Non-Banking Financial Company
What an NBFC is, which licence category fits your lending or investment business, and what the Reserve Bank expects before it issues a Certificate of Registration. We map your model to the right licence and take you through it.
What it is
A non-banking financial company is a company registered under the Companies Act whose principal business is lending, investment, or the acquisition of shares and securities — but which does not hold a banking licence and cannot accept demand deposits.
The Reserve Bank decides who is an NBFC by looking at the numbers, not at what the company calls itself. The test is the principal business criterion: if more than half your assets are financial assets and more than half your income comes from them, you are an NBFC and you need a Certificate of Registration before you lend.
Companies do get this wrong. A company that starts lending out of its own surplus, or a group entity that begins financing dealers, can cross the threshold without noticing. The consequence is not academic — carrying on the business of an NBFC without registration is an offence under the Reserve Bank of India Act.
Who it applies to
Before an application is worth filing, four things have to be true.
A company, not a firm
The applicant must be a company registered under the Companies Act 2013 or the 1956 Act. A partnership or proprietorship cannot hold the licence.
Net owned funds in place
Under the scale-based framework a new applicant in the Investment and Credit, Micro Finance or Factor categories needs net owned funds of ₹10 crore. Peer to peer platforms need ₹2 crore. The money must be clean, in the company, and evidenced by a certificate from a statutory auditor.
Directors who will pass fit and proper
The Reserve Bank examines the promoters and directors: credit history, prior association with any refused or cancelled entity, and relevant experience. One director with financial sector experience materially helps.
A business plan that holds together
A five-year plan showing the lending product, the funding mix, the risk framework and realistic projections. A generic plan is the most common reason an application stalls.
Types and categories
The category you apply under decides your capital requirement and the rules you live under afterwards. Choosing it correctly at the outset saves a rejection.
Investment and Credit Company
The general-purpose category covering lending, asset finance and investment. Most new applicants fall here.
Micro Finance Institution
Lending to low-income households, with the qualifying-asset and pricing rules that go with it.
Factor
Acquisition of receivables. Factoring must be the predominant business.
Infrastructure Finance Company
At least three quarters of assets deployed in infrastructure loans, with a higher net owned fund threshold.
Peer to Peer Lending Platform
An online intermediary matching lenders and borrowers. It does not lend on its own book.
Core Investment Company
Holding shares in group companies. Registration is required above a size threshold.
Housing Finance Company
Housing finance, regulated by the Reserve Bank with the National Housing Bank as supervisor.
Nidhi and Section 8 routes
Not NBFCs in the ordinary sense. A Nidhi lends only to its members and is regulated by the MCA; a Section 8 micro finance company works within a not-for-profit licence. Both avoid the RBI capital thresholds and both have real limits on what they may do.
Documents required
The application is made online through the Reserve Bank’s COSMOS portal, with a physical set to the regional office.
- Certificate of incorporation, memorandum and articles, with the financial objects clause
- Certified copy of the board resolution approving the NBFC application
- Statutory auditor’s certificate of net owned funds as on the latest date
- Audited accounts for the last three financial years, where the company has been operating
- Banker’s report on the company, its directors and its group entities
- Fit and proper declarations, PAN, and detailed profiles for every director and promoter
- Credit reports for directors and promoters
- Five-year business plan with projected balance sheet, profit and loss and cash flow
- Board-approved policies on credit, risk, KYC and anti-money laundering, and fair practices
- Proof of the registered office and the organisation chart
How it works
An NBFC application is a long process and most of it is preparation. This is the sequence we run.
We confirm the category and the capital
We map your lending model to the right licence category and confirm what net owned funds you need before you commit capital to the company.
We get the company ready
Objects clause, share capital, board composition and the policies the Reserve Bank expects to see already adopted, not drafted after a query.
We assemble the application
Auditor’s net owned funds certificate, director fit and proper papers, credit reports, banker’s report and the business plan.
We file on COSMOS
The online application is submitted and the physical set goes to the regional office of the Reserve Bank with the company application reference number.
We handle the queries
The regional office and then the central office raise queries. Answering them quickly and consistently is what separates a six-month application from an eighteen-month one.
Certificate of Registration issued
Once satisfied, the Reserve Bank issues the Certificate of Registration. We then set up your returns calendar, because the reporting obligations begin immediately.
Timelines
A well-prepared application typically takes four to nine months from filing to the Certificate of Registration. Applications that go in incomplete take considerably longer, and some are returned rather than queried.
The preparation before filing usually takes four to eight weeks, most of it spent on the business plan, the fit and proper documentation for directors, and getting the net owned funds properly evidenced.
What happens if you do not
Carrying on the business of a non-banking financial institution without a Certificate of Registration is an offence under the Reserve Bank of India Act, and the Reserve Bank can direct the company to stop, wind up the lending business and repay depositors.
The practical consequences arrive sooner. Banks will not extend facilities to an unregistered lender, borrowers dispute enforceability, and any future application is prejudiced by the earlier unregistered activity. If you are lending and unsure whether you have crossed the principal business threshold, that is a question to answer now rather than at an inspection.
Frequently asked questions
How much capital do I actually need?
For a new Investment and Credit Company, Micro Finance Institution or Factor, net owned funds of ₹10 crore. For a peer to peer lending platform, ₹2 crore. Net owned funds are not the same as paid-up capital — accumulated losses, intangibles and certain group investments are deducted.
Can an existing company convert into an NBFC?
Yes, provided the objects clause supports financial business and the net owned funds test is met. The company’s past accounts will be examined, so an existing trading history can help or hinder.
Is a Nidhi company an easier route?
It is a different route rather than an easier one. A Nidhi may take deposits from and lend only to its own members, is regulated by the Ministry of Corporate Affairs, and cannot do general lending. It suits a member-based savings and lending model, not a commercial lender.
Can an NBFC accept deposits?
Only if it is registered specifically as a deposit-taking NBFC, which carries a higher supervisory burden. The great majority of new registrations are non-deposit-taking.
Do foreign investors face extra conditions?
Foreign direct investment in NBFCs is permitted under the automatic route for the regulated activities, subject to the sectoral conditions. The source of the net owned funds is examined closely.
What compliance follows registration?
Returns to the Reserve Bank, a board-approved fair practices code, KYC and anti-money laundering compliance, statutory auditor certification each year, and the Companies Act filings that apply to any company. The reporting starts from the date of registration.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
Related entity and compliance services
Ready to begin?
Tell us the situation and we will confirm what applies, what it costs and how long it takes.