India’s Non-Banking Financial Company (NBFC) sector continues to be a vital engine of credit growth, especially for MSMEs, housing, microfinance, and underserved borrowers who fall outside the traditional banking net. As the Reserve Bank of India (RBI) periodically updates its regulatory framework, businesses looking to enter this space need to stay current on registration norms, capital requirements, and compliance obligations. Here is an updated, practical overview of NBFC registration in India.
What is an NBFC?
An NBFC is a company registered under the Companies Act, 1956 or the Companies Act, 2013, engaged in lending, investment in shares or securities, leasing, hire-purchase, or similar financial activities as its principal business. Importantly, an NBFC does not include entities whose core business is agriculture, industrial activity, trading of goods, or real estate. To determine whether a company qualifies as an NBFC, the RBI applies what is popularly known as the 50-50 test: a company must have more than 50% of its total assets in financial assets, and derive more than 50% of its gross income from those assets, to be treated as conducting financial activity as its “principal business.”
Why Registration with RBI is Mandatory
Under Section 45-IA of the RBI Act, 1934, no company can commence or carry on the business of a non-banking financial institution without obtaining a Certificate of Registration (CoR) from the RBI. Certain categories, such as companies regulated by SEBI, IRDAI, or the Ministry of Corporate Affairs (like Nidhi companies and Chit Fund companies), are exempt from RBI registration to avoid duplication of regulatory oversight.
Key Registration Requirements
A company seeking NBFC registration must fulfil the following conditions:
- Be incorporated as a company under the Companies Act, 1956 or 2013.
- Maintain a minimum Net Owned Fund (NOF) of ₹10 crore, effective October 1, 2022, for standard NBFCs. New applicants must meet this threshold from inception, while existing NBFCs have time until March 31, 2027 to comply.
- Meet higher NOF thresholds for specialised categories — for example, ₹300 crore for Infrastructure Finance Companies and Infrastructure Debt Funds, ₹100 crore for Mortgage Guarantee Companies, ₹20 crore for Housing Finance Companies, and ₹2 crore for Account Aggregators and Peer-to-Peer lending platforms.
- Submit the application through the RBI’s online PRAVAAH portal, along with the documentation prescribed by the Reserve Bank.
Categories of NBFCs
NBFCs are classified by the nature of their liabilities (deposit-taking vs. non-deposit-taking), by the Scale Based Regulation layer they fall under (Base, Middle, Upper, or Top Layer), and by activity. Activity-based categories include Investment and Credit Companies (ICC), Housing Finance Companies (HFC), Infrastructure Finance Companies (IFC), Infrastructure Debt Funds (IDF-NBFC), Core Investment Companies (CIC), Micro Finance Institutions (NBFC-MFI), Factors, Mortgage Guarantee Companies (MGC), Standalone Primary Dealers (SPDs), Account Aggregators (NBFC-AA), and Peer-to-Peer Lending Platforms (NBFC-P2P). Each category carries its own eligibility norms and prudential requirements.
Deposit Acceptance: A Note of Caution
Not every registered NBFC can accept public deposits. Only NBFCs holding a specific deposit-taking CoR, along with a minimum investment-grade credit rating of ‘BBB-‘, may accept deposits, capped at 1.5 times their Net Owned Funds, with interest rates presently capped at 12.5% per annum. As a matter of policy, the RBI has not issued fresh deposit-taking licences since 1997, so most new entrants are structured as non-deposit-taking NBFCs.
Why Professional Guidance Matters
Given the layered capital requirements, activity-specific conditions, and the scrutiny applied to promoter background and financial soundness during RBI’s review, NBFC registration is rarely a straightforward form-filling exercise. Errors in structuring the NOF, incomplete PRAVAAH filings, or misclassification of the intended NBFC category can lead to delays or rejection. Engaging experienced legal and compliance advisors early — to structure the entity, prepare board resolutions, draft the business plan, and manage RBI correspondence — significantly improves the likelihood of a smooth approval.
Conclusion
NBFC registration remains an attractive route for entrepreneurs and financial institutions looking to participate in India’s credit ecosystem, but it demands careful compliance with RBI’s evolving Scale Based Regulation framework. At Lal Ghai & Associates, we assist clients through every stage of the NBFC registration journey — from feasibility assessment and entity structuring to PRAVAAH application filing and post-registration compliance — ensuring a compliant and efficient path to market entry.
This bulletin is prepared for general informational purposes. It does not constitute legal or professional advice. Readers should seek specific advice before acting on any matter covered herein.