Traditional banks take deposits and lend them out to borrowers and businesses. They are required by law to keep a certain amount of capital on hand, and they can only borrow more capital from the central bank.
Non-banking financial institutions (NBFCs) perform similar tasks as traditional banks but typically do not require the same level of regulatory oversight. They have more flexibility because they can issue credit with little government interference, while also being able to save money for themselves. They can offer these services because they are not always regulated by financial regulations such as those aimed at traditional banking institutions and do not rely on depositors for their income or wealth like banks do.
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