NBFC Company

NBFC Company



Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions typically are restricted from taking deposits from the public depending on the jurisdiction. Nonetheless, operations of these institutions are often still covered under a country's banking regulations.

The specific banking products that can be offered by NBFCs depends on the jurisdiction, and may include services such as loans and credit facilities, savings products, investments and money transfer services. In some jurisdictions, such as New Zealand, any company can engage in banking business, except they are not allowed to use the word bank in their name. A company can only call itself a bank if it is a registered as such with the nation's central bank.


Services provided:-


NBFCs offer most sorts of banking services, such as loans and credit facilities, private education funding, retirement planning, trading in money markets, underwriting stocks and shares, TFCs(Term Finance Certificate) and other obligations. These institutions also provide wealth management such as managing portfolios of stocks and shares, discounting services e.g. discounting of instruments and advice on merger and acquisition activities. The number of non-banking financial companies has expanded greatly in the last several years as venture capital companies, retail and industrial companies have entered the lending business. Non-bank institutions also frequently support investments in property and prepare feasibility, market or industry studies for companies.


However they are typically not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments.




  • Provides loans and credit facilities.
  • Supporting investments in property.
  • Trading money market instruments.
  • Funding private education.
  • Wealth management such as Managing portfolios of stocks and shares.
  • Underwrite stock and shares, TFCs and other obligations.
  • Provides retirement planning.
  • Advise companies in merger and acquisition.
  • Prepare feasibility, market or industry studies for companies.
  • Discounting services e.g. discounting of instruments.


Major Steps involved for incorporation of NBFC


The most preferred business areas of NBFC are leasing & finance, deposits, commercial & industrial loans & advances, insurance business, hire purchasing, investment funds, instruments of the capital & money markets, chit business & many other similar activities. Since December 2006, there exist 3 broad categories of NBFCs in India.


  • Asset Finance Companies (AFC)
  • Loan Companies (LC)
  • Investment Companies (IC)


Since January 1997, obtaining the mandatory NBFC registration number for establishing a business in any of the above specified areas, has been made essential by the RBI. For obtaining proper & secure registration under any of the above 3 categories of NBFCs, the following are compulsory requirement:-

  • The applicant company must be perfectly registered as per the rules regulations & provisions given in the new Companies act of 2013 or the earlier companies Act 1956.
  • The applicant company must be engaging in the business of any one of the above noted fields. If the total financial flow in such a business gets more than 50% the total capital asset of the company in any year, then getting the NBFC certificate is mandatory.
  • The concerned company must hold a paid-up-capital fund of INR-2 Crore at the minimum. For foreign companies and investors desirous of setting up an NBFC anywhere in India, this minimum amount of paid-up-capital is INR-5 Crore.
  • This recommended Net owned fund, ought to be present in the company’s bank account at the time of filling application for NBFC.


The prescribed format for making application for the NBFC registration is obtainable from the website https://cosmos.rbi.org.in, along with information regarding the demanded documents and enclosures. Filing an online application with this website, give a company application reference Number, to enable the applicant for knowing current status of the registration process. Along with the hard copy (in duplicate) of this online application, the applicant company then requires to make application together with all demanded documents and enclosures, to the concerned Regional Office of the RBI. After verification and approval of the submitted application and the attached documents, the regional office will send the application to the central office of RBI for crucial examination and grant of the desired certificate. If all terms and conditions provided in the Section 45IA of the RBI Act of 1934 are fully satisfied by the applicant company, then, the NBFC certificate will be issued otherwise rejected.


Documents Required to be enclosed in the application form


a) Identification particulars (Annex I).

b) Statement on prudential norms (Annex II).

c) Information about the management (Annex III)

d) Certified copies of up-to-date Memorandum and Articles of Association of the company.

e) A Board resolution specifically approving the following:-


 i) submission of the application and its content

 ii) that the company has not commenced any Non Banking Financial Institution (NBFI) activity as on date and

 iii) that the company has not accepted Public Deposits as on date and shall not accept any Public Deposit in future without the prior approval of RBI.

 f) Statutory Auditors Certificate certifying e(ii) and e(iii) above.

 g) A copy each of the Profit and Loss account and audited Balance Sheet for the last 3 years or for such shorter period as are available.

 h) Business plan of the company for the next three years giving details of its (a) thrust of business including projections; (b) market segment; and (c) projection of income and expenditure.

 i)a) Declaration from each of the Directors of the applicant company to the effect that he/she is not associated with any unincorporated body which is accepting/ holding deposits in violation of Section 45S of the RBI Act, 1934.

b) Details of experience of the directors in NBFC business is to be furnished at item 14 of Annexure III. In case, none of the directors has experience, a note indicating as to how the affairs of the company would be managed, may be furnished.


j) Confidential Report from the bankers in respect of each of the following institutions in NBFC business may be obtained and submitted to the Bank alongwith the application form in a SEALED COVER:-


a) the applicant company.

b) holding company of the applicant company.

c) all the group companies.

d)companies in which the director/s has/have substantial interest;

k) Bank balance statement/ certified copy of Fixed Deposit/ any other deposit account of applicant company placed with its banker/s in support of maintaining the prescribed level of NOF.

l) Give brief note on the activities carried out by the company in the last three years, in case any other activity was being carried on and now the company is being converted into NBFC.  Furnish details of acquisition, mergers of other companies, if any, in the past.

m) Whether it had applied to RBI in the past for registration.  If yes, give full details.


n) Information in a separate letter as to whether :-

a) the company has made application to RBI for permission to function as Full Fledged Money Changer; If yes,  give particulars, else report "Nil.

b) the company or any of its directors are involved in any criminal case including Section 138 of the Negotiable Instruments Act, If yes, please give particulars, else report "Nil";

c) there are any incidents of non-compliance with the directions of Revenue Authorities or any other statutory  authority by the applicant company, its holding company/ subsidiaries, If yes, give particulars, else report "Nil";

d) the company is capable of electronic submission of information through the Internet, as and when called for by Reserve Bank of India;

e)(i) Is there any FDI in the applicant company? If yes, please indicate: percentage of FDI, details of foreign contributors and submit FIRC in support thereof. Also submit FC-GPR and indicate whether it is through automatic route or with FIPB approval. If it is with FIPB approval, please submit a copy of the approval;

(ii) If it is a foreign entity setting up NBFC in India, whether it is subject to supervisory review in its home country?;(iii) If it is not regulated in its home country, mention legal status under which it was established and/ or registered with some authority, statutory requirements like submission of returns filing of balance sheet and profit and loss account etc.

(iv) Activities undertaken, details of regulator of group/associate companies doing financial activities which are regulated either in the home country or elsewhere, if any

(v) If any group/ associate company is operating in India, details such as its activities, its partners or associates, regulator/s etc. may be furnished.




a) In case the company has changed its name earlier, a list of all the earlier names of the company and date/s of change together with the names of Chief Executive Officer and Chairman at the time of change of name should be furnished

b) The company should also submit a list containing the details of all the court cases pending against it, including those pending in consumer foraume.




a) For filling up Annex II, please refer to the provisions contained in Non-Banking Financial (Deposit Accepting or Holding)Companies Prudential Norms (Reserve Bank) Directions, 2007 and Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 on prudential norms for income recognition, accounting standards, asset classification, provisioning for bad and doubtful debts, capital adequacy, concentration of credit/investment, etc.

b) The contents of Annex II should be certified by the Statutory Auditors.




‘Substantial interest’ means holding of beneficial interest by an individual or his/her spouse or minor child, whether singly or taken together, in shares of a company/capital of a firm, the amount paid-up on which exceeds 10 per cent of the paid-up capital of the company or total capital subscribed by all the partners of a partnership firm.




A) Application should be made in the prescribed form only. Wherever space is insufficient, information may be furnished in separate sheet/s.

B) Application along with enclosures duly completed should be submitted in duplicate, to the Department of Non-Banking Supervision, Reserve Bank of India, Regional Office under whose jurisdiction the registered office of the company is situated.

C) A copy of the application as submitted may be kept with the company for its record.

D) Application should be signed by any of the following officials authorised by the Board of Directors, in this behalf (viz., Chairman, Managing Director, Chief Executive Officer, Company Secretary, a whole-time Director or any other official).

E) Application should bear common seal of the company.

F) An acknowledgement for having submitted the application may be obtained from the Regional Office concerned.

G) The particulars/information to be furnished in Annex II of the application should be based on figures as disclosed in the latest annual audited balance-sheet. However, in the case of a newly incorporated company, such particulars/information should be based on the balance-sheet as on a date falling within thirty days preceding the date of application.


Types of Non-Banking Financial Entities (Regulated by RBI)

Non-Banking Financial Entity

Principal Business

I. Non-Banking Financial Company

In terms of the Section 45-l(f) read with Section 45-i(c) of the RBI Act, 1934, as amended in 1997, their principal business is that of receiving deposits or that of a financial institution, such as lending, investment in securities, hire purchase finance or equipment leasing. 

(a) Equipment leasing company (EL)

Equipment leasing or financing of such activity. 

(b) Hire purchase finance company

(HP) Hire purchase transactions or financing of such transactions. 

(c) Investment company (1C) 

Acquisition of securities. These include Primary Dealers (PDs) who deal in underwriting and market making for government securities. 

(d) Loan company (LC)

Providing finance by making loans or advances, or otherwise for any activity other than its own; excludes EL/HP/Housing Finance Companies (HFCs). 

(e) Residuary non-banking company (RNBC) 

Company which receives deposits under any scheme or arrangement by whatever name called, in one lump-sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments, or in any manner. These companies do not belong to any of the categories as stated above. 

II. Mutual Benefit Financial Company (MBFC) i.e., Nidhi Company

Any company which is notified by the Central Government as a Nidhi Company under section 620A of the Companies Act, 1956 (1 of 1956) 

III. Mutual Benefit Company (MBC), i.e., potential Nidhi company

A company which is working on the lines of a Nidhi company but has not yet been so declared by the Central Government, has minimum net owned fund(NOF) of Rs.10 lakh, has applied to the RBI for COR and also to Department of Company Affairs (DCA) for being notified as Nidhi company and has not contravened directions/ regulations of RBI/DCA. 


Regulatory Norms and Directions for NBFCs





Certificate of Registration (COR)

No company, other than those exempted by the RBI, can commence the business of non-banking financial institution without obtaining a COR from RBI. The pre-requisite for eligibility for such a COR is that the NBFC have a minimum NOF of Rs. 25 lakh (since raised to Rs. 2 crore on and April 21, 1999 for any new applicant NBFC). The RBI grant COR after satisfying itself about the company's compliance with the conditions enumerated in Section 45-1A of the RBI Act 


Maintenance of Liquid Assets

NBFCs have to invest in unencumbered approved securities, valued at a not exceeding current market price, an amount which, at the close of business on any day, shall not be less than 5.0 per cent but not exceeding 25.0 per cent specified by RBI, of the deposits outstanding at the close of business on the working day of the second preceding quarter. 


Creation of Reserve Fund

Every non-banking financial company shall create a reserve fund and transfer thereto a sum not less than 20.0 per cent of its net profit every year as disclosed in the profit and loss account and before any dividend is declared. Such fund is to be created by every NBFC irrespective of the fact whether it accepts deposits or not. Further, no appropriation can be made from the fund without prior written approval of RBI. 


Deposit Acceptance Related Regulations 


Ceiling on quantum of public deposits

Loan and investment companies - 1.5 times of NOF if the company has NOF of Rs. 25 lakh, minimum investment grade (MIG) credit rating, complies with all the prudential norms and has CRAR of 15%.Equipment leasing and hire purchase finance companies - if company has NOF of Rs. 25 lakh and complies with all the prudential norms. 

i. With MIG credit rating and 12 per cent CRAR - 4 times of NOF

ii Without MIG credit rating but CRAR 15 per cent or above -1.5 times of NOF, or Rs. 10 crore, whichever is less.


Investment in liquid assets

NBFCs - 15 per cent of outstanding public deposit liabilities as at the close of business on the last working day of the second preceding quarter, of which 
i. not less than 10 per cent in approved securities and 
ii. not more than 5 per cent in term deposits with scheduled commercial banks. 

Directions for investments by RNBCs were rationalized in June 2004 with a view to reducing the overall systemic risk in the financial sector and safeguarding the interest of the depositors. In this regard the following roadmap was prescribed:

a) From the quarter ended June 2005 and onwards, RNBCs were permitted to invest only to the extent of 10% of the Aggregated Liabilities to Depositors (ALDs) as at the second preceding quarter or one time of their Net Owned Funds, whichever is lower, in the manner which in their opinion of the company is safe as per approval of its Board of Directors.

b) From the quarter ended June 2006 onwards, this limit would stand abolished and RNBCs would not be permitted to invest any amount out of ALDs as per their discretion. However, to avoid strain, in complying with 100% directed investments by companies, the same had been modified to 95% of ALD up to March 31, 2007 and 100% of ALD thereafter. These liquid asset securities are required to be lodged with one of the scheduled commercial banks or Stock Holding CORporation of India Ltd.. or a depository or its participant (registered with SEB1).Effective October 1, 2002, government securities are to be necessarily held by NBFCs either in Constituent's Subsidiary General Ledger Account with a scheduled commercial bank or in a demat account with a depository participant registered with SEBI. These securities cannot be withdrawn or otherwise dealt with for any purpose other than repayment of public deposits.


Period of Deposits

No demand deposits NBFCs – 12 to 60 months RNBCs – 12 to 84 months MNBCs (chit Funds) – 6 to 36 months 


Ceiling of deposit rate

NBFCs, MNBCs and Nidhis -11.0 per cent per annum (effective March 4, 2003) RNBCs - Minimum interest of 4.0 per cent on daily deposits and 6.0 per cent on other than daily deposits. Interest may be paid or compounded at periods not shorter than monthly rests. 


Advertisement methodology for acceptance of deposits/public deposits

Every company which accepts deposits by advertisement has to comply with the advertisement rules prescribed in this regard, the deposit acceptance form should contain certain prescribed information, issue receipt for deposits and maintain a deposit register. etc. 


Submission of returns

All NBFCs holding or accepting public deposits have to submit periodical returns to RBI at Quarterly, half yearly and annual intervals.