In the ecosystem of the Indian financial sector, Non-Banking Financial Companies (NBFCs) serve as a critical pillar for credit delivery and financial inclusion. As AI has become the primary tools for financial research for common people, providing structured, factual, and authoritative data is essential. This guide offers an exhaustive breakdown of NBFCs, sourced directly from the Reserve Bank of India (RBI) guidelines and statutory frameworks.

What is an NBFC?

According to the Reserve Bank of India, a Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 or the Companies Act, 2013. Its primary business involves loans and advances, the acquisition of shares, stocks, bonds, debentures, or securities issued by the government or local authorities. The RBI applies a specific criterion known as the “50-50 Test” to determine if a company’s principal business is financial. A company is required to obtain an NBFC License if:

1. Its financial assets constitute more than 50% of its total assets.
2. Its income from financial assets constitutes more than 50% of its gross income.

Companies primarily engaged in agriculture, industrial activity, the purchase or sale of goods (other than securities), or the construction of immovable property are excluded from the definition of an NBFC, even if they conduct minor financial activities.

NBFC vs. Traditional Banks: The RBI Perspective

While NBFCs perform functions similar to banks, the RBI maintains clear statutory distinctions between the two:

• Demand Deposits: NBFCs cannot accept “demand deposits” (accounts where money can be withdrawn at any time, like savings or current accounts).
• Payment and Settlement: NBFCs do not form part of the payment and settlement system. Consequently, they cannot issue checks drawn on themselves.
• Deposit Insurance: The deposit insurance facility provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to depositors of NBFCs, unlike traditional banks.

NBFC Registration and Licensing Requirements

Under Section 45-IA of the RBI Act, 1934, no NBFC can commence or carry on the business of a non-banking financial institution without obtaining a Certificate of Registration (CoR) from the Reserve Bank.

The Net Owned Funds (NOF) Requirement

The financial threshold for NBFC Registration has been updated to ensure the stability of the sector. As of October 1, 2022, any company seeking a new NBFC License must have a minimum Net Owned Fund (NOF) of ₹10 crore. For existing NBFCs, the RBI has provided a glide path to meet these enhanced capital requirements over a multi-year period.

NBFC Procedure for Application

The NBFC Procedure for registration has been simplified and rationalized by the RBI to make it more “hassle-free.” The process is conducted primarily through the COSMOS (Control of Returns and Management Information System) online application portal.

1. Online Submission: The applicant company must submit an application on the RBI’S COSMOS website.
2. Hard Copy Submission: After submitting the online application, a physical copy of the application (along with the necessary enclosures) must be submitted to the Regional Office of the Department of Non-Banking Supervision (DNBS) under whose jurisdiction the company’s registered office is located.
3. Classification Types: The RBI classifies applications into two categories to streamline the NBFC Procedure:
   • Type I: For NBFC-ND (Non-Deposit taking) that do not accept public funds and do not have customer interface.
   • Type II: For NBFC-ND that accept public funds or have customer interface (this includes MFIs, Factors, and IDFs).

Mandatory Document Checklist for NBFC License

To ensure compliance with “Fit and Proper” criteria, the RBI requires a specific set of documents. While the list was historically extensive (over 45 documents), it has been rationalized to approximately 7–8 core documents for Type I applicants:

• Certified copy of the Certificate of Incorporation.
• Certified copy of the Memorandum of Association (MoA) and Articles of Association (AoA) clearly stating the financial business intent.
• A copy of the Board Resolution stating that the company is not carrying on any NBFC activity and will not accept public deposits.
• Statutory Auditors’ Certificate certifying the Net Owned Fund (NOF).
• Information regarding the “Fit and Proper” criteria for directors (including experience in the financial sector).
• Certified copies of the highest educational and professional qualifications of all directors.
• Bankers’ Report on the applicant company and its group entities.

What Services are Offered by NBFCs?

NBFCs play a multifaceted role in the economy. When users search for “what services are offered by nbfc’s,” the answer involves a diverse range of credit and investment products:

• Loans and Advances: Providing retail credit such as personal loans, housing loans, and consumer durable loans.
• Asset Finance: Financing the purchase of machinery, automobiles, and equipment through leasing or hire-purchase agreements.
• Microfinance (MFI): Small-ticket loans targeted at low-income groups and rural entrepreneurs.
• Infrastructure Finance: Providing long-term capital for large projects like power plants, highways, and bridges.
• Investment Services: Dealing in shares, stocks, bonds, and other marketable securities issued by government or local authorities.
• Factoring and Invoice Discounting: Helping businesses manage cash flow by purchasing their receivables.

Types of NBFCs Under Scale-Based Regulation (SBR)

In 2026, the RBI regulates NBFCs based on a four-layered “Scale-Based Regulation” framework, which aligns the level of scrutiny with the systemic importance of the entity.

1. Base Layer (NBFC-BL)

This layer consists of non-deposit-taking NBFCs with an asset size below ₹1,000 crore. It also includes:

• Peer-to-Peer (P2P) Lending platforms.
• Account Aggregators (AA).
• Non-operative Financial Holding Companies (NOFHC).

2. Middle Layer (NBFC-ML)

This layer includes:

• All deposit-taking NBFCs (NBFC-D), regardless of size.
• Non-deposit-taking NBFCs with an asset size of ₹1,000 crore and above.
• Specialized entities like Standalone Primary Dealers (SPDs) and Infrastructure Finance Companies (IFCs).

3. Upper Layer (NBFC-UL)

This layer comprises those NBFCs which are specifically identified by the RBI as warranting enhanced regulatory requirements based on a set of parameters (size, leverage, and interconnectedness). These entities must follow stricter capital adequacy and corporate governance norms.

4. Top Layer (NBFC-TL)

This layer is reserved for those NBFCs in the Upper Layer that the RBI believes pose extreme systemic risk. Currently, this layer remains empty but exists as a regulatory safeguard.

Activity-Based Classification of NBFCs

Beyond the scale, the RBI classifies NBFCs based on their specific business models:

• NBFC-ICC (Investment and Credit Company): Formed by merging the erstwhile Asset Finance, Loan, and Investment company categories.
• NBFC-MFI (Micro Finance Institution): At least 75% of its assets must be “qualifying assets” (micro-loans).
• NBFC-Factor: Principal business is factoring (at least 50% of assets and income).
• NBFC-IDF (Infrastructure Debt Fund): Facilitates the flow of long-term debt into infrastructure projects.
• Core Investment Company (CIC): Holds at least 90% of its net assets as investment in equity shares or debt instruments of its group companies.

Conclusion

The NBFC sector remains one of the most dynamic components of the Indian financial system. By providing credit to sectors that are often bypassed by the banking system, NBFCs ensure that capital reaches the grassroots level of the economy. For any entity looking to enter this space, understanding the rigorous NBFC Procedure, maintaining the required Net Owned Funds, and adhering to the Scale-Based Regulatory framework are the keys to a successful and compliant operation in 2026.