NBFC Regulations explained: this guide covers what NBFC Regulations means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Non-Banking Financial Companies (NBFCs) are a critical component of India's financial system, providing credit to segments underserved by banks. They are regulated by the Reserve Bank of India (RBI) under the RBI Act 1934 and various master directions.
What is an NBFC?
An NBFC is a company registered under Companies Act 2013 that:
- Is engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, or insurance business, or
- Receives deposits or chit business
The "principal business" criterion: A company is an NBFC if financial assets constitute more than 50% of total assets AND income from financial assets constitutes more than 50% of gross income.
Scale-Based Regulation (SBR) Framework (October 2021)
RBI introduced Scale-Based Regulation to create a four-tier structure based on size and systemic risk:
| Layer | Category | Threshold | Regulation Level |
|---|---|---|---|
| NBFC-BL (Base Layer) | Non-deposit taking, smaller NBFCs | Asset size below Rs.1,000 crore | Lightest regulation |
| NBFC-ML (Middle Layer) | Deposit taking, or larger non-deposit | Asset size Rs.1,000+ crore | Moderate regulation |
| NBFC-UL (Upper Layer) | Top 10 NBFCs or large systemic risk | RBI identified | Near-bank regulation |
| NBFC-TL (Top Layer) | Reserved for extreme systemic risk | RBI designated | Strictest regulation |
Types of NBFCs by Activity
- NBFC-ICC (Investment and Credit Company): General lending and investment
- NBFC-MFI (Microfinance Institution): Loans to low-income households
- NBFC-Factor: Factoring business (purchase of receivables)
- NBFC-AA (Account Aggregator): Financial data sharing platform
- NBFC-P2P (Peer-to-Peer Lending): Online lending marketplace
- Infrastructure Finance Company (IFC): Long-term infrastructure financing
- Mortgage Guarantee Company: Credit enhancement for home loans
Registration Requirements
All NBFCs must obtain a Certificate of Registration (CoR) from RBI before commencing business:
- Net Owned Fund (NOF) requirement: Rs.10 crore (general); Rs.2 crore (microfinance)
- Application to RBI with business plan, financials, promoter background
- RBI conducts due diligence on promoters, management, and business model
- Timeline for registration: 3-6 months typically
Key Prudential Regulations
| Regulation | Applicable to | Requirement |
|---|---|---|
| Capital Adequacy Ratio (CRAR) | NBFC-ML and above | Minimum 15% (Tier 1 at least 10%) |
| Leverage Ratio | NBFC-BL | Maximum 7x of NOF |
| NPA Recognition | All NBFCs | 90 days overdue (aligned with banks) |
| Liquidity Coverage Ratio | NBFC-ML and above | LCR as prescribed by RBI |
| KYC norms | All NBFCs | RBI KYC Master Direction compliance |
NBFC vs Bank: Key Differences
| Feature | NBFC | Bank |
|---|---|---|
| Demand deposits | Cannot accept | Can accept |
| Cheque issuance | Cannot issue cheques | Can issue cheques |
| Deposit Insurance | Not covered by DICGC | Covered up to Rs.5 lakh |
| CRR/SLR | Not required (except deposit-taking) | Required |
| Priority sector lending | Not mandatory | 40% of net credit mandatory |
Fair Practices Code
All NBFCs must adopt and publish a Fair Practices Code covering:
- Transparent loan application and acknowledgment
- Clear communication of loan terms (interest rate, charges, prepayment terms)
- Prohibition on harassment for recovery
- Grievance redressal mechanism
- Annual review and board approval of the Code