot issue cheques drawn on themselves (unlike commercial banks).

Statement 4 is correct: The deposit insurance facility provided by the DICGC (which covers bank deposits up to ₹5 lakh) is exclusively meant for depositors of commercial and cooperative banks. It is not extended to depositors of deposit-taking NBFCs, making NBFC deposits inherently riskier than bank deposits.
Answer verified by Quintessence Classes faculty — Karan Nagar, Srinagar.
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UPSC CSE 2026 Prelims

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Exam UPSC CSE
Stage Prelims
Year 2026
Subject Economy
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