What is an NBFC?
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act and licensed by the Reserve Bank of India (RBI) to provide financial services — primarily lending, investment, and leasing. Unlike banks, NBFCs cannot accept demand deposits (savings/current accounts), are not part of the payment system, and are not eligible for deposit insurance.
Despite these limitations, NBFCs are vital to India's credit ecosystem. They serve segments that banks often overlook — MSME, rural borrowers, self-employed individuals, and thin-file customers. India has over 9,000 registered NBFCs, though only ~200 are systemically significant.
💡NBFCs are often called "shadow banks" — they perform bank-like functions without a banking license. The 2018 IL&FS crisis and 2019 DHFL collapse highlighted the systemic risks of unregulated NBFC growth, prompting RBI to introduce the Scale-Based Regulation framework in 2021.
Types of NBFCs
By Deposit Acceptance
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NBFC-D (Deposit-taking)
Can accept public deposits for fixed terms (not demand). Subject to stringent RBI norms on capital adequacy, liquidity, and governance.
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NBFC-ND (Non-Deposit-taking)
Cannot accept public deposits. Funds raised through bonds, CPs, bank loans, FDI, and equity. Majority of NBFCs fall in this category.
By Activity (Specialised Categories)
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HFC — Housing Finance Company
Specialised in home loans. Regulated jointly by RBI and National Housing Bank (NHB). Examples: LIC Housing Finance, Aavas Financiers.
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NBFC-MFI — Microfinance Institution
Provides small loans (up to ₹3 lakh) to women in low-income households. Governed by RBI's Microfinance Directions. No collateral required.
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NBFC-P2P
Peer-to-peer lending platforms. Connect individual lenders with borrowers. Regulated by RBI. Covered in detail in the P2P Lending section.
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NBFC-AA
Account Aggregator. Consent manager for financial data sharing. Licensed by RBI. Cannot lend or accept deposits — pure data intermediary.
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IFC — Infrastructure Finance Company
Finances long-term infrastructure projects — roads, power, telecom. Can issue bonds eligible for priority sector investment by banks.
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NBFC-Factor
Provides factoring services — buys trade receivables at a discount. Helps MSMEs unlock working capital from unpaid invoices.
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NBFC-ICC (Investment & Credit)
Provides loans and makes investments. Largest category of NBFCs. Includes most consumer and business lenders.
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CIC — Core Investment Company
Holds investments in group companies. Cannot lend to the public. Asset size >₹100 crore requires registration with RBI.
NBFC vs Bank — Key Differences
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Deposits
Bank: Can accept demand deposits (savings, current). NBFC: Cannot accept demand deposits. NBFC-D can accept fixed-term deposits only.
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Payment System
Bank: Part of payment system — can issue cheques, draft, DDs. NBFC: Not part of payment system.
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Deposit Insurance
Bank: DICGC insurance up to ₹5 lakh. NBFC: No DICGC coverage — higher risk for depositors in NBFC-D.
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CRR/SLR
Bank: Must maintain CRR and SLR with RBI. NBFC: Not required to maintain CRR/SLR.
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Interest Rates
Bank: Deposit rates regulated. Lending rates linked to EBLR. NBFC: More flexibility in pricing — can charge market rates.
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Last-Mile Reach
Bank: Primarily urban, tier-1 and tier-2 focus. NBFC: Stronger rural and semi-urban presence — MSME, agri, MFI.
RBI Scale-Based Regulation (SBR) Framework — 2021
RBI introduced the Scale-Based Regulation framework in October 2021 to bring proportionality to NBFC oversight — larger, more systemically important NBFCs face bank-like regulations.
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NBFC-BL (Base Layer)
NBFCs with asset size below ₹1,000 crore and no deposit acceptance. Lightest regulation. Over 9,000 NBFCs.
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NBFC-ML (Middle Layer)
NBFC-D, HFCs, IFCs, IDFs, and ND-NBFCs above ₹1,000 crore. Enhanced prudential norms — similar to banks in many respects.
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NBFC-UL (Upper Layer)
Top 10–15 systemically important NBFCs identified by RBI annually. Bank-like regulations — CET1 requirements, enhanced disclosure. LIC Housing Finance, Bajaj Finance, etc.
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NBFC-TL (Top Layer)
Reserved for NBFCs posing extreme systemic risk. RBI may mandate conversion to bank. Currently empty — a theoretical fourth tier.
Frequently Asked Questions
Q: Is my NBFC-D deposit safe?
A: NBFC-D deposits are NOT covered by DICGC insurance. They are riskier than bank FDs. Only invest in NBFC deposits from AA-rated or higher companies. Recommended to keep within ₹1–2 lakh per NBFC for diversification.
Q: How do I verify if an NBFC is RBI-registered?
A: Visit rbi.org.in → Search/Downloads → List of NBFCs. Search by company name or CIN. Always verify before taking a loan or making a deposit with any NBFC.
Q: Can NBFCs give home loans?
A: Yes. Housing Finance Companies (HFCs), which are a type of NBFC, are primary home loan providers. Examples include LIC Housing Finance, HDFC Ltd (now merged), Aavas Financiers. They are regulated by both RBI and NHB.
Q: What is the minimum net worth to start an NBFC?
A: For a new NBFC registration, minimum Net Owned Fund (NOF) is ₹10 crore. For NBFC-MFI, it is ₹5 crore. For HFC, it is ₹25 crore. Requirements vary by category and are periodically revised by RBI.
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