Non-Banking Financial Companies (NBFCs) are important players in India’s financial system. They provide many services like loans, asset finance, investment services, and more. Though NBFCs do not have a banking license, they are still regulated by the Reserve Bank of India (RBI).
Different types of NBFCs must follow different rules set by the RBI. These rules help maintain financial stability and protect customers. In this blog, we will explain the key RBI norms that apply to various categories of NBFCs in simple words.
We’ll also cover how to get different licenses online, such as NBFC Registration with RBI, NBFC Account Aggregator License Online, PPI License Apply Online, and P2P Lending License Online.
What is an NBFC?
An NBFC is a company registered under the Companies Act, 2013 (or 1956), which provides financial services like:
Giving loans and advances
Asset financing
Investment in securities
Leasing and hire-purchase
Microfinance
Peer-to-peer lending
Wallet and payment services
NBFCs cannot accept demand deposits like banks, but they play a key role in offering credit to sectors that are underserved by banks.
RBI Norms for NBFCs – Basic Rules for All
Before we look at the different types, let’s understand some common rules all NBFCs must follow:
NBFC Registration with RBI:
Every NBFC must register with the RBI before starting operations. The company must have a minimum net owned fund (NOF) of ₹2 crore (some exceptions apply).Fit and Proper Criteria:
Promoters and directors must pass the “fit and proper” test as per RBI norms. This ensures only qualified individuals run NBFCs.Capital Adequacy Ratio (CAR):
Most NBFCs must maintain a certain ratio between their capital and risk-weighted assets to ensure financial stability.KYC and AML Norms:
NBFCs must follow Know Your Customer (KYC) and Anti-Money Laundering (AML) guidelines to prevent fraud and illegal activities.Periodic Reporting:
NBFCs must regularly submit reports and data to the RBI.
Different Categories of NBFCs and Applicable RBI Norms
NBFCs are classified into different categories based on their functions. Below are the major types and the RBI rules that apply to them.
1. NBFC-Investment and Credit Companies (NBFC-ICC)
These NBFCs provide loans and advances, hire-purchase finance, and asset finance.
RBI Norms for NBFC-ICC:
Maintain 15% capital adequacy ratio.
Follow fair lending practices.
Report credit data to Credit Information Companies (CICs).
Follow interest rate and foreclosure norms.
2. NBFC-Micro Finance Institutions (NBFC-MFIs)
These provide small loans (up to ₹1.25 lakh) to low-income groups.
RBI Norms for NBFC-MFI:
85% of total assets must be in microfinance loans.
Interest rate caps apply to protect borrowers.
Must follow customer protection and grievance redressal mechanisms.
3. NBFC-Factor
These NBFCs provide factoring services to improve liquidity for small businesses.
RBI Norms:
Register under Factoring Regulation Act.
Maintain a minimum NOF of ₹5 crore.
Follow asset classification and provisioning norms.
4. Infrastructure Finance Companies (NBFC-IFC)
They provide long-term finance to infrastructure projects.
RBI Norms:
Minimum NOF of ₹300 crore.
CRAR of 15% with Tier-I capital of 10%.
Must lend at least 75% of total assets to infrastructure.
5. NBFC-Account Aggregator (AA)
These do not lend but help customers share financial data across institutions securely.
NBFC Account Aggregator License Online:
Apply through the RBI portal.
Must follow RBI’s Master Directions on NBFC-AA.
Must ensure customer consent and data privacy.
No financial advice or lending allowed.
6. NBFC-Peer to Peer Lending Platform (NBFC-P2P)
They provide an online platform for borrowers and lenders.
Apply online through the RBI interface.
Minimum NOF of ₹2 crore.
Cannot lend or borrow on its own.
Maximum limit per borrower and lender applies.
Must conduct due diligence of borrowers and lenders.
7. NBFC-Prepaid Payment Instruments (PPI Issuers)
These NBFCs issue wallets, prepaid cards, etc.
Must apply to the RBI with complete documents.
Follow the RBI Master Direction on PPIs.
KYC norms must be followed strictly.
Report suspicious transactions under PMLA.
RBI Scale-Based Regulation (SBR)
In 2021, the RBI introduced Scale-Based Regulation (SBR) to improve risk management in NBFCs. Under this framework, NBFCs are grouped into four layers:
Base Layer: Small NBFCs (e.g., NBFC-P2P, NBFC-AA)
– Must meet basic capital and governance norms.Middle Layer: Larger NBFCs with bigger operations
– Stricter supervision, capital norms, and risk management rules.Upper Layer: Systemically important NBFCs
– Follow rules similar to banks, including board structure, risk policies, and governance norms.Top Layer: Not currently populated. Reserved for high-risk NBFCs in the future.
How to Apply for NBFC Licenses Online?
Here’s how you can apply for various licenses:
1. NBFC Registration with RBI
Apply on the RBI’s official COSMOS portal.
Submit documents like COI, MoA, AoA, NOF proof, business plan, etc.
RBI will check eligibility and issue a Certificate of Registration (CoR).
2. NBFC Account Aggregator License Online
Fill the online form on the RBI’s portal.
Provide documents related to IT systems, data security, and consent architecture.
RBI may inspect IT systems before granting a license.
3. PPI License Apply Online
Apply under the Payment and Settlement Systems Act, 2007.
Submit KYC compliance, technical architecture, and capital details.
Approval takes a few months after review.
4. P2P Lending License Online
Apply through RBI portal as an NBFC-P2P.
Provide IT framework, borrower/lender onboarding systems, and escrow arrangements.
RBI reviews compliance before granting permission.
Conclusion
RBI regulates NBFCs to ensure financial discipline, protect customers, and prevent systemic risks. Depending on the type of NBFC, different rules and licenses apply.
If you're planning to start an NBFC, it’s important to understand which category it falls into and follow the required RBI norms. Whether it's NBFC Registration with RBI, applying for NBFC Account Aggregator License Online, PPI License, or P2P Lending License Online, being compliant with RBI rules is a must for smooth and lawful operations.
Need help with NBFC licensing or compliance? Reach out to professionals who can guide you through the process!
