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A Non Banking Finance Company (NBFC) as the name suggests is a company involved in financing activities but is that which is not a bank. 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).

A ‘NBFC’ is defined under sec. 45-I(f) of the Reserve Bank of India Act 1934. As per the definition ‘NBFC means:-

  • a financial institution which is a company;
  • 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;
  • 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.

Although the RBI Act 1934 defines ‘NBFC’, however it does not define the term ‘principal business’. For this purpose, the RBI Master Circular on Miscellaneous Instructions to All Non-Banking Financial Companies vide RBI/2013-14/46 DNBS(PD).CC.No 344./03.02.001/2013-14 dated 1st July, 2013 clarifies that the definition of ‘Principal Business’ given, vide Press Release 1998-99/1269 dated April 8, 1999 may be followed :“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.”

The Reserve Bank has defined the term ‘principal business’ via press release so as to ensure that only companies predominantly engaged in financial activity get registered with it and are regulated and supervised by it and other trading, manufacturing or industrial companies are not brought under its regulatory jurisdiction. This test is popularly known as 50-50 test and is applied to determine whether or not a company is into financial business.

A company which does not satisfy the 50-50 test is not an NBFC. Its principal business would be non-financial activity and it would be a non-banking non-financial company. The Companies Acceptance of Deposits Rules, 1975, governs acceptance of deposits by a Non-Banking Non-inancial Company. The Registrar of Companies in the State Governments administers the schemes.


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. A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. Therefore, there are many categories of NBFCs depending on the activity performed by them and can be listed as follows as defined in the various RBI directions:

  1. Asset Finance Company (AFC)

An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively. (Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998)

  1. Investment Company (IC)

IC means any company which is a financial institution carrying on as its principal business the acquisition of securities. (Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998)

  1. Loan Company (LC)

LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company. (Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998)

  1. Infrastructure Finance Company (IFC)

IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.

  1. Systemically Important Core Investment Company (CIC-ND-SI)

CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:-

  • it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
  • its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;
  • it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
  • it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.
  • Its asset size is Rs 100 crore or above and
  • It accepts public funds
  1. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)

IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finanace Companies (IFC) can sponsor IDF-NBFCs.

  1. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)

NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:

  • loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 1,00,000 or urban and semi-urban household income not exceeding Rs. 1,60,000;
  • loan amount does not exceed Rs. 50,000 in the first cycle and Rs. 1,00,000 in subsequent cycles;
  • total indebtedness of the borrower does not exceed Rs. 1,00,000;
  • tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;
  • loan to be extended without collateral;
  • aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;
  • loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

A NBFC-MFI should have Minimum Net Owned Funds of Rs.5 crore. (For NBFC-MFIs registered in the North Eastern Region of the country, the minimum NOF requirement shall stand at Rs. 2 crore) and having not less than 85% of its net assets as “qualifying assets”

  1. Non-Banking Financial Company – Factors (NBFC-Factors)

NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income.

  1. Mortgage Guarantee Company

MGC are financial institutions for which at least 90% of the business turnover is mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business and net owned fund is Rs 100 crore. 

  1. Residuary NBFC

A non-banking institution, which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is a Residuary non-banking company.

  1. Miscellaneous NBFC

A "miscellaneous non-banking company" means a company carrying on all or any of the types of business referred to in paragraph 2 of the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977 which are as follows:

(1) Collecting whether as a promoter, foreman, agent or in any other capacity monies in one lump sum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift, or any other scheme or arrangement by whatever name called, and utilising the monies so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes -

  • giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash or in kind, whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement;
  • refunding to the subscribers or such of them as have not won any prize or gift, the whole or part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage, howsoever called, on the termination of the scheme or arrangement, or, on or after the expiry of the period stipulated therein;

(2) managing, conducting or supervising as a promoter, foreman or agent of any transaction or arrangement by which the company enters into an agreement with a specified number of subscribers that every one of them shall subscribe a certain sum in instalments over a definite period and that every one of such subscribers shall in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the agreement be entitled to the prize amount;


For the purposes of this sub-paragraph, the expression "prize amount" shall mean the amount, by whatever name it be called, arrived at by deduction from out of the total amount subscribed at each instalment by all subscribers,

  • the commission charged by the company or service charges as a promoter or a foreman or an agent; and
  • any sum which a subscriber agrees to forego, from out of the total subscriptions of each instalment, in consideration of the balance being paid to him;

(3) Conducting any other form of chit or kuri which is different from the type of business referred to in sub-paragraph (2) above;

(4) undertaking or carrying on or engaging in or executing any other business similar to the business referred to in sub-paragraph (1) to (3).]

  1. Mutual Benefit Financial Company (MBFC) and Mutual Benefit Company (MBC)

A "mutual benefit financial company" means any company which is a financial institution notified by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956).

A “mutual benefit company” means a company not notified under section 620A of the Companies Act, 1956 (1 of 1956) and carrying on the business of a non-banking financial institution, -

  • on 9th January 1997; and
  • having the aggregate of net owned funds and preferential share capital of not less than ten lakhs of rupees; and
  • has applied for issue of certificate of registration to the Bank on or before 9th July 1997; and
  • is complying with the requirements contained in the relevant provisions of the Directions issued under Section 637A of the Companies Act, 1956 to Nidhi Companies by the Central Government];
  1. Housing Companies

A housing finance institution as defined in Section 2(d) of the National Housing Bank Act, 1987.

  1. Insurance Companies

A company doing the business of insurance and holding a valid certificate of registration issued under Section 3 of the Insurance Act, 1938.

Companies doing financial business but 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. Exemption from registration is given to these companies to avoid dual registration. The types of NBFCs according to their nature of activities and the concerned regulators are:  

Type of NBFC


1. Insurance Companies

Insurance Regulatory and Development Authority (IRDA)

2. Merchant Banking Companies, Venture Capital Companies, Stock Broking companies

Securities and Exchange Board of India (SEBI)

3. Housing Finance Companies

National Housing Bank (NHB)

4. Nidhi companies

Department of Companies Affairs (DCA)

5. Chit Fund Companies

Regulated under the Chit Fund Act, 1982, (Central Act) and implemented by the State Governments

The Bank has issued notifications from time to time exempting some entities from the requirements of Chapter III B of the RBI Act, 1934 or part thereof. Housing Finance Companies are exempt from the provisions of Chapter IIIB of the RBI Act 1934. Other entities like Chit Funds, Nidhi companies, Mutual Benefit companies, Insurance companies, Merchant Banking companies, Stock Broking companies, etc., are granted exemption from the requirements of registration, maintenance of liquid assets and statutory reserves.

All non-deposit taking non-banking financial company (NBFCs – ND)  not accepting / holding public deposits and having an asset size of Rs. 500 crore and more as per the last audited balance sheet will be considered as a systemically important NBFC – ND (NBFC-ND-SI).

Non-deposit taking NBFCs with asset size of less than Rs 500 crore are known NBFC-ND and are not systematically important.

The NBFCs-ND-SI are required to submit:

(i) Quarterly statement of capital funds, risk weighted assets, risk asset ratio etc., for the company – NBS 7

(ii) Monthly Return on Important Financial Parameters of the company

(iii) Asset- Liability Management (ALM) returns:

(iv) Statement of short term dynamic liquidity in format ALM [NBS-ALM1] -Monthly,

(v) Statement of structural liquidity in format ALM [NBS-ALM2] Half Yearly

(vi) Statement of Interest Rate Sensitivity in format ALM -[NBS-ALM3], Half yearly

The non deposit taking NBFCs having assets of more than Rs.50 crore and above but less than Rs 100 crore are required to submit Quarterly return on important financial parameters of the company. Basic information like name of the company, address, NOF, profit / loss during the last three years has to be submitted quarterly by non-deposit taking NBFCs with asset size between Rs 50 crore and Rs 100 crore

All companies not accepting public deposits have to pass a board resolution to the effect that they have neither accepted public deposit nor would accept any public deposit during the year.

However, all the NBFCs (other than those exempted) are required to be registered with RBI and also make sure that they continue to be eligible to retain the Registration. Further, all NBFCs (including non-deposit taking) should submit a certificate from their Statutory Auditors every year to the effect that they continue to undertake the business of NBFI requiring holding of CoR under Section 45-IA of the RBI Act, 1934. The certificate shall also indicate the asset / income pattern of the NBFC for making it eligible for classification as AFC, Investment Company, or Loan Company. 

NBFCs – ND – SI shall maintain a minimum Capital to Risk-weighted Assets Ratio (CRAR) of 10% which was changed to 12% as on March 31, 2010 and 15% as on March 31, 2011.