A Non-Banking Finance Company (NBFC) as the name suggests is a company involved in financial activities but is that which is not a bank. NBFCs perform varied types of financing activities and thus can be identified as being of different types.

A ‘NBFC’ is defined under sec. 45-I(f) of the Reserve Bank of India (RBI) Act 1934. As per the definition ‘NBFC means:- (i). a financial institution which is a company; (ii). a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii). such other non-banking institution or class of such institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.

The RBI has defined the term ‘principal business’ via press release, whereby: “The company will be treated as a non-banking financial company (NBFC) if its financial assets are more than 50 per cent of its total assets (netted off by intangible assets) and income from financial assets is more than 50 per cent of the gross income. Both these tests are required to be satisfied as the determinant factor for principal business of a company.”


A NBFC not being a bank is not regulated by the principal legislation in India for regulating banks viz. The Banking Regulation Act 1949, but is instead directly regulated by the central bank of India itself viz. Reserve Bank of India through its Department of Non-Banking Supervision (DNBS).

Under section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in Section 45 I(a) of the RBI Act, 1934. However, NBFCs which are regulated by other regulators, are given specific exemption by the Reserve Bank from its regulatory requirements, such as, registration, maintenance of liquid assets, statutory reserves, etc.

To function as a NBFC, a company should obtain a certificate of registration as a NBFC from the RBI and it should have a net owned fund as the RBI may by notification in the Official Gazette, specify. The RBI may notify different amounts of net owned fund for different categories of non-banking financial companies.


The RBI regulates and supervises Non-Banking Financial Companies under the RBI Act 1934. It lays down directions and policies to regulate, supervise and exercise surveillance over NBFCs. Also, companies desirous of commencing business as NBFC have to register with RBI unless exempted by it. Registration of an NBFC with the RBI basically authorizes it to conduct the business of NBFC. The RBI can penalize NBFCs for violating the provisions of the RBI Act, 1934 or the directions or orders issued by it under the Act. It can also cancel the Certificate of Registration issued to the NBFC, or prohibit them from accepting deposits and alienate their assets or file a winding up petition.

NBFCs perform varied types of financing activities and thus can be identified as being of different types.

  • NBFC-ICC: Non-Banking Financial Company Investment and Credit Company
  • NBFC-IFC: Non-Banking Financial Company- Infrastructure Finance Company
  • CIC: Core Investment Companies
  • IDF- NBFC: Infrastructure Debt Fund – Non-Banking Finance Company
  • NBFC-MFI: Non-Banking Financial Company – Micro Finance Institution
  • NBFC-Factor
  • NBFC-P2P: Non-Banking Financial Company – Peer to Peer Lending Platform
  • NBFC-AA: Non-Banking Financial Company – Account Aggregator
  • NBFC-NOFHC: Non-Banking Financial Company-Non Operative Financial Holding Company
  • NBFC-HFC: Non-Banking Financial Company – Housing Finance Company
  • NBFC-MGC: Non-Banking Financial Company – Mortgage Guarantee Company
  • RNBC: Residuary Non-Banking Finance Company
  • MNBC: Miscellaneous Non-Banking Finance Company (MNBC)

Companies doing financial business, but which are regulated by other regulators are given specific exemption by the Reserve Bank from its regulatory requirements. Exemption from registration is given to these companies to avoid dual registration.

Regulatory Framework – Scale Based Regulation

The RBI issued an integrated regulatory framework for NBFCs under Scale Based Regulation (SBR) vide Notification RBI/2021-22/112 DOR.CRE.REC. No.60/03.10.001/2021-22 dated 22nd October 2021, which became effective from October 01, 2022.

According to the Notification, regulatory structure envisages scale based as well as activity-based regulation and the Regulatory structure for NBFCs shall comprise of four layers based on their size, activity, and perceived riskiness.

This layer shall consist of:
(a) non-deposit taking NBFCs below the asset size of ₹1000 crore and

(b) NBFCs undertaking the following activities- (i) NBFC-Peer to Peer Lending Platform (NBFC-P2P),
(ii) NBFC-Account Aggregator (NBFC-AA),
(iii) Non-Operative Financial Holding Company (NOFHC)
(iv) NBFCs not availing public funds and not having any customer interface

The Upper Layer shall comprise of those NBFCs which are specifically identified by the Reserve Bank as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology.