NBFC Regulations explained: this guide covers what it 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
Key Facts About NBFC Regulations
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What is the minimum capital requirement to register as an NBFC?
The minimum Net Owned Fund (NOF) requirement for registering as an NBFC is Rs.10 crore for most categories (NBFC-ICC, IFC, etc.). For NBFC-MFIs (Microfinance Institutions), the NOF requirement is Rs.5 crore (Rs.2 crore for northeastern states).
What is the Scale-Based Regulation framework for NBFCs?
RBI introduced Scale-Based Regulation (SBR) in October 2021 placing NBFCs into four layers: Base Layer (smaller NBFCs, lightest regulation), Middle Layer (larger/deposit-taking, moderate regulation), Upper Layer (top 10 systemic NBFCs, near-bank regulation), and Top Layer (extreme systemic risk cases, strictest regulation).
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
NBFC Regulations: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.
Related Services & Guides
Why This Matters
Staying compliant with Indian regulations protects your business from penalties, interest and unnecessary legal trouble.