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Chris John

Expert

Published on: Sep 16, 2026

Non-Banking Financial Companies (NBFC)

Non-Banking Financial Companies (NBFCs) are entities incorporated as per the Companies Act of 1956 and 2013. These companies play a crucial role in India's financial system by introducing diversity and efficiency into the sector. Over the years, NBFCs have evolved significantly in operations, asset quality, heterogeneity, profitability, and regulatory frameworks. They are valued by customers for their quick decision-making, exceptional customer support, and expertise in niche areas. Furthermore, NBFCs strengthen the financial resilience of the nation by acting as backup institutions when banks face challenges. This article delves into various aspects of Non-Banking Financial Companies.

NBFC Overview

As previously mentioned, NBFCs are governed by the rules and regulations defined in the Companies Act of 1956 and 2013. They engage in lending and advances, as well as the acquisition of stocks, bonds, and debentures issued either by the Government of India or local authorities. Learn more about the regulatory framework with the NCLT Amendment Rules 2020.

Banks vs. NBFCs

While banks and NBFCs engage in similar activities, several key differences set them apart:

  • NBFCs cannot accept demand deposits.
  • They are not a part of the Indian payment and settlement system, hence cannot issue self-drawn cheques.
  • Deposit insurance from the Deposit Insurance and Credit Guarantee Corporation is not available to NBFC depositors.
  • 100% Foreign Direct Investment (FDI) is allowed in NBFCs under the automatic route in 18 specified activities, following minimum capitalization norms.

Types of NBFCs

Below are the various types of NBFCs operating in India and their related activities:

  • Asset Finance Company (AFC): Financing physical assets supporting productive economic activities, including vehicles and machinery.
  • Investment Company (IC): Engages in the acquisition and sale of securities.
  • Loan Company (LC): Specializes in providing financial services by lending, except to Asset Finance Companies.
  • Infrastructure Finance Company (NBFC-IFC): Provides loans for infrastructure projects.
  • Infrastructure Debt Fund (NBFC-IDF): Facilitates long-term debt flow into infrastructure projects.
  • Systemically Important Core Investment Company (CIC-ND-SI): Engages in equity share investments.
  • Micro Finance Institution (MFI): Offers credit to economically disadvantaged groups and supports MSMEs.
  • NBFC Non-Operative Financial Holding Company (NOFHC): Allows promoter groups to establish new banks.
  • Factor (NBFC-Factor): Acquires receivables or loans against receivables at a discount.
  • Mortgage Guarantee Company (MGC): Provides mortgage guarantee services.
  • Account Aggregator (NBFC-AA): Consolidates and organizes customer financial asset information.
  • NBFC Peer to Peer Lending Platform (NBFC-P2P): Offers platforms for lenders and borrowers to meet for unsecured lending.

Incorporation of NBFC

The process for incorporating a Non-Banking Financial Company includes:

  • Company registration under the Companies Act of 1956 or 2013 is mandatory.
  • The company must maintain a minimum net owned fund of INR 2 crores.
  • A minimum of one director should either come from an NBFC background or be a senior banker serving full-time.
  • CIBIL records of the company are required to be acceptable.
  • Upon fulfilling these criteria, an online application must be submitted on the official RBI portal. All essential documents should accompany the application.
  • A CARN number will be generated post-submission.
  • The application’s hard copy must be sent to the local RBI branch.
  • After a thorough review, the NBFC license is granted.

For companies needing to understand the process better, refer to MCA Guidelines for Company Name.

Guidelines for NBFC Functioning

NBFCs must adhere to the following guidelines once licenses are obtained:

  • NBFCs cannot accept deposits payable on-demand.
  • The interest rates they charge must not exceed RBI's prescribed caps.
  • The duration for public deposits must range between a minimum of 12 and a maximum of 60 months.
  • RBI does not guarantee the repayment of borrowed amounts by NBFCs.
  • Public deposits are inherently unsecured.
  • Any changes in company composition or details must be reported to RBI.
  • Annual submission of audited balance sheets is compulsory.
  • Quarterly liquidity asset returns are mandatory.
  • A statutory NBS–1 return on deposits must be submitted annually.
  • Auditors must confirm the company’s capability to repay public deposits.
  • A six-monthly credit rating is required and filed with RBI.
  • Half-yearly ALM returns are obligatory for NBFCs with Rs. 20 crore or more in public deposits or assets totaling Rs. 100 crore or more.
  • NBFCs must maintain at least 15% of public deposits as liquid assets.

Understanding these guidelines is crucial for successful NBFC operations. Business owners can better navigate these regulations by reviewing related information on Split Payments on Ledgers.

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Frequently Asked Questions

Common questions about Non Banking Financial Companies in India.

A Non-Banking Financial Company (NBFC) is a company incorporated under the Companies Act, which engages in the business of loans and advances, acquisition of shares/bonds/debentures, but cannot accept demand deposits or be a part of the payment and settlement system.
Unlike banks, NBFCs cannot accept demand deposits or issue cheques drawn on themselves. Additionally, depositors of NBFCs do not have access to the Deposit Insurance and Credit Guarantee Corporation, which insures bank deposits.
Some major types of NBFCs in India include Asset Finance Companies, Investment Companies, Loan Companies, Infrastructure Finance Companies, Micro Finance Institutions, Mortgage Guarantee Companies, and Peer-to-Peer Lending Platforms, each serving different financial needs.
To incorporate an NBFC, a company must be registered under the Companies Act, have a minimum net owned fund of INR 2 crores, have at least one director with NBFC or banking experience, and have acceptable CIBIL records.
Yes, NBFCs can accept public deposits, but they must be for a minimum of 12 months and a maximum of 60 months. These deposits are unsecured and not guaranteed by the RBI.
NBFCs are required to submit their audited balance sheets annually, quarterly returns on liquid assets, annual statutory returns on public deposits, credit ratings every six months, and half-yearly Asset Liability Management returns (for larger NBFCs).
Yes, the interest rates charged by NBFCs cannot exceed the threshold prescribed by the Reserve Bank of India (RBI).
NBFCs are required to maintain a minimum level of 15% of their public deposits in the form of liquid assets.
Yes, 100% FDI is permitted in NBFCs under the automatic route in 18 specified activities, subject to minimum capitalization norms.
NBFCs bring diversity and efficiency to the financial sector and act as backup institutions when banks come under stress, thereby enhancing the resilience of the country's financial system.