Non-Banking Financial Companies (NBFCs) are vital pillars of India’s financial ecosystem. These institutions provide credit, loans, and financial services to sectors often under-served by traditional banks. But to maintain financial stability and safeguard consumer interests, the Reserve Bank of India (RBI) regulates NBFCs through a well-defined legal framework. This article dives deep into NBFC regulations in India, covering classification, registration, compliance, and the latest RBI updates.
What is an NBFC?
A Non-Banking Financial Company is a company registered under the Companies Act, 2013 (or earlier, 1956) that offers financial services similar to banks but cannot accept demand deposits. According to the RBI, an NBFC’s primary business includes:
- Loans and advances
- Leasing and hire purchase
- Investment in securities
- Chit funds and asset management
Unlike banks, NBFCs do not form part of the payment and settlement system but still play a crucial role in financial inclusion in India.
Legal Framework & RBI Guidelines for NBFCs
NBFCs are governed by:
- Section 45-IA of the RBI Act, 1934 – Mandates a Certificate of Registration (CoR) from RBI.
- RBI Master Directions – Detailed guidelines on capital adequacy, corporate governance, KYC/AML, and more.
- Companies Act, 2013 – Covers audits, board governance, and compliance filings.
Classification of NBFCs by RBI
Based on Liabilities:
- NBFCs-D – Deposit accepting
- NBFCs-ND – Non-deposit accepting
- NBFCs-ND-SI – Systemically important (Assets ≥ ₹500 Cr)
- NBFCs-ND-NSI – Non-systemically important (Assets < ₹500 Cr)
Based on Activity:
- NBFC-ICC – Investment & Credit Company
- NBFC-MFI – Microfinance
- NBFC-Factor – Factoring services
- NBFC-IFC – Infrastructure funding
- NBFC-HFC – Housing finance
RBI Regulatory Requirements for NBFCs
1. Certificate of Registration (CoR)
Must be incorporated under the Companies Act with a minimum ₹10 crore Net Owned Fund (NOF).
2. Capital Adequacy (CRAR)
Maintain 15% CRAR, with Tier-I capital ≥10%.
3. Prudential Norms
Follow norms for asset classification, provisioning, and exposure limits.
4. KYC & AML Compliance
Mandatory adherence to RBI’s KYC Master Directions, suspicious transaction reporting to FIU.
5. Corporate Governance
NBFCs (especially systemically important ones) must appoint independent directors, conduct internal audits, and file returns like NBS-1, NBS-2, SAC, etc.
Latest RBI Updates for NBFCs (2024-25)
🔹 Scale-Based Regulation (SBR)
NBFCs are categorized into Base Layer, Middle Layer, Upper Layer, and Top Layer based on size and risk.
🔹 Revised NPA Norms
Loans overdue for 90+ days to be classified as NPAs (now aligned with banks).
🔹 Digital Lending Guidelines
NBFCs must disclose all charges upfront, issue a Key Fact Statement, and collect payments directly.
Penalties for Non-Compliance
RBI may impose:
- Monetary fines
- Suspension of license
- Legal prosecution
- Ban on taking deposits
Hence, RBI compliance is crucial for NBFCs to maintain operational legitimacy and market reputation.
Conclusion
NBFCs have become essential for MSME lending, rural finance, and financial inclusion. But navigating the RBI compliance landscape is complex and constantly evolving. Whether it’s registration, governance, or audits, expert legal guidance can ensure long-term success.
At Lal Ghai & Associates, we specialize in NBFC registration, RBI compliance, audit, KYC-AML checks, and filing returns. Contact us today for end-to-end support and make your NBFC 100% compliant.