NBFC Registration

Overview of NBFC Registration in India

Non-Banking Financial Companies (NBFCs) are companies registered under the Companies Act, 2013 and require prior approval from the Reserve Bank of India (RBI) before offering financial services. NBFCs are among the fastest-growing sectors in India’s financial ecosystem.

An NBFC, or Non-Banking Financial Company, engages in a wide range of financial activities, including secured and unsecured lending, marketplace loans, investments, financial services, and information services. While NBFCs differ from commercial and cooperative banks, they do not require a bank license but must comply with the rules and regulations of the RBI.

The Reserve Bank of India (RBI) regulates NBFCs to ensure compliance with Section 3B of the RBI Act, 1935. NBFCs raise funds from lenders and depositors and provide loans to borrowers, serving as an important intermediary in the financial sector. It is important to note that the registration procedure for NBFCs is comprehensive and must be carefully followed.

NBFCs play a critical role in connecting investors and depositors with borrowers, particularly in the unorganized segment of the population, making them a viable alternative to traditional banks.

The primary functions of NBFCs include:

Lending (secured and unsecured loans)
Investments in stocks, bonds, and debentures
Leasing and hire-purchase or rental services
Marketplace loan businesses
Insurance services
Financial information provision (e.g., through NBFCAA)
Chit fund operations and deposit acceptance

Before an NBFC license can be granted, the company must meet the following requirements:

Financial assets must account for over 50% of the company’s total assets
Financial assets should generate more than 50% of the company’s gross income

NBFCs are essential for providing flexible financial services, bridging gaps between lenders and borrowers, and supporting the growth of India’s unorganized financial sector.

Business Setup in India

Restricted Activities for NBFCs

Agricultural activities
Industrial activities
Buying and selling of goods in addition to providing services
Sales or purchases of movable properties

Another option for entering the NBFC sector is to acquire an existing NBFC. However, it is generally recommended to purchase a newly registered NBFC for smoother compliance and operations.

Market Size of NBFCs in India

NBFCs are one of the fastest-growing segments in India’s financial industry. While India has many banks, certain regions remain underserved, creating strong demand for NBFC loans. This has led to a surge in NBFC registrations in recent years.

NBFCs play a crucial role in the growth of the financial sector by offering customized loan products, faster processing times, digital accessibility, advanced technology, and a more customer-friendly approach. They hold a significant share of the non-banking financial market and provide services similar to banks, though not as extensive.

NBFCs can borrow from both public and indirect sources and have the flexibility to lend freely. With technology-driven processes and innovative financial solutions, NBFCs are expected to continue their growth, even in periods of slower overall economic expansion.

Points	NBFCs	Banks
Meaning	NBFCs provide financial services similar to banks without holding a bank license.	Banks are government-authorized financial intermediaries that offer comprehensive banking services to the public.
Regulatory Authority	Regulated under the Companies Act, 2013 and RBI Act, 1934.	Regulated under the Banking Regulation Act, 1949.
Demand Deposits	NBFCs are not allowed to accept demand deposits.	Banks can accept demand deposits from customers.
Foreign Investment	NBFCs allow up to 100% foreign investment.	Foreign investment is allowed up to 74% in private sector banks.
Payment & Settlement System	NBFCs are not part of the payment and settlement system.	Banks are an integral part of the payment and settlement system.
Maintenance of Reserve Ratios	NBFCs are not required to maintain reserve ratios.	Banks are required to maintain reserve ratios as per RBI guidelines.
Deposit Insurance Facility	Not available for NBFCs.	Available for banks under the deposit insurance scheme.
Credit Creation	NBFCs do not create credit.	Banks create credit as part of their core operations.

On the Basis of Activities:

1. NBFC Investment and Credit Company (NBFC ICC)

An NBFC ICC is involved in both lending and investment activities. Previously, three categories existed, but they have been merged to provide greater operational flexibility. Essentially, it combines the functions of an Asset Finance Company, a Loan Company, and an Investment Company.

2. NBFC Infrastructure Finance Company (NBFC IFC)

This type of NBFC focuses on providing loans for infrastructure projects. A private company registering as an NBFC IFC must have at least two directors, who must be individuals with a valid Director Identification Number (DIN). If existing companies or LLPs set up a new NBFC, they can nominate individuals as directors. Additionally, GST registration is mandatory if the company’s annual turnover exceeds Rs. 20 lakhs.

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

This NBFC primarily deals with debt, loans, and equity investments and is considered systemically important due to its significant size in the financial system.

4. Infrastructure Debt Fund – NBFC (IDF-NBFC)

IDF-NBFCs facilitate the flow of long-term credit to infrastructure projects, supporting large-scale infrastructure development in India.

5. NBFC-Micro Finance Institution (NBFC-MFI)

NBFC MFIs are credit institutions designed to provide small loans to economically disadvantaged groups, promoting financial inclusion.

6. NBFC-Factor

NBFC-Factors provide financing by discounting receivables. One of their primary business activities is assisting assignors in obtaining loans secured against their receivables.

7. Non-Operative Financial Holding Company (NOFHC)

NOFHCs are established to assist promoters or promoter groups in setting up new banks and managing financial holdings without conducting regular banking operations.

8. Mortgage Guarantee Company

These NBFCs specialize in providing guarantees for mortgage-backed lending and related financial services.

9. NBFC Account Aggregator (NBFCAA

NBFCAAs collect financial information from multiple sources and present it in a structured format to customers and other authorized entities, enabling better financial decision-making.

10. NBFC-Peer to Peer Lending Platform (NBFC-P2P)

NBFC-P2P platforms allow online lenders and borrowers to interact directly, facilitating the mobilization of funds in a digital lending environment.

Non-Banking Financial Companies

NBFC registration is essential for businesses planning to operate in the financial sector in India. NBFCs play a crucial role in India’s economic growth by extending credit to both rural and urban areas, especially where traditional banking services are limited. These institutions have the flexibility to determine interest rates on loans, provided they strictly comply with the guidelines and regulations issued by the Reserve Bank of India (RBI).

Key Functions of NBFCs

Providing customized loan products tailored to customer needs
Offering advanced digital lending platforms for seamless access to credit
Faster loan processing with simplified approval procedures
Generating employment opportunities across sectors
Supporting wealth creation for individuals and businesses
Contributing to infrastructure development and growth
Providing financial assistance to economically weaker sections to promote inclusive economic growth

NBFC Registration: Benefits

You can enjoy multiple advantages by opting for NBFC Registration in India, especially if you plan to operate in the financial services sector.

Provides Credit Access to the Needy

NBFCs offer a wide range of financial services, including loans and credit facilities, retirement and financial planning, currency exchange, money market operations, underwriting services, and more, helping individuals and businesses access timely funds.

Wealth Management Services

NBFCs can offer professional wealth management solutions such as managing portfolios of shares, stocks, and other investment instruments.

Underwriting Services

NBFCs can underwrite and guarantee obligations related to stock and share transactions. They also provide flexible and quick loan options compared to traditional banks.

Lender of Last Resort

NBFCs often provide financial services that banks may not offer. Due to lower operational costs, NBFCs can sometimes offer loans at comparatively competitive interest rates.

Participation in Money Market Trading

NBFCs are permitted to trade in various money market instruments, offering investors and businesses additional liquidity and financial opportunities.

Faster Operational Efficiency

NBFCs are known for faster processing and simplified procedures. Unlike banks, which involve extensive documentation and rigid processes, NBFCs offer quicker loan approvals.

Multiple Channels to Reach Customers

With the use of advanced technology and digital platforms, NBFCs can reach a wider audience efficiently. They provide tailored credit solutions to both large enterprises and small businesses.

Strong Regulatory Compliance

NBFCs operate under strict RBI regulations and compliance frameworks, ensuring transparency, credibility, and trust among the public.

100% Foreign Direct Investment (FDI)

NBFCs are eligible for up to 100% Foreign Direct Investment, making them an attractive avenue for foreign investors and supporting capital inflow into India.

High Growth Potential

The NBFC sector offers significant growth opportunities due to rising credit demand, digital adoption, and financial inclusion initiatives.

Legal Recovery of Loans

Under the SARFAESI Act, NBFCs are empowered to recover eligible debts by enforcing security interests, thereby reducing non-performing assets.

Credit Access for Low Credit Scores

Unlike banks that rely heavily on credit scores, NBFCs may extend loans even to individuals with lower credit ratings, improving financial accessibility.

Pre-Requisites for NBFC Registration

As per Section 45-IA of the RBI Act, 1934, certain conditions must be fulfilled to obtain NBFC registration.

Company Registration with ROC

The applicant entity must be incorporated under the Companies Act, 2013 (or earlier Companies Act, 1956).

Experienced Directors

The directors of the proposed NBFC should possess adequate experience and knowledge in financial and banking-related activities.

Five-Year Business Plan

A detailed and comprehensive business plan covering a minimum period of five years must be submitted to the RBI.

Minimum Net Owned Fund (NOF)

The company must maintain the prescribed minimum Net Owned Fund (NOF). RBI has proposed increasing the entry-level capital requirement from Rs. 2 Crores to Rs. 20 Crores, with a phased transition period for existing NBFCs.

Capital Quality Assessment

The RBI conducts a thorough examination of the capital structure to ensure compliance with applicable laws and regulations.

Credit History Verification

The credit score and financial background of directors, shareholders, and key stakeholders are carefully reviewed.

Quality and Source of Capital

The applicant company must meet RBI’s licensing norms relating to the quality, legitimacy, and source of capital.

FEMA Compliance

Companies seeking foreign investment must comply with FEMA regulations. Investments from FATF-compliant countries are permitted up to 100%.

Checklist Documents Required to Register an NBFC

Certificate of Incorporation (COI) along with the Memorandum of Association (MOA) and Articles of Association (AOA)
Net worth certificates of the directors, shareholders, and the company
Educational and professional qualification documents of the proposed directors
Relevant experience certificates demonstrating senior-level or financial expertise
Detailed business profiles of the directors and shareholders
Credit reports of all directors and shareholders
KYC documents for company identification, including PAN details and GST registration (if applicable)
Proof of minimum Net Owned Fund (NOF) of Rs. 2 Crores deposited in a fixed account
Audited balance sheets for the last three financial years or from the date of incorporation, whichever is applicable
Disclosure of related party transactions, if any
Copies of income tax returns filed by the company
Banker’s report confirming that no lien exists on the fixed deposits
Board resolution approving and authorizing NBFC registration
A detailed underwriting model and five-year business action plan, including Fair Practices Code and risk management policy
Proposed business model and loan structure framework
Comprehensive Information Technology (IT) policy

Registration Process for Non-Bank Financial Companies

To register your NBFC, please follow the steps below:

An experienced NBFC Registration consultant, with at minimum 10 years experience, is a wise choice. A team of professionals, including CAs or CSs as well as senior bankers and lawyers should be assembled.
List a Private Limited or else Public company
The registered office of your business and the area in which you operate
Contact the Registrar of Companies for a certificate of incorporation
You can open a business account at a local bank and deposit your own net money.
Documentation necessary to file for NBFC licensure
Creating a Business Plan for the Next Five years consisting: 1. The Executive Summary , 2. Planned Products, 3. Loan Model, 4. Risk Model, 5. Peer Analysis, 6. SWOT Analysis, 7. Financial Projections
Registration with RBI is required under the RBI Act of 1934.
The applicant company must submit an online request to RBI through its website
A CARN number is given to the applicant.
You will then need to deliver the two hardcopies to your local RBI office.
Regional offices must verify the accuracy of documents.
The regional offices will send the registration form to the central office.
RBI only grants NBFC registration when the applicant meets Section 45 IA requirements.
NBFC must wait six months to start operations after receiving the Certificate of Registration

Provisions for Penalties in the Case of Non-Compliance with RBI Regulations

Penalties for Non-Compliance with RBI Regulations

Failure to comply with Reserve Bank of India (RBI) regulations can result in strict penalties and legal consequences. Some of the major violations and their implications are outlined below:

Carrying Out NBFC Activities Without an RBI Certificate of Registration: Operating without valid RBI approval can attract substantial monetary penalties as prescribed under applicable laws.
Non-Compliance with RBI Directions: Failure to follow RBI guidelines may lead to severe action, including imprisonment of up to three years, along with financial penalties.
Failure to Furnish Information or Submit Documents: Non-submission or delayed submission of required documents can attract fines. In cases of continuous default, additional daily penalties may be imposed until compliance is achieved.
Acceptance of Public Deposits Without Authorization: Unauthorized acceptance of deposits can result in imprisonment of up to three years and penalties amounting to twice the deposit value.

Foreign Direct Investment (FDI) in NBFCs

NBFCs are eligible to receive up to 100% Foreign Direct Investment (FDI) under the automatic route, subject to compliance with capitalization and regulatory requirements. This applies to NBFCs engaged in one or more of the following activities:

Merchant Banking, Underwriting, Portfolio Management Services, Investment Advisory Services, Financial Consultancy, Stock Broking, Asset Management, Venture Capital, Custodian Services, Factoring, Credit Rating Services, Financial Leasing, Housing Finance, Foreign Exchange Services, Credit Card Business, Money Changing Services, Micro Credit, and Rural Credit.

NBFC License Cancellation – Common Grounds

The RBI may cancel an NBFC license under the following circumstances:

Lack of adequate financial or industry experience among directors or promoters
Unsatisfactory business background or credibility of directors and shareholders
Submission of an impractical or weak business plan
Capital or investments sourced from prohibited or non-compliant channels
Engagement of inexperienced or unqualified NBFC consultants
Inadequate or non-compliant infrastructure for NBFC operations

Mandatory Compliances Following NBFC License from RBI Before the start of business

Post-Registration Compliances for NBFCs

After obtaining NBFC registration and before commencing any business operations, certain mandatory compliances must be completed to ensure regulatory readiness and operational legitimacy.

An NBFC is required to complete the following registrations and adoptions:

Registration with approved credit information companies such as CIBIL, Equifax, Experian, and CRIF High Mark
Central KYC (CKYC) registration
Registration with CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India)
FIU-IND (Financial Intelligence Unit – India) registration
Adoption and implementation of a Fair Practices Code
Enrollment with the National E-Governance Registry
Adoption of Information Technology (IT) Policy and Anti-Money Laundering (AML) Policy
Submission of financial information to Information Utilities, as applicable

NBFC Annual Compliances

Once registered and operational, NBFCs are required to comply with the following statutory and regulatory obligations on an annual basis:

Filing of annual returns and periodic reports with the Reserve Bank of India (RBI)
Preparation and submission of annual financial statements
Filing of income tax returns and GST returns, wherever applicable

RBI Proposes a Scale Based Approach to Regulating

Scale-Based Regulation of NBFCs

Non-Banking Financial Companies (NBFCs) are classified into four distinct regulatory layers based on factors such as size, complexity, systemic interconnectedness, and potential risk to the financial system. This scale-based regulatory framework can be visualized as a pyramid, where the base layer is subject to minimal regulation, while the upper layers are governed by increasingly stringent compliance requirements.

Under the scale-based framework, NBFCs are categorized into the following four layers:

Base Layer (BL): This layer includes nearly 97% of NBFCs and is subject to the least regulatory oversight. It comprises Peer-to-Peer (P2P) lending platforms, Account Aggregators, Non-Operative Financial Holding Companies (NOFHCs), and Type I NBFCs.
Middle Layer (ML): This category consists of NBFCs with asset sizes exceeding Rs. 1,000 crores. It includes Housing Finance Companies (HFCs), Infrastructure Finance Companies (IFCs), Infrastructure Debt Funds (IDFs), Systemically Important Core Investment Companies (CICs), and Standalone Primary Dealers (SPDs).
Upper Layer (UL): The top ten NBFCs, along with other entities identified based on parameters such as leverage, asset size, and interconnectedness with the financial system, are placed in this layer and are subject to enhanced regulatory supervision.
Top Layer (TL): The regulator intends for this layer to remain empty under normal circumstances. However, it may be activated if certain NBFCs pose elevated systemic risks. Entities placed in this layer will be subject to additional capital requirements, including enhanced capital conservation buffers.

Regulatory Changes Introduced in 2021

Earlier, assets overdue for more than 180 days were classified as Non-Performing Assets (NPAs). In alignment with updated regulatory standards, this threshold has been reduced to 90 days past due (DPD).

Board Composition Requirements

The board of an NBFC must meet minimum eligibility standards, including:

Adequate qualifications and relevant professional experience
At least one director with proven expertise in retail lending through a bank, NBFC, or other recognized financial institution

Risk Management Committee

Applicable to NBFCs with assets exceeding Rs. 100 crores
The board has the authority to determine the structure and composition of executive and advisory committees
Uniform guidelines apply to all regulated entities for the sale of stressed or distressed assets
Enhanced disclosures are required, covering risk exposure, related parties, customer grievances, and other material information

Fintech-Driven NBFCs: A Technology-Led Business Model

The integration of financial technology into NBFC operations has significantly strengthened the financial ecosystem. Fintech-based NBFCs offer several advantages, including:

Quick and seamless access to online loan facilities
Use of Artificial Intelligence and Machine Learning to detect and reduce fraud
Improved financial inclusion through digital platforms
Technology-driven solutions to enhance customer experience
Innovative alternatives to traditional lending models with improved efficiency and compliance

NBFC Registration and Professional Support

To legally establish and operate an NBFC, registration with the regulator is mandatory. Following a structured and compliant registration process ensures smoother operations, better risk management, and long-term sustainability.

Engaging experienced professionals with expertise in NBFC regulations is strongly recommended. Once the required information and documents are submitted, the registration process can be initiated and managed efficiently to ensure regulatory compliance and timely approval.

Why Choose Us?

Our platform offers a complete range of services tailored to meet all your NBFC-related requirements under one roof. We connect you with experienced legal and financial professionals who guide you at every stage of the process. Clients consistently rate our services highly due to our clear communication, simplified compliance approach, and regular status updates.

With our transparent system, you can track the progress of your application in real time. Whether you have questions about documentation, eligibility, or regulatory procedures, our experts are always available to assist you. We ensure seamless communication between you and our professionals for a smooth and stress-free experience.

Complete the online questionnaire form
Receive a call from one of our dedicated associates
Proceed with secure payment
Receive confirmation via email
Submit the required documents
Detailed review of your application by experts
Live order tracking
Successful completion and delivery of services

Other NBFC-Related Services Available After Registration

Advisory on fintech-based financial business models
Design and structuring of loan products and documentation
End-to-end market entry and growth strategy
Support and guidance for fundraising activities
Virtual CFO and financial management services
Post-incorporation and ongoing regulatory compliance support
Expert advisory for adoption of IND AS and IFRS standards