A Non-Banking Financial Company, commonly known as an NBFC, is a company engaged mainly in financial activities such as providing loans and advances, financing assets, acquiring shares and securities, leasing, hire purchase, microfinance or other permitted financial services. Although an NBFC performs several functions similar to a bank, it is not a bank and operates under a different regulatory framework.
NBFCs play an important role in India’s financial system by providing credit to individuals, small businesses, start-ups, rural borrowers and other customers who may not easily obtain financing from traditional banks. However, because NBFCs deal with lending, investments and customer funds, their activities are regulated by the Reserve Bank of India.
Generally, a company cannot commence or carry on non-banking financial business requiring registration without obtaining a Certificate of Registration from the RBI under Section 45-IA of the Reserve Bank of India Act, 1934. The applicable registration requirement depends on the company’s activities, funding structure, customer interface, asset size and category of NBFC.
What Is an NBFC?
An NBFC is a company incorporated under the Companies Act that carries on financial activity as its principal business. Its activities may include lending money, providing advances, financing vehicles or equipment, acquiring securities, leasing assets or undertaking another financial activity permitted by the RBI.
A company is generally treated as carrying on financial activity as its principal business when:
- Its financial assets are more than 50 per cent of its total assets after deducting intangible assets; and
- Its income from financial assets is more than 50 per cent of its gross income.
Both conditions must be satisfied. This is commonly referred to as the “50-50 test” or Principal Business Criteria. A company carrying out manufacturing, trading, agriculture, construction or ordinary services as its main business does not become an NBFC merely because it has made some investments or granted occasional loans.
Difference Between an NBFC and a Bank
An NBFC may provide loans and make investments, but it does not have all the powers available to a bank. An NBFC cannot accept demand deposits like savings or current account deposits. It is not part of the regular payment and settlement system and cannot issue cheques drawn on itself.
Further, deposits accepted by an authorised deposit-taking NBFC are not covered by the deposit insurance protection available through the Deposit Insurance and Credit Guarantee Corporation. Not every RBI-registered NBFC is permitted to accept public deposits. A separate deposit-accepting authorisation is required, and the RBI has not issued fresh deposit-accepting Certificates of Registration to new NBFCs since 1997.
Types of NBFC Registration
NBFCs may be classified according to their activities, liabilities and regulatory layer. Major activity-based categories include:
- NBFC-Investment and Credit Company
- NBFC-Micro Finance Institution
- NBFC-Factor
- Infrastructure Finance Company
- Infrastructure Debt Fund-NBFC
- Housing Finance Company
- Account Aggregator
- Peer-to-Peer Lending Platform
- Core Investment Company
- Mortgage Guarantee Company
The RBI also follows a Scale Based Regulation framework consisting of the Base Layer, Middle Layer, Upper Layer and Top Layer. The applicable compliance requirements become more extensive depending on the size, activity, complexity and risk profile of the NBFC. Non-deposit-taking NBFCs with an asset size below ₹1,000 crore generally fall in the Base Layer, while non-deposit-taking NBFCs with assets of ₹1,000 crore or more generally fall in the Middle Layer.
Type I and Type II NBFCs
The RBI introduced an important change effective from July 1, 2026.
A Type I NBFC is an RBI-registered NBFC that does not access public funds and does not have any customer interface. A Type II NBFC refers to an RBI-registered NBFC other than a Type I NBFC.
Companies that intend to borrow from banks, receive inter-corporate deposits, issue debt instruments or provide loans and services to customers ordinarily have public funds or customer interface. Such companies must obtain registration as Type II NBFCs before commencing those activities.
From July 1, 2026, an NBFC that does not access public funds, does not have customer interface and has an asset size below ₹1,000 crore may qualify as an “Unregistered Type I NBFC” and receive exemption from the registration requirement, subject to prescribed conditions. However, it must maintain that business model, pass the required annual board resolution and make appropriate disclosures in its financial statements.
If such a company intends to access public funds or deal with customers, it must obtain Type II NBFC registration beforehand. A no-public-funds and no-customer-interface NBFC with assets of ₹1,000 crore or more must obtain registration as a Type I NBFC.
Minimum Net Owned Fund Requirement
The minimum Net Owned Fund requirement depends on the proposed category of NBFC.
For a new NBFC-Investment and Credit Company, NBFC-MFI or NBFC-Factor, the minimum NOF is generally ₹10 crore. Existing NBFCs in these categories have been given a specified transition period to achieve the ₹10 crore requirement by March 31, 2027.
For NBFC-P2P, NBFC-AA and a registered Type I NBFC, the minimum NOF is ₹2 crore. The minimum NOF for an Infrastructure Finance Company and an Infrastructure Debt Fund-NBFC is ₹300 crore. Other specialised categories, such as Housing Finance Companies and Mortgage Guarantee Companies, are governed by separate capital requirements.
Net Owned Fund is not simply the company’s paid-up capital. Certain accumulated losses, intangible assets, deferred revenue expenditure and excess investments or exposures in group entities may have to be deducted while calculating NOF. Therefore, the capital must be brought into the company through a properly documented and verifiable source.
Eligibility for NBFC Registration
A company seeking RBI registration should generally satisfy the following conditions:
The applicant must be incorporated as a company under the Companies Act. Its Memorandum of Association should contain suitable financial-service objects consistent with the proposed NBFC activity.
It must maintain the required minimum Net Owned Fund for its category. The promoters and directors should be financially sound, experienced and capable of managing a regulated financial business.
The company should have a clear and commercially viable business plan. It should also establish appropriate governance, credit assessment, risk management, internal control, information technology, KYC, anti-money laundering and customer grievance systems.
Merely depositing the required capital is not enough. The RBI examines the complete background of the applicant, its promoters, source of funds, group entities, financial position, proposed activities and ability to comply with the regulatory framework.
Documents Required for NBFC Registration
The exact documents depend on the category and facts of the application. Generally, the RBI may require:
- Certificate of Incorporation, Memorandum and Articles of Association
- PAN and corporate identification details
- Board resolution approving the NBFC application
- Details and profiles of promoters, directors and shareholders
- Educational and professional qualifications of directors
- Audited or provisional financial statements
- Statutory auditor’s certificate confirming Net Owned Fund
- Banker’s report and bank statements
- Evidence showing the source of capital introduced
- Group and associate company details
- Organisational structure and management information
- Detailed business plan and financial projections
- Lending, credit, risk, KYC and fair-practice policies
- Declarations regarding criminal, regulatory or enforcement proceedings
The RBI’s document checklist is indicative rather than exhaustive. It may seek additional explanations, documents, certificates or clarifications before deciding the application.
Process of NBFC Registration
The first stage is to incorporate a company with suitable financial objects. The promoters must then introduce the prescribed capital and ensure that the funds are free from any charge or borrowed arrangement.
The next stage involves preparing the RBI application, policies, business plan, financial projections and supporting documents. The application must be submitted through the RBI’s PRAVAAH portal under the appropriate NBFC category.
After submission, the RBI examines the application and may raise queries regarding the source of funds, promoter background, business model, governance structure, financial projections or proposed lending operations. The applicant must respond accurately and within the prescribed period.
The RBI may also seek additional documents or conduct further due diligence. Registration is not automatic merely because the company has the required capital. The Certificate of Registration is issued only when the RBI is satisfied that the applicant meets the applicable legal, financial, governance and public-interest requirements.
The company should not commence regulated NBFC activities before receiving the appropriate RBI Certificate of Registration.
Post-Registration Compliances
After registration, an NBFC must comply with continuing RBI and Companies Act requirements. These may include capital adequacy, asset classification, provisioning, KYC and AML controls, fair-practice requirements, customer disclosures, credit information reporting, statutory returns, financial statements, auditor reporting, corporate governance and grievance redressal.
The exact requirements depend on the NBFC’s category and regulatory layer. Failure to comply can result in monetary penalties, business restrictions or cancellation of the Certificate of Registration. Conducting a financial business requiring registration without an RBI licence may also result in penalty, fine or prosecution.
Conclusion
NBFC registration is a detailed regulatory process involving company incorporation, capital planning, promoter due diligence, policy preparation, business modelling and RBI approval. Before applying, promoters must identify the correct NBFC category and determine whether the business will involve public funds or customer interaction.
The 2026 framework has provided limited registration exemption to certain no-public-funds and no-customer-interface companies with assets below ₹1,000 crore. However, lending to customers, providing financial products or accessing external borrowings generally requires appropriate RBI registration.
A carefully prepared application, transparent source of capital, experienced management and practical compliance system can significantly improve the quality of an NBFC registration proposal.
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