Non-Banking Financial Companies (NBFCs) lend money, finance vehicles, give gold loans and fund small businesses, but they are not banks. The topic is a regular in RBI Grade B, NABARD and bank PO exams. Here is a complete, simple guide.
What is an NBFC?
An NBFC is a company registered under the Companies Act whose main business is lending, investing in shares/bonds, leasing, hire-purchase or similar financial activity.
- Defined in Section 45-I(f) of the RBI Act, 1934.
- Must register with RBI under Section 45-IA.
- Companies whose main business is agriculture, industry, trading or buying/selling property are not NBFCs.
The 50-50 “principal business” test
A company is treated as an NBFC if:
- Financial assets are more than 50% of its total assets, and
- Income from financial assets is more than 50% of its gross income.
Registration and capital
| Rule | Detail |
|---|---|
| Registering authority | RBI (Section 45-IA) |
| Minimum Net Owned Fund (NOF) | Raised in steps from ₹2 crore to ₹5 crore by March 2025 and ₹10 crore by March 2027 (for most NBFCs) |
| Exceptions | NBFC-P2P, Account Aggregators: ₹2 crore; NBFC-MFI and Factors have their own levels; IDFs and CICs have separate rules |
| Other regulators | Housing Finance Companies moved from NHB to RBI for regulation in 2019 (NHB still supervises them); chit funds are regulated by states; merchant banking and stock broking by SEBI; insurance by IRDAI |
NBFC vs bank
| Point | Bank | NBFC |
|---|---|---|
| Demand deposits (savings/current) | Yes | No |
| Cheques drawn on itself | Yes | No |
| Part of the payment and settlement system | Yes | Generally no |
| Deposit insurance (DICGC) | Yes | No |
| CRR | Yes | No (deposit-taking NBFCs keep liquid assets) |
| Law | Banking Regulation Act, 1949 | RBI Act, 1934 (Chapter III-B) + Companies Act |
Types of NBFCs
| Type | What it does |
|---|---|
| NBFC-ICC (Investment and Credit Company) | Formed in 2019 by merging Asset Finance Companies, Loan Companies and Investment Companies |
| NBFC-MFI | Microfinance: collateral-free loans to low-income households (household income up to ₹3 lakh a year) |
| NBFC-Factor | Buys receivables (factoring) under the Factoring Regulation Act, 2011 |
| Core Investment Company (CIC) | Holds at least 90% of assets in group companies (holding companies) |
| Housing Finance Company (HFC) | Home loans; regulated by RBI, supervised by NHB |
| Infrastructure Finance Company (IFC) | At least 75% of assets in infrastructure loans |
| Infrastructure Debt Fund (IDF-NBFC) | Refinances infrastructure projects |
| NBFC-P2P | Online peer-to-peer lending platforms |
| NBFC-AA (Account Aggregator) | Moves a customer’s financial data between institutions with consent |
| Mortgage Guarantee Company (MGC) | Guarantees home loans |
| NOFHC | Non-Operative Financial Holding Company (holding company for a bank group) |
| Standalone Primary Dealer (SPD) | Deals in government securities |
Deposit-taking NBFCs (NBFC-D) can take only term deposits of 12 to 60 months, need a credit rating and are capped at 1.5 times their NOF (approx). Interest rates are capped by RBI.
Scale-Based Regulation (SBR)
RBI’s Scale-Based Regulation, announced in October 2021 and applied from October 2022, puts NBFCs in four layers. The bigger and riskier the NBFC, the stricter the rules.
| Layer | Who is in it |
|---|---|
| Base Layer (NBFC-BL) | Non-deposit-taking NBFCs with assets below ₹1,000 crore, plus P2P, AA, NOFHC and NBFCs without public funds |
| Middle Layer (NBFC-ML) | All deposit-taking NBFCs, non-deposit-taking NBFCs with assets of ₹1,000 crore and above, HFCs, IFCs, IDFs, CICs, SPDs |
| Upper Layer (NBFC-UL) | The largest NBFCs identified by RBI each year; must list on a stock exchange within 3 years |
| Top Layer | Kept empty; for NBFCs RBI sees as very high risk |
- RBI releases the Upper Layer list every year. The 2026-27 list had about 17 NBFCs (approx, as reported), and RBI revised the approach to rely more on asset size (around ₹1 lakh crore, approx).
- Upper Layer NBFCs follow bank-like rules: a Common Equity Tier 1 ratio of at least 9%, large exposure limits and stricter governance.
Exam-ready one-liners
- NBFCs are defined under Section 45-I(f) and registered under Section 45-IA of the RBI Act.
- 50-50 test: financial assets > 50% of total assets and financial income > 50% of gross income.
- NBFCs cannot accept demand deposits or issue cheques drawn on themselves.
- NBFC deposits are not covered by DICGC.
- NOF requirement: ₹10 crore by March 2027 for most NBFCs.
- NBFC-ICC was created in 2019 by merging three categories.
- Scale-Based Regulation has four layers: Base, Middle, Upper and Top.
- HFCs are regulated by RBI (since 2019) and supervised by NHB.
Related reading
Quiz: test yourself
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Based on RBI’s NBFC directions and Scale-Based Regulation as reported. RBI updates NBFC rules often; check rbi.org.in for the latest.
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