A Non-Banking Financial Company (NBFC) is a company engaged primarily in financial activities such as lending, investment, infrastructure finance, microfinance or other specialised financial services. Although NBFCs provide several services similar to banks, they are governed by a separate regulatory framework administered by the Reserve Bank of India (RBI).
Before applying for NBFC Registration, promoters must identify the appropriate NBFC category because the applicable capital requirements, permitted activities, compliance obligations and RBI conditions depend upon the proposed business model. RBI currently regulates NBFCs through both activity-based categories and the Scale Based Regulation framework.
1. Investment and Credit Company (NBFC-ICC)
An Investment and Credit Company is one of the most commonly used NBFC categories. It generally carries on lending, financing and investment activities. Businesses planning to provide loans, advances, asset finance or investment-related financial services may consider this category, depending on their proposed activities.
RBI's current registration framework further distinguishes certain NBFC-ICCs based on whether they intend to access public funds or have customer interface.
2. NBFC-Micro Finance Institution (NBFC-MFI)
An NBFC-MFI primarily provides collateral-free microfinance loans to eligible households and borrowers. Under RBI's current framework, an NBFC-MFI is a non-deposit-taking NBFC with at least the prescribed proportion of its assets deployed towards qualifying microfinance loans.
This structure is suitable for businesses focusing on financial inclusion and small-value lending to eligible borrowers.
3. NBFC-Peer-to-Peer Lending Platform
An NBFC-P2P operates an online platform connecting persons willing to lend money with persons seeking to borrow. The platform acts as an intermediary rather than lending from its own balance sheet in the ordinary course.
NBFC-P2P entities require specific RBI registration and always remain within the Base Layer under the Scale Based Regulatory framework.
4. NBFC-Account Aggregator
An NBFC-Account Aggregator (NBFC-AA) facilitates consent-based collection and sharing of customers' financial information between participating financial institutions. It does not operate like a conventional lending NBFC.
Account Aggregators are particularly important within India's digital financial ecosystem because they enable customers to securely share authorised financial information.
5. NBFC-Factor
An NBFC-Factor primarily carries on factoring business. Factoring involves financing or acquiring receivables arising from business transactions. This category can be useful for businesses seeking to provide receivables-based finance and working-capital solutions to enterprises.
RBI treats NBFC-Factors as a distinct activity-based NBFC category.
6. Infrastructure Finance Company
An Infrastructure Finance Company (NBFC-IFC) primarily provides finance for infrastructure projects. Such entities generally operate in areas requiring substantial and long-term funding, including infrastructure development.
Under RBI's Scale Based Regulation framework, IFCs are placed in the Middle Layer or, where identified by RBI, the Upper Layer.
7. Core Investment Company
A Core Investment Company (CIC) primarily holds investments in shares, securities and group companies while satisfying prescribed RBI conditions. CIC structures are commonly relevant for corporate groups that centralise long-term investments and ownership interests through a holding entity.
Registration and prudential requirements depend upon whether the CIC falls within RBI's regulatory criteria.
8. Infrastructure Debt Fund-NBFC
An IDF-NBFC is established primarily to facilitate long-term debt financing for infrastructure projects. It operates under specialised RBI requirements and is classified within the Middle Layer of the Scale Based Regulation framework.
Choosing the Right NBFC Category
Selecting the appropriate NBFC category is a crucial step before submitting an application to RBI. The correct structure depends on the proposed financial activity, customer base, funding model, asset composition and regulatory requirements.
Businesses should therefore carefully evaluate whether their proposed activities fall under NBFC-ICC, MFI, P2P, Account Aggregator, Factor, IFC, CIC or another specialised category before beginning the NBFC Registration process in India.
