Non-Banking Financial Companies (NBFCs) in India: Bridging the Financial Gap

In a diverse and fast-growing economy like India, access to finance plays a pivotal role in empowering individuals, entrepreneurs, and businesses. While banks remain the backbone of the financial system, Non-Banking Financial Companies (NBFCs) have emerged as a powerful alternative, catering to segments often underserved by traditional banking institutions.

  • The Indian NBFC Scenario

India’s NBFC sector has evolved into a critical component of the financial system, complementing banks in mobilizing resources and delivering credit to sectors like MSMEs, retail, housing, infrastructure, and agriculture.

As per RBI data, NBFCs account for more than 25% of the total financial assets in the Indian economy. Over the years, NBFCs have demonstrated innovation, flexibility, and outreach, especially in Tier 2 and Tier 3 cities where formal banking penetration remains limited.

NBFCs in India are regulated by the Reserve Bank of India (RBI) under the provisions of the Reserve Bank of India Act, 1934, and the Companies Act, 2013.

  • What is an NBFC?

An NBFC is a company registered under the Companies Act, 2013, that provides financial services similar to banks but does not hold a banking license. NBFCs are primarily engaged in:

  • Providing loans and advances
  • Asset financing
  • Leasing and hire purchase
  • Investment in securities
  • Microfinance services
  • Infrastructure financing
  • Types of NBFCs in India

NBFCs are categorized based on their nature of activity or asset size:

🔹 Based on Activity:

  • NBFC-Investment and Credit Company (NBFC-ICC)
  • NBFC-Micro Finance Institution (NBFC-MFI)
  • NBFC-Factor (Factoring services)
  • NBFC-Housing Finance Company (NBFC-HFC)
  • NBFC-Infrastructure Finance Company (NBFC-IFC)
  • Core Investment Company (CIC)

🔹 Based on Size:

  • NBFC-Upper Layer (NBFC-UL) – Systemically important, closely regulated
  • NBFC-Base Layer (NBFC-BL) – Smaller, non-systemic NBFCs

 

  • Key Uses and Importance of NBFCs

NBFCs play a unique role in India’s credit delivery framework:

  • Credit Access to Underserved Segments: NBFCs provide loans to individuals and SMEs with little or no formal credit history.
  • Flexibility in Loan Products: Unlike traditional banks, NBFCs offer customized products with faster approval timelines.
  • Promotion of Financial Inclusion: NBFCs, especially MFIs and digital lenders, have helped expand financial services in rural and semi-urban India.
  • Support to Emerging Sectors: NBFCs fund real estate, infrastructure, education, and small-ticket consumer lending—sectors often overlooked by banks.
  • Registration of NBFC with RBI

To operate as an NBFC in India, registration with the Reserve Bank of India is mandatory under Section 45-IA of the RBI Act, 1934.

  • Eligibility Criteria for NBFC Registration:
  1. Must be a company incorporated under the Companies Act, 2013
  2. Should have a minimum Net Owned Fund (NOF) of ₹10 crores (as per revised guidelines effective 2021)
  3. Must have a clean credit and compliance record
  4. Should propose to engage in financial activities constituting more than 50% of its total assets and income
  • Documents Required:
  • Certificate of Incorporation
  • Memorandum & Articles of Association
  • Net worth certificate from a Chartered Accountant
  • Banker’s Report
  • Detailed business plan
  • Board resolution
  • Audited financial statements
  • Process:
  • File the online application via the RBI COSMOS portal
  • Submit hard copies to the concerned RBI Regional Office
  • After due diligence, RBI may grant a Certificate of Registration (CoR)
  • Advantages of Setting Up an NBFC:

Establishing an NBFC offers multiple strategic and financial benefits:

  • Diversified Business Opportunities: NBFCs can operate in lending, investment, leasing, microfinance, and fintech domains.
  • Scalability and Reach: With minimal physical infrastructure, NBFCs can scale operations using technology and penetrate deeper markets.
  • Attractive to Investors: NBFCs often draw attention from domestic and foreign investors seeking exposure to India’s retail credit and fintech sectors.
  • Less Regulatory Burden (for Smaller NBFCs): NBFCs under the base layer have relatively relaxed regulatory norms compared to banks.
  • Faster Decision-Making: Promoter-driven decision-making allows quicker response to market demands.
  • How AKMD & Associates Can Help:

At AKMD & Associates, we offer end-to-end support for:

  • Incorporation of NBFC under the Companies Act
  • Preparation and filing of the NBFC registration application with RBI
  • Drafting of business plans, policies, and governance frameworks
  • Legal and compliance advisory post-registration
  • Assistance in conversion of existing companies into NBFCs

Whether you’re a fintech startup, a group of professionals, or a business house looking to diversify into financial services, we help you navigate the complex regulatory landscape with clarity and confidence.

Final Words

NBFCs have become indispensable players in India’s financial system, offering innovative, agile, and inclusive credit solutions. With the right vision, compliance framework, and support, setting up an NBFC can be a high-impact opportunity to contribute to economic development while building a profitable enterprise.

Get in touch with AKMD & Associates to explore how we can assist you in establishing and growing your NBFC the right way.