Reserve Bank of India

NBFC – Frequently Asked Questions – RBI

Non Banking Finance Companies(NBFC) have emerged as the most preferred vehicle for MFI’s in India and most of the MFI’s intend to convert into a NBFC in the coming years.To better understand what NBFC’s are we are posting the FAQ’s about NBFC’s from the RBI Website

The information given in the FAQ is of general nature for the benefit of depositors/public and the clarifications given do not substitute the extant regulatory directions/instructions issued by the Bank to the NBFCs.

Reserve Bank of India Microfinance bill

Reserve Bank of India

Frequently Asked Questions on NBFCs

QUES -1 What is a Non-Banking Financial Company (NBFC)?
ANS -1 A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company).

QUES 2. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ?
ANS 2. NBFCs are doing functions akin to that of banks; however there are a few differences:

(i) an NBFC cannot accept demand deposits; (ii) an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques drawn on itself; and (iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks.
QUES-3. Is it necessary that every NBFC should be registered with RBI?
ANS 3. In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.

However, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982 or Housing Finance Companies regulated by National Housing Bank.

QUES 4. What are the different types of NBFCs registered with RBI?
ANS 4. Originally, NBFCs registered with RBI were classified as:

(i) equipment leasing company; (ii) hire-purchase company; (iii) loan company; (iv) investment company.
However, with effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as

(i) Asset Finance Company (AFC) (ii) Investment Company (IC) (iii) Loan Company (LC)
AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.

The above type of companies may be further classified into those accepting deposits or those not accepting deposits.

QUES 5. Updated on February 10, 2009 What are the requirements / is the procedure for registration with RBI?

ANS 5. A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999).

To read the rest of the FAQ please visit the RBI website..

Abhay N

Author : 

Abhay is the founder and managing editor of India Microfinance. He is passionate about microfinance, financial inclusion and social entrepreneurship in India.

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  1. Arunava Roychowdhury

    August 3, 2009 at 10:13 pm

    is any private limited company can operate microfinance operation without RBI pemission but registered under ROC ? if not then what is the procedure

  2. P.S.R.SWAMI

    November 27, 2009 at 12:22 pm

    Some Holding Companies are incorporated as Private limited companies with a view to pursue special purpose vehicles to implement projects. In the absence of accepting public deposits or investment by public, what is the sacctity of reaquireing those companies to register with the Reserve Bank of India as NBFC?

  3. Rama Rao

    December 30, 2009 at 9:38 am

    Can NBFCs take up micro insurance business to cover its clients (both life and non-life) without being a corporate agent ? Can they be a master policy holder, collecting premium from clients and paying to the insurance companies ? Are there any stipulations from RBI or IRDA for NBFCs getting into micro insurance business to cover its clients for both life and non-life ? Can they do the business through other corporate agents ? Please clarify on these. Thanks in advance.


    April 21, 2010 at 11:42 am

    Should all NBFC company accept deposit from public, whether it is public or private?

  5. Rob James

    October 7, 2011 at 11:39 am

    Can MFI Companies ( Registered under companies Act 1956) need to registered as NBFC

  6. Rishabh

    November 23, 2011 at 5:42 pm

    Can a broking company whose substantial business is from prop trade be exempt from registration as NBFC ?

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