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An NBFC, or Non-Banking Financial Company, is a type of company in India that works a lot like a bank—it can give loans, help people buy things on finance, and offer investment services. But unlike regular banks, NBFCs don’t have a full banking license.
NBFCs play a key role in helping people and businesses, especially in areas where traditional banks may not be easily available. They are known for being more flexible and quicker in providing financial solutions.
However, there are some important differences from banks:
- NBFCs cannot accept demand deposits (like your regular savings account).
- They cannot issue cheques or be part of payment systems.
- Their deposits are not insured like bank deposits.
NBFCs help fill important gaps in India’s financial system by making loans and other money services available to small businesses, startups, and people living in places where banks are hard to reach.
Read Our Article: A Comprehensive Guide to NBFCs in India
RBI’s Official Definition of an NBFC
According to the Reserve Bank of India (RBI), NBFCs are entities registered under the Companies Act, 1956, that engage in:
- Granting loans and advances
- Investing in shares, bonds, debentures, stocks, or other marketable securities
- Leasing, hire-purchase, insurance, and similar financial services
Companies mainly involved in activities like farming, manufacturing, or real estate, such as building, buying, or selling property, are not considered NBFCs. Even if these businesses deal with money in some way, they do not qualify because their core work is not financial.
However, some non-banking companies collect money from the public under certain schemes. These may be treated as NBFCs, but only if their main business is related to financial services like lending or investing.
NBFC registration is mandatory for such entities to operate legally under the regulatory framework laid down by the RBI. Obtaining NBFC registration ensures compliance with guidelines and enables companies to conduct financial activities transparently and efficiently.
Defining the Core Activity: Financial Business Criteria
To be classified as an NBFC, a company must meet the 50-50 test as per RBI guidelines:
- More than 50% of the total assets must be financial assets
- More than 50% of gross income should come from these financial assets
Only entities fulfilling both criteria are considered NBFCs and are brought under RBI regulation.
Differences Between NBFCs and Banks
While NBFCs and banks offer similar financial products, several regulatory and functional differences exist:
- NBFCs are not permitted to accept demand deposits.
- They are excluded from the payment and settlement system, and hence cannot issue cheques on themselves.
- Deposits in NBFCs are not insured, which means if something goes wrong, people may not get their money back. In contrast, bank deposits are insured by the government (through DICGC), so they are safer.
- NBFCs follow different rules for how much capital they must keep as a safety cushion. These rules are usually less strict than banks, although the gap is getting smaller with new regulations.
- Not all NBFCs can accept money from the public as deposits. Only a few are allowed, and they must follow strict rules set by the RBI.
- NBFCs often depend on borrowing money in bulk or selling loan assets to raise funds. This can make their funding more expensive and harder to manage during uncertain market conditions.
Read More: How are NBFCs Different from Banks?
Updated NBFC Registration Criteria (March 2025)
To legally operate as an NBFC in India, a company must:
- Be incorporated under the Companies Act, 1956
- Comply with the definition of a financial institution under the RBI Act
- Obtain a Certificate of Registration from the RBI under Section 45-IA
Revised Net Owned Fund (NOF) Requirements
In line with the Scale-Based Regulation (SBR) framework, the RBI has revised the capital norms for NBFCs:
- As of March 2025, Base Layer NBFCs must have a minimum Net Owned Fund (NOF) of ₹5 crore, increased from the earlier ₹2 crore.
- This threshold will increase further to ₹10 crore by March 31, 2027, providing NBFCs with time to strengthen their capital base.
Certain NBFCs regulated by other authorities, such as SEBI or IRDA, may be exempt from RBI registration requirements.
The Expanding Role of NBFCs in India’s Financial Landscape
NBFCs have become very important for making financial services available to more people in India. Because they are flexible and easy to deal with, they often reach customers in small towns and rural areas faster than traditional banks. Their simple processes and focus on customer needs help them serve people who may not have easy access to banking.
Today, NBFCs work alongside banks, helping make sure more people, especially small businesses and individuals, can get the financial support they need.
- Faster loan disbursement
- Digitally enabled financial services
- Personalized financial products
- Wider reach across Tier II and Tier III cities
Know More: How to set up your NBFC- Registration, Operational manual, Licensing
NBFC Advisory is committed to helping businesses navigate India’s dynamic NBFC regulatory environment—from initial registration to ongoing compliance and growth strategy.
Need expert guidance? Get in touch with our consultants today.
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