Setting up a Non-Banking Financial Company in India is not simply a matter of raising capital and filing an application with the Reserve Bank of India. Before any of that happens, there is a decision that sits at the very beginning of the process one that shapes your regulatory eligibility, your capital structure, your investor relationships, and your long-term growth trajectory.
That decision is your business structure.
In the NBFC space, this is not a question that can be revisited easily once the wrong answer has been acted upon. Promoters who incorporate under an ineligible structure lose months, sometimes more. They spend time raising capital into an entity that RBI will not recognise, building teams around a framework that needs to be dismantled, and course-correcting at a stage when momentum matters most.
This blog is written to help you avoid that outcome entirely.
Whether you are a financial services professional planning your first NBFC, a business group looking to enter the lending space, or an entrepreneur evaluating whether the NBFC model fits your vision understanding business structure is where your preparation must begin. Everything that follows in the registration process depends on getting this right.
What Is an NBFC?
NBFC stands for Non-Banking Financial Company.
It is a company that provides financial services like loans, investments, or hire-purchase but does not hold a banking license.
NBFCs are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934.
They cannot accept savings deposits from the public the way banks do. But they can lend money, invest in securities, and offer a range of credit products.
In India, NBFCs play a very important role. They serve small businesses, self-employed individuals, and borrowers who cannot easily access bank loans.
Who Can Apply for an NBFC License?
This is where most people make their first mistake.
RBI only gives an NBFC license to a company registered under the Companies Act, 2013.
That means the following cannot apply:
- Limited Liability Partnerships (LLPs)
- Partnership Firms
- Sole Proprietorships
- Trusts
- Cooperative Societies
None of these qualify. Not even one.
A lot of promoters register an LLP because it is simple and popular. But RBI does not recognise an LLP as a company. So if you register an LLP and then try to apply for an NBFC license, your application will not move forward.
You will have to start over. That costs time and money.
So register the right entity from the beginning.
Your Two Options
Once you know you need a company, the choice comes down to two options:
1. Private Limited Company
2. Public Limited Company
Both are allowed under RBI’s rules. But they work very differently. And one is almost always better for new NBFC promoters.
Let us look at both clearly.
Option 1 — Private Limited Company
A Private Limited Company is the most common choice for NBFC registration in India.
More than 90% of new NBFC licenses go to private limited companies. That number tells you something important.
Here is what makes it the right choice for most promoters.
It is fast to set up.
You can register a Private Limited Company in 7 to 10 working days through the MCA portal. The process is simple and well-known.
It keeps ownership in your hands.
A Private Limited Company can have a maximum of 200 shareholders. That means you control who owns a part of your business. In financial services, this matters a lot. You want to make decisions quickly. You do not want too many voices pulling in different directions.
It has lower compliance costs.
Every company has annual compliance requirements filings, audits, board meetings. A Private Limited Company has fewer of these than a Public Limited Company. That means lower costs and less time spent on paperwork.
RBI approves it for almost every NBFC category.
Whether you want to set up an NBFC-ICC, NBFC-MFI, NBFC-P2P, or NBFC-AA, a Private Limited Company works. These are the most common NBFC types. You will not be restricted by your structure.
You can still raise serious money.
Many people think a Private Limited Company cannot attract big investors. That is not true. Under Section 42 of the Companies Act, you can raise funds privately from angel investors, venture capital funds, and private equity firms. This is called a private placement. It is very common in the NBFC world.
Instruments like CCDs (Compulsorily Convertible Debentures) and CCPS (Compulsorily Convertible Preference Shares) are used regularly. They work well inside a private limited structure.
Many NBFCs that manage thousands of crores today started as Private Limited Companies.
The only limitation:
A Private Limited Company cannot offer shares to the general public. It cannot be listed on a stock exchange. If you plan to do an IPO in the next few years, this structure will eventually need to change.
But for most new NBFC promoters this limitation does not apply early on.
Option 2 — Public Limited Company
A Public Limited Company is built for bigger operations.
It needs at least 3 directors and 7 shareholders. There is no upper limit on shareholders. It can issue shares to the public. It can list on BSE or NSE.
But it also comes with much heavier compliance requirements.
If your company is listed, you have to follow both RBI rules and SEBI rules. Board governance is more demanding. Public disclosures are more detailed. All of this costs more time and more money.
So when does a Public Limited Company make sense for an NBFC?
When you want to accept public deposits.
If you are setting up an NBFC-D (Deposit Taking NBFC), you need a minimum Net Owned Fund of ₹200 crore. This type of NBFC collects deposits from the public. A Public Limited structure fits this model better.
When you plan to list on a stock exchange.
If your five-year plan includes an IPO, start as a Public Limited Company. Converting later adds delays and costs.
When large institutional investors require it.
Some global funds and development finance institutions prefer to invest in Public Limited Companies because of the governance structure.
When you are building at a very large scale.
If your loan book is going to be ₹1,000 crore or more from the start, and you need access to the bond market or public capital, a Public Limited Company may be the right fit.
For everyone else and that is most NBFC promoters a Public Limited Company adds complexity you do not need in the early years.
The Capital Requirement You Must Know
In 2022, RBI changed the minimum capital requirement for new NBFC applicants.
The new minimum is ₹10 crore as Net Owned Fund (NOF).
NOF means the real money your company owns paid-up share capital plus free reserves. It does not include borrowed money. It does not include pledged assets.
Before 2022, the minimum was ₹2 crore. Many promoters are still planning around that old number. That is a serious mistake. RBI will not process any application that does not meet the ₹10 crore threshold.
This money must be sitting in a bank account with a scheduled commercial bank. RBI will ask for bank statements as proof. It will also check where the money came from.
For NBFC-D (Deposit Taking NBFCs), the minimum NOF is ₹200 crore. That is a very different level of capital and a very different type of NBFC.
What Else Does RBI Check?
Capital is important. But the RBI looks at more than just money.
Principal business must be financial.
More than 50% of your company’s total assets and income must come from financial activity. If lending or investing is just a side activity, RBI will not classify you as an NBFC.
Directors must have relevant experience.
At least one director should have worked in banking, lending, or financial services. RBI checks the background of every director on your board.
CIBIL records must be clean.
RBI checks the credit history of all promoters and directors. If anyone has defaulted on loans or has NPA accounts, your application will face serious problems.
You must submit a five-year business plan.
This plan must cover your target customers, loan products, interest rate model, how you will assess credit risk, how you will handle bad loans, and your five-year financial projections. RBI reads this carefully. A weak business plan is one of the top reasons applications get delayed or rejected.
NBFC Types and the Right Structure
Here is a simple breakdown of which structure works for each NBFC type:
| NBFC Type | Best Structure |
| NBFC-ICC (Investment and Credit) | Private Limited |
| NBFC-MFI (Microfinance) | Private Limited |
| NBFC-P2P (Peer-to-Peer Lending) | Private Limited |
| NBFC-AA (Account Aggregator) | Private Limited |
| NBFC-Factor | Private Limited |
| NBFC-D (Deposit Taking) | Public Limited |
| NBFC-IFC (Infrastructure Finance) | Public Limited |
| Housing Finance Company (HFC) | Private or Public Limited |
How to Register an NBFC — Step by Step
Step 1 — Register your company.
Go to the MCA portal and incorporate a Private Limited or Public Limited Company under the Companies Act, 2013. Pick your company name carefully. It must reflect financial services. Words like “bank,” “banking,” or “bankers” are not allowed in NBFC names RBI will flag them.
Step 2 — Build your Net Owned Fund.
Make sure your company has at least ₹10 crore in real equity. This must be in place before you apply to RBI.
Step 3 — Open a bank account and keep funds there.
Park the ₹10 crore in a current account with a scheduled commercial bank. Keep the statements ready.
Step 4 — Write your business plan.
Spend real time on this. Cover your customers, your loan products, your risk management approach, and your financial projections for five years. Do not submit a generic plan.
Step 5 — Apply on the COSMOS portal.
COSMOS is RBI’s online application system. Submit your application with all documents KYC for directors and promoters, financial statements, business plan, and company documents.
Step 6 — Wait for RBI due diligence.
RBI will verify everything — your funds, your directors’ backgrounds, your business plan, and your compliance setup. This takes 6 to 12 months for a complete application.
Step 7 — Get your Certificate of Registration (CoR).
Once RBI is satisfied, it issues the CoR. This is the official approval to operate as an NBFC in India. Without it, you cannot legally carry out NBFC activities.
Mistakes That Cost Promoters Time and Money
Registering an LLP.
This is the most common and most costly mistake. An LLP cannot get an NBFC license. If you have already registered one, you need to either convert it or start fresh.
Planning for ₹2 crore or ₹5 crore NOF.
The minimum is ₹10 crore. No exceptions. Plan your capitalisation around this number from day one.
Choosing the wrong company name.
If your name includes restricted banking words, you will have to change it after incorporation. That means more MCA filings and more delays. Finalise the name before you register.
Having no financial expert on your board.
RBI expects at least one director to have real experience in finance or lending. If your board does not have this, add an independent director before you file.
Submitting a weak business plan.
A thin, generic plan sends the wrong signal to RBI. Invest time in writing a proper plan. It shows RBI that you are serious and prepared.
Not getting expert help early.
The NBFC registration process has many steps across legal, financial, and regulatory areas. Getting advisory support before you incorporate not after saves months of wasted effort.
The Clear Answer
If you are a new NBFC promoter, a first-time entrepreneur, a family business group, a startup, or a financial services professional going independent the right structure is a Private Limited Company.
It is simpler. It is faster. It costs less to maintain. It qualifies for every major NBFC category. And it lets you raise institutional capital without listing on a stock exchange.
Choose a Public Limited Company only if your model specifically needs its deposit-taking, a near-term IPO, or very large-scale institutional fundraising that demands a public governance structure.
Get the structure right first. Then build your capital. Then write a strong business plan. Then go to RBI with everything in order.
That is how you give your NBFC the best possible start.
Need help with NBFC registration or RBI compliance? Talk to our team today.
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