Non-Banking Financial Companies have become an important part of India’s financial system. They provide business loans, consumer finance, vehicle finance, microfinance, invoice financing, housing finance, investment services and other specialised financial products to individuals and businesses. A company that proposes to carry on lending, financing, acquisition of securities or another non-banking financial activity as its principal business may be required to obtain a Certificate of Registration from the Reserve Bank of India. Incorporating a company with the Ministry of Corporate Affairs does not, by itself, authorise it to commence NBFC activities.

NBFC registration is a detailed regulatory process. The RBI examines the applicant’s capital, ownership, source of funds, management competence, business model, governance arrangements, credit policies, risk controls, technology systems and customer-protection framework before granting approval. This guide explains how to register an NBFC in India, including the eligibility requirements, minimum Net Owned Fund, documents, PRAVAAH filing process, regulatory scrutiny and post-registration obligations.

In this article, CA Manish Mishra talks about How to Register an NBFC in India: Complete RBI Guide.

What Is an NBFC?

A Non-Banking Financial Company is a company incorporated under the Companies Act that carries on the business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities, leasing, hire purchase or another financial activity specified under the Reserve Bank of India Act, 1934.

An NBFC performs certain functions similar to those performed by banks, particularly lending and investment. However, it is not a bank and cannot carry on ordinary banking activities unless separately authorised. The RBI applies the Principal Business Criteria, commonly known as the 50-50 test, to determine whether a company is principally engaged in financial activity.

Difference Between an NBFC and a Bank

• Acceptance of Demand Deposits: An NBFC cannot accept demand deposits like savings-account or current-account deposits. Most newly registered NBFCs are non-deposit-taking companies and cannot accept public deposits unless they hold a specific deposit-taking authorisation from the RBI.

• Issuance of Cheques: An NBFC does not form part of the payment and settlement system in the same manner as a bank. It cannot issue cheques drawn on itself.

• Deposit Insurance: Deposits placed with an eligible deposit-taking NBFC are not covered by the Deposit Insurance and Credit Guarantee Corporation. Therefore, deposits with an NBFC do not have the same insurance protection as eligible deposits maintained with banks.

Is RBI Registration Mandatory for Every Finance Company?

A company must ordinarily obtain RBI registration where it proposes to carry on non-banking financial activity as its principal business and does not qualify for a statutory or regulatory exemption.

Section 45-IA of the RBI Act prohibits a company from commencing or carrying on the business of a non-banking financial institution without obtaining a Certificate of Registration and maintaining the prescribed Net Owned Fund. A company conducting lending, investment or deposit-related financial activity as its principal business without the required registration may face penalties, fines and prosecution.

Understanding the 50-50 Test

The 50-50 test helps determine whether financial activity constitutes the principal business of a company.

• Financial-Asset Test: Financial assets should constitute more than 50% of the company’s total assets. Financial assets may include loans, advances, investments in shares, bonds, debentures and other financial instruments. Cash and bank balances are not automatically treated as financial assets for every regulatory calculation merely because they are financial in nature.

• Financial-Income Test: Income arising from financial assets should constitute more than 50% of the company’s gross income. Such income may include interest income, financing charges, investment income and other revenue arising from the company’s financial assets.

• Both Tests Must Be Considered: A company is generally regarded as carrying on financial activity as its principal business when both the financial-asset and financial-income conditions are satisfied. A manufacturing, trading or service company that occasionally grants a loan may not become an NBFC merely because it earns some interest. However, a company whose assets principally consist of loans and whose principal revenue consists of interest and financing income may be required to obtain registration.

Important 2026 Position: Registration May Not Be Required for Certain Type I Companies

Before preparing an NBFC application, the promoters should determine whether the company qualifies as an Unregistered Type I NBFC.

Meaning of an Unregistered Type I NBFC

An Unregistered Type I NBFC is a company that satisfies the Principal Business Criteria but operates without public funds and without customer interface as a conscious and long-term business model. Its asset size must also remain below ₹1,000 crore. Such a company is exempt from obtaining RBI registration under Section 45-IA, subject to satisfying the prescribed conditions.

Absence of Public Funds

Public funds include funds received directly or indirectly from external sources that create an outside liability. Loans from directors or shareholders may also be treated as public funds. Bank finance, inter-corporate deposits, commercial papers and debentures may similarly constitute public funds for this purpose.

Absence of Customer Interface

Customer interface includes lending, providing guarantees, placing inter-corporate deposits or supplying financial products or services to customers, group entities, shareholders or directors as part of the company’s business. A retail-lending, business-lending, consumer-finance, MSME-finance or customer-facing fintech company will ordinarily have customer interface and cannot rely on the Unregistered Type I exemption.

Asset Size below ₹1,000 Crore

An Unregistered Type I NBFC must have an asset size below ₹1,000 crore. Where multiple such NBFCs exist within the same group, their asset sizes are aggregated for determining whether registration is required. Once the applicable threshold is reached, registration as a Type I NBFC may become compulsory even where the entities continue to operate without public funds and customer interface.

When Type II Registration Is Required

A company intending to have customer interface or access public funds must obtain registration as a Type II NBFC before commencing such activities, irrespective of its asset size. Most lending startups and fintech companies proposing to lend to individuals or businesses will therefore require Type II registration.

Types of NBFC Registration in India

The correct registration category depends on the proposed financial activity. An applicant must select the category that accurately reflects its business model.

Investment and Credit Company

An Investment and Credit Company, or NBFC-ICC, is a company whose principal business consists of asset finance, providing loans or advances, or acquiring securities, and which does not fall within another specialised NBFC category. This is commonly considered by businesses proposing to undertake general lending, consumer finance, business finance, vehicle finance or investment activities.

NBFC-Micro Finance Institution

An NBFC-MFI primarily provides collateral-free microfinance loans to households falling within the income criteria prescribed by the RBI. A microfinance applicant must establish systems for household-income assessment, borrower indebtedness, responsible lending, repayment flexibility, pricing disclosure and customer protection.

NBFC-Factor

An NBFC-Factor undertakes factoring as its principal business. Factoring involves financing or acquiring receivables arising from the sale of goods or provision of services. A business proposing invoice financing or receivables financing must determine whether it satisfies the activity and asset-income conditions applicable to an NBFC-Factor.

Housing Finance Company

A Housing Finance Company principally provides finance for housing-related purposes. An HFC applicant must satisfy the separate asset-deployment, capital, governance and regulatory conditions prescribed under the RBI framework governing housing finance companies.

Infrastructure Finance Company

An NBFC-Infrastructure Finance Company deploys the prescribed proportion of its assets in infrastructure lending. Infrastructure financing generally involves large exposures, extended repayment periods and specialised credit-risk and asset-liability management requirements.

Infrastructure Debt Fund-NBFC

An IDF-NBFC undertakes eligible infrastructure debt-financing and refinancing activities subject to the separate conditions prescribed by the RBI.

• Core Investment Company: A Core Investment Company principally holds investments in group companies and satisfies the prescribed asset-composition and group-investment requirements. CIC registration depends on factors including asset size, access to public funds and the nature of investments held within the group.

• NBFC-Account Aggregator: An NBFC-Account Aggregator provides consent-based collection, consolidation and sharing of financial information. It does not function as a regular balance-sheet lender and is governed by a specialised regulatory framework.

• NBFC-Peer-to-Peer Lending Platform: An NBFC-P2P operates a platform that facilitates lending between eligible lenders and borrowers. The platform acts as an intermediary and cannot operate like an ordinary lender using its own balance sheet. It must comply with specific participant-exposure, escrow, fund-flow and disclosure requirements. The RBI recognises different NBFC categories based on liabilities, Scale-Based Regulation and the nature of activities undertaken.

Basic Eligibility Requirements for NBFC Registration

Incorporation as a Company

The applicant must be incorporated as a company under the Companies Act. A sole proprietorship, ordinary partnership firm or limited liability partnership cannot directly obtain a regular NBFC Certificate of Registration. The promoters must establish a private limited company or public limited company before submitting the RBI application.

Appropriate Object Clause

The Memorandum of Association should contain a clear object authorising the company to undertake the financial activity for which registration is proposed. For a general lending company, the objects may cover providing loans, advances and finance for permitted activities. A specialised applicant should ensure that its object clause accurately reflects activities such as microfinance, factoring, housing finance or account aggregation. An existing company with an unsuitable object clause should amend its Memorandum of Association before submitting the application.

Minimum Net Owned Fund

A new general NBFC applicant must maintain a minimum Net Owned Fund of ₹10 crore from the date of application. The applicant must satisfy the requirement at the time of filing. It cannot apply with a lower amount on the assumption that the capital will be introduced after receiving approval. Existing NBFCs covered by the transitional framework have until March 31, 2027 to reach the ₹10 crore level.

Minimum Capital for Specialised Categories

NBFC category	Minimum Net Owned Fund
General NBFC applicant	₹10 crore
Housing Finance Company	₹20 crore
NBFC-Infrastructure Finance Company	₹300 crore
Infrastructure Debt Fund-NBFC	₹300 crore
Mortgage Guarantee Company	₹100 crore
NBFC-Account Aggregator	₹2 crore
NBFC-Peer-to-Peer Lending Platform	₹2 crore
Standalone Primary Dealer undertaking core activities	₹150 crore
Standalone Primary Dealer undertaking core and non-core activities	₹250 crore

These are minimum entry-level capital requirements. Meeting the prescribed amount does not create an automatic right to receive registration.

Correct Calculation of Net Owned Fund

Net Owned Fund is different from authorised capital, issued capital and the amount appearing in the company’s bank account.

• Owned Fund Components: Owned Fund generally includes paid-up equity capital, eligible preference-share capital, free reserves, share premium and eligible capital reserves representing realised gains.

• Deductions from Owned Fund: Accumulated losses, intangible assets and deferred revenue expenditure are deducted while calculating Owned Fund. Intangible assets may include goodwill, trademarks, preliminary expenses, software development costs and other assets that do not qualify as tangible capital support under the regulatory calculation.

• Further Regulatory Adjustments: Further deductions may be required for specified investments, loans, advances, deposits and other exposures involving subsidiaries, companies in the same group and other NBFCs beyond the permitted limits. The applicant should obtain a detailed Net Owned Fund certificate from its statutory auditor or a practising Chartered Accountant. The calculation should correspond with the audited or appropriately certified financial statements of the company.

Genuine and Traceable Source of Capital

The promoters must demonstrate that the capital introduced into the applicant company has come from legitimate and verifiable sources. The RBI may examine bank statements, income-tax returns, audited financial statements, share-subscription documents, net-worth certificates and records showing the promoters’ financial capacity. Borrowed, circular, layered or unexplained funds may raise serious regulatory concerns. The movement of funds should be traceable from the original source to the promoters and subsequently to the applicant company.

Fit-and-Proper Promoters and Directors

The promoters, shareholders, directors and senior management should be fit and proper to operate a regulated financial institution. The RBI may examine their integrity, reputation, financial soundness, credit history, qualifications, professional experience, litigation history, criminal proceedings and previous association with regulated entities. Any regulatory action, loan default, disqualification, insolvency proceeding or criminal matter should be properly disclosed and explained. Concealing adverse information may materially affect the application.

Financial-Sector Experience

The proposed Board and management should collectively possess sufficient experience in finance, banking, credit, risk management, accounting, legal compliance, recovery, technology or customer service. Capital alone is not sufficient. The RBI must be satisfied that the people managing the company understand how to operate a regulated financial institution and protect borrowers and other stakeholders.

Viable Business Plan

The applicant should prepare a detailed business plan explaining how the NBFC will operate after receiving approval. The plan should cover the proposed products, customer categories, geographical market, loan-ticket size, tenure, pricing model, sourcing channels, underwriting process, collateral requirements, disbursement system, collection mechanism and expected credit losses. The projected financial statements should realistically account for operating costs, employee expenses, technology expenditure, cost of funds, defaults, provisioning, collections and compliance costs.

Proper Governance Structure

The company should establish a governance structure suitable for the size and complexity of the proposed business. The Board should exercise oversight over credit decisions, risk management, compliance, audit, customer grievances, outsourcing, technology, information security and recovery practices. Approval authorities and reporting lines should be clearly defined. The company should avoid a structure in which all lending, collection and compliance decisions are controlled informally by one promoter.

Technology and Operational Readiness

A technology-enabled NBFC should demonstrate that its systems can support customer onboarding, KYC verification, credit assessment, loan documentation, disbursement, repayment tracking, overdue identification, collections and regulatory reporting. The applicant should evaluate its loan-management system, data storage, cybersecurity, access controls, backup facilities, business-continuity arrangements and third-party technology vendors. A fintech applicant using a mobile application, website or Lending Service Provider must also structure its operations in accordance with RBI requirements governing digital lending.

Pre-Registration Planning for an NBFC

Selecting the Correct Business Model

The promoters should determine whether the company will lend from its own balance sheet, facilitate loans between third parties, provide microfinance, finance receivables or undertake another specialised financial activity. A platform that only connects lenders and borrowers may require an NBFC-P2P registration. A company lending directly from its own balance sheet may require an NBFC-ICC or another relevant registration.

Determining the Funding Structure

The business plan should explain how the company will fund its loan book. Possible funding sources may include equity capital, bank borrowings, debentures, commercial papers and other permitted instruments. The applicant must distinguish between owned funds, public funds and public deposits. A non-deposit-taking NBFC may access permitted borrowings but cannot accept public deposits merely because it has received a general NBFC registration.

Building the Management Team

The company should identify the proposed chief executive, credit head, finance head, compliance officer, risk officer, technology head and grievance officer according to the size of the proposed business. The RBI may examine whether the management structure is proportionate to the scale and complexity of the operations described in the business plan.

Preparing the Lending Infrastructure

Before filing the application, the company should establish or document its proposed customer-onboarding, credit-assessment, sanction, documentation, disbursement, repayment, collection and complaint-handling processes. The application should demonstrate that the company can begin compliant operations after receiving approval rather than merely having capital available.

Policies Required for an NBFC Application

Credit Policy

The credit policy should explain borrower eligibility, credit assessment, repayment-capacity analysis, security requirements, exposure limits, sanctioning powers, documentation standards and account-monitoring procedures. It should be tailored to the actual proposed loan products and customer segments.

Interest Rate Policy

The interest-rate policy should explain how the company will determine lending rates for different categories of borrowers. It should address the cost of funds, operating expenses, credit risk, expected losses, loan tenure, ticket size and reasonable margin. The method of rate determination should be transparent and capable of being disclosed to borrowers.

Fair Practices Code

The Fair Practices Code should govern loan processing, communication of terms, disbursement, changes in interest or charges, recovery practices, repossession, complaint resolution and treatment of customers.

KYC and Anti-Money Laundering Policy

The KYC and AML policy should cover customer acceptance, identity verification, beneficial-owner identification, risk classification, sanctions screening, transaction monitoring, suspicious transaction reporting and record preservation. The RBI’s KYC Direction establishes the customer due-diligence and anti-money laundering structure applicable to regulated entities.

Risk-Management Policy

The risk-management policy should address credit risk, liquidity risk, operational risk, technology risk, fraud risk, concentration risk and reputational risk. The policy should identify risk limits, reporting mechanisms, escalation procedures and Board oversight.

Asset-Classification and Provisioning Policy

The company should establish systems for identifying overdue accounts, classifying assets and creating provisions in accordance with the regulatory requirements applicable to its category and layer.

Recovery and Collection Policy

The recovery policy should prohibit intimidation, harassment and coercive conduct. It should prescribe authorised communication methods, approved contact hours, escalation procedures, settlement powers, repossession processes and supervision of recovery agents.

Grievance-Redressal Policy

The grievance policy should identify the responsible officer, complaint channels, resolution timelines, escalation process and reporting to senior management or the Board.

Outsourcing Policy

Where customer sourcing, verification, technology, call-centre operations or collections will be outsourced, the company should establish standards for vendor selection, due diligence, monitoring, data security, audit access and termination. The NBFC remains responsible for regulatory compliance even where an activity is performed by a third-party service provider.

Information-Security and Cybersecurity Policy

A digital or technology-dependent applicant should prepare policies covering access management, data encryption, incident response, vulnerability testing, vendor risk, system backups and business continuity.

Documents Required for NBFC Registration

The RBI document checklist is indicative rather than exhaustive. It may request additional information to satisfy itself regarding the eligibility and suitability of the applicant.

• Corporate Documents: The applicant generally needs to submit its Certificate of Incorporation, Memorandum of Association, Articles of Association, PAN, Corporate Identity Number and registered-office documents. Documents relating to changes in name, registered office, objects, authorised capital or issued capital should also be included where applicable.

• Board Resolutions: The Board should approve the proposal to apply for RBI registration and authorise a director or officer to submit the application. The company may also pass resolutions confirming that it has not commenced unauthorised NBFC activities and will not accept public deposits without specific permission.

• Financial Statements: An existing company should submit audited Balance Sheets, Profit and Loss Accounts, schedules and audit reports for the available financial years. A newly incorporated company may need to submit an audited or certified opening Balance Sheet after capital infusion.

• Net Owned Fund Certificate: A certificate from the statutory auditor or practising Chartered Accountant should confirm the amount and calculation of Net Owned Fund. The certificate should identify the included capital components, deductions for losses and intangible assets, and adjustments for group or NBFC exposures.

• Bank Statements: Bank statements should establish the introduction and continued availability of the required capital. The RBI may also examine the banking conduct of the company, promoters and relevant group entities.

• Source-of-Funds Documents: The promoters may need to provide income-tax returns, audited accounts, bank statements, investment-redemption records, sale documents or other evidence supporting the source of capital. The records should establish a clear and legitimate movement of money into the applicant company.

• Promoter and Director Documents: The application may require identity and address documents, curriculum vitae, educational qualifications, professional experience, directorship details, shareholding information, net-worth certificates and credit reports. Declarations regarding criminal cases, regulatory proceedings, loan defaults, disqualifications and relationships with other financial entities should also be prepared.

• Group Structure: The applicant should provide details of its holding company, subsidiaries, associates, related parties and entities controlled by the promoters. Where another NBFC, bank, insurance company, securities intermediary or regulated financial business exists in the group, its regulatory status and relationship with the applicant should be clearly explained.

• Business Plan: The business plan should describe the products, customers, geography, branch or digital distribution model, funding structure, pricing, underwriting, collections, technology and staffing arrangements.

• Financial Projections: Projected Balance Sheets, Profit and Loss Accounts, cash-flow statements and capital-adequacy calculations should ordinarily accompany the business plan. The assumptions behind loan growth, interest income, cost of funds, defaults, provisioning and operating expenses should be disclosed.

• Policies and Process Documents: The applicant should prepare the credit policy, interest-rate policy, Fair Practices Code, KYC and AML policy, risk policy, grievance policy, recovery policy and outsourcing policy. Digital applicants should also prepare technology architecture, data-flow documents, cybersecurity policies and vendor arrangements.

• Declarations and Undertakings: The RBI may require declarations concerning non-acceptance of public deposits, non-commencement of unauthorised business, accuracy of information, compliance with the RBI Act and fit-and-proper status of the management.

Process to Register an NBFC in India

Step 1: Determine Whether RBI Registration Is Required

The promoters should first determine whether the company will satisfy the Principal Business Criteria and whether it will access public funds or have customer interface. A company that will lend to customers normally has customer interface and must obtain the appropriate registration before commencing operations. A company operating exclusively with owned funds, without customer interface and with assets below ₹1,000 crore, should separately examine the Unregistered Type I exemption.

Step 2: Select the Correct NBFC Category

The applicant must select the category that corresponds to its actual business model. A general lending company may apply as an NBFC-ICC, while a microfinance, factoring, housing finance, account aggregation or P2P business must evaluate the specialised conditions applicable to that category. An incorrect category may lead to extensive RBI queries, revision of the business plan or rejection of the application.

Step 3: Incorporate the Company

The promoters must incorporate a private limited or public limited company under the Companies Act. The company’s name and objects should align with the proposed financial activity. The shareholding and Board structure should be finalised after considering the promoters’ financial capacity and management experience.

Step 4: Amend the Object Clause Where Necessary

An existing company should review its Memorandum of Association. Where the existing objects relate to trading, manufacturing or unrelated services, the company should amend them to include the proposed financial activity before filing the RBI application.

Step 5: Infuse the Required Capital

The promoters should introduce sufficient equity capital to satisfy the applicable Net Owned Fund requirement. A general applicant should maintain at least ₹10 crore as Net Owned Fund after applying all regulatory deductions. Additional capital should be available for technology, recruitment, legal documentation and operating expenses.

Step 6: Obtain the Net Owned Fund Certificate

The statutory auditor or practising Chartered Accountant should verify the capital structure and calculate Net Owned Fund. Any accumulated loss, intangible asset, preliminary expense or disallowed exposure should be identified before the application is filed.

Step 7: Appoint the Board and Senior Management

The company should appoint directors and senior officers with appropriate experience in finance, credit, risk, compliance, accounting, technology and customer service. The proposed responsibilities of each director and senior officer should be reflected in the organisation structure and business plan.

Step 8: Prepare the Business Plan

The applicant should prepare a detailed and realistic business plan. It should explain why the proposed NBFC is commercially viable, how it will source customers, how borrowers will be assessed, how loans will be funded and how defaults and complaints will be managed.

Step 9: Prepare the Regulatory Policies

The company should prepare policies covering lending, pricing, KYC, AML, risk, recovery, grievances, outsourcing, information security and asset classification. Generic policies copied from unrelated businesses should be avoided. Each policy should reflect the applicant’s actual products, technology and customer profile.

Step 10: Register and Apply through the PRAVAAH Portal

The NBFC registration application must be submitted electronically through the RBI’s PRAVAAH portal along with the prescribed documents. The applicant should select the appropriate regulatory service and complete all relevant sections accurately. The RBI’s current NBFC FAQ specifically identifies PRAVAAH as the application channel.

Step 11: Upload the Application and Supporting Documents

The applicant should upload the corporate documents, financial records, auditor certificates, promoter information, business plan, policies and declarations required by the relevant application form. The information submitted through PRAVAAH should be consistent with the records maintained with the Ministry of Corporate Affairs, banks, income-tax authorities and other regulators.

Step 12: Receive the Application Reference

After submission, the applicant receives an application or reference number through the RBI portal. This reference should be preserved for tracking the application and submitting responses or additional documents.

Step 13: RBI Preliminary Examination

The RBI reviews whether the application is complete and whether the applicant satisfies the basic incorporation, capital and activity requirements. An incomplete application may be returned or may result in a request for additional documents.

Step 14: Detailed Regulatory Scrutiny

The RBI may examine the following matters in detail:

• Capital and Source of Funds: The RBI examines whether the required capital has been genuinely introduced and whether the promoters have sufficient financial capacity.

• Ownership Structure: The RBI reviews the applicant’s shareholders, beneficial owners, holding entities, subsidiaries and group relationships.

• Management Suitability: The qualifications, experience, reputation, credit history and regulatory background of directors and senior management may be assessed.

• Business Viability: The proposed products, pricing, customer segment, funding plan and financial projections are examined to determine whether the business is realistic and sustainable.

• Governance and Controls: The RBI assesses the applicant’s Board oversight, credit controls, risk framework, compliance arrangements, audit systems and grievance mechanism.

• Technology and Data Security: For a digital model, the RBI may scrutinise the technology platform, data storage, cybersecurity, outsourcing arrangements and control over customer information.

Step 15: Respond to RBI Queries

The RBI may ask the applicant to provide additional documents, explanations, revised policies or clarification of financial and ownership matters. Responses should address each query separately and should be supported by evidence. Where the RBI requests documents beyond the standard checklist, the applicant must respond within the period specified in the communication. The RBI’s registration checklist is expressly described as indicative rather than exhaustive.

Step 16: Regulatory Interaction Where Required

Depending on the application, the RBI may seek discussions or presentations from the promoters and senior management. The management should be prepared to explain the business model, source of funds, credit process, customer-protection controls, financial projections and long-term strategy.

Step 17: Grant of Certificate of Registration

Where the RBI is satisfied that the company satisfies the legal, financial, governance and public-interest requirements, it may issue the Certificate of Registration. The certificate identifies the category under which the company has been registered and may contain operational conditions. Registration is discretionary. Maintaining the required capital and submitting an application do not automatically guarantee approval.

Step 18: Commencement of NBFC Operations

The company should commence its regulated financial activity only after receiving the Certificate of Registration and completing its operational readiness requirements. It should conduct only the activities permitted under its registration and applicable RBI directions.

How Long Does NBFC Registration Take?

The RBI does not provide a single guaranteed approval period applicable to every NBFC application. The processing period depends on the category of registration, ownership structure, foreign investment, source of capital, quality of documentation, management profile, business complexity and number of RBI queries.

An application involving unexplained capital, complex group structures, inexperienced management or inconsistent documents may take significantly longer than a complete and properly structured application. Promoters should avoid planning a fixed commercial launch date on the assumption that approval will be received within a particular number of months.

Can an NBFC Start Lending While Its Application Is Pending?

A company that requires NBFC registration should not commence its non-banking financial business merely because it has submitted an application. It should not disburse loans, onboard customers as an NBFC, solicit public deposits or represent itself as RBI-registered until the Certificate of Registration has been granted. Carrying on financial business without the required registration may result in penalty, fine or prosecution under the RBI Act.

Can a Newly Registered NBFC Accept Public Deposits?

A regular NBFC Certificate of Registration does not authorise the company to accept public deposits. Only an NBFC holding a specific deposit-taking Certificate of Registration and satisfying the prescribed conditions may accept public deposits. RBI states that it has not granted new deposit-taking NBFC registrations since 1997 as a matter of public policy. A founder should therefore not prepare a business model that depends on collecting fixed deposits or similar funds from the public.

RBI Scale-Based Regulation Structure

Registered NBFCs are regulated under the Scale-Based Regulation framework.

• Base Layer: The Base Layer generally contains smaller and less complex NBFCs and specified categories identified under the RBI.

• Middle Layer: The Middle Layer includes NBFCs meeting the prescribed asset-size, deposit-taking or activity-related conditions and is subject to enhanced prudential and governance requirements.

• Upper Layer: The Upper Layer consists of NBFCs identified by the RBI as requiring enhanced regulation based on size, interconnectedness, complexity and other risk parameters.

• Top Layer: The Top Layer is ordinarily expected to remain empty. The RBI may place an NBFC in this layer where it considers that the entity presents a materially higher level of systemic risk. The RBI classifies NBFCs into the Base, Middle, Upper and Top Layers under the Scale-Based Regulation context.

Post-Registration Compliances

Maintenance of Net Owned Fund

The NBFC must continue maintaining the applicable minimum Net Owned Fund. Capital erosion due to accumulated losses, intangible assets or disallowed investments may create non-compliance even where the paid-up share capital has not changed.

Principal Business Criteria

The company must continue satisfying the Principal Business Criteria where applicable. A registered NBFC cannot substantially convert itself into an ordinary trading or service company while continuing to hold itself out as an NBFC without assessing the regulatory implications.

KYC and AML Compliance

A customer-facing NBFC must implement customer due diligence, beneficial-owner identification, risk classification, sanctions screening, transaction monitoring and record-retention procedures. Suspicious or otherwise reportable transactions must be dealt with in accordance with applicable anti-money laundering requirements.

Prudential Norms

The company must comply with the prudential requirements applicable to its category and regulatory layer. These may include capital adequacy, leverage, asset classification, provisioning, exposure limits, income recognition and liquidity management.

RBI Returns

The NBFC must submit the applicable supervisory and financial returns through the prescribed RBI reporting systems. The nature and frequency of returns depend on the NBFC’s category, asset size, deposit status and regulatory layer.

Fair Practices Code

The company must provide transparent information about interest rates, fees, penal charges, repayment terms and other material loan conditions. Borrowers should receive appropriate sanction communications, loan documents and Key Facts Statements wherever applicable.

Statutory Audit

The statutory auditor must examine whether the NBFC has complied with the applicable RBI requirements. The auditor may also have reporting obligations where the company fails to maintain registration conditions or undertakes unauthorised activities.

Grievance Redressal

The NBFC should maintain accessible complaint channels and designate responsible officials. Complaint trends, serious grievances and unresolved matters should be reviewed by senior management and the Board.

Prior Approval for Material Changes

Prior RBI approval may be required for prescribed changes in ownership, control, management or shareholding. The NBFC should examine regulatory approval requirements before implementing a major investment, acquisition, transfer or restructuring transaction.

Display of Registration Status

The Certificate of Registration should be displayed as required, and the company should accurately describe its regulatory status in customer communications and on its digital platforms. An NBFC must not claim that RBI registration amounts to a guarantee of repayment, profitability or the financial soundness of the company.

Common Reasons for Delay or Rejection

• Insufficient Net Owned Fund: The application may be delayed or rejected where the company does not maintain the required Net Owned Fund after regulatory deductions.

• Unclear Source of Capital: Capital introduced through unexplained transfers, borrowed funds or complex layering may lead to enhanced scrutiny.

• Inexperienced Management: A Board without adequate credit, finance, risk or compliance experience may not demonstrate the capacity required to operate an NBFC.

• Incorrect Registration Category: An applicant may face objections where its actual model involves microfinance, factoring, housing finance or P2P activity but it applies as a general lending company.

• Weak Business Plan: A business plan containing unrealistic loan growth, negligible defaults or insufficient operating expenditure may not appear credible.

• Inconsistent Documents: Differences in addresses, capital, shareholding, director details, group relationships or financial figures across documents may delay examination.

• Generic Policies: Policies copied from unrelated companies may not demonstrate that the applicant has designed controls for its own customers, products and technology.

• Previous Unauthorised Lending: Where the company has already commenced lending without registration, the RBI may examine the transactions, auditor’s observations and corrective actions.

• Adverse Promoter History: Loan defaults, criminal cases, disqualifications, enforcement proceedings or association with failed financial entities may affect the fit-and-proper assessment.

• Complex Group Structure: An applicant with multiple related entities, cross-holdings or financial businesses may need to provide detailed explanations regarding control, funding and regulatory overlap.

Important Points Founders Should Remember

NBFC registration is not merely a licence-filing exercise. It involves establishing a properly capitalised and professionally managed financial institution. The ₹10 crore requirement relates to Net Owned Fund and not merely authorised capital or funds temporarily placed in a bank account. A customer-facing lending company should ordinarily obtain RBI registration before beginning operations, irrespective of its initial asset size.

The Unregistered Type I exemption applies only to a conscious and long-term model operating without public funds and without customer interface, with assets below ₹1,000 crore. A general NBFC registration does not permit acceptance of public deposits. The applicant must file through PRAVAAH and should be prepared to provide documents beyond the initial checklist where requested by the RBI.

Frequently Asked Questions

Q1. What is the minimum capital required to register an NBFC?

Ans. A new general NBFC applicant must ordinarily maintain a minimum Net Owned Fund of ₹10 crore. Separate capital requirements apply to certain specialised categories.

Q2. Is ₹10 crore authorised capital sufficient?

Ans. No. Authorised capital only represents the maximum capital that the company is permitted to issue. The applicant must maintain actual Net Owned Fund of at least ₹10 crore after applying the prescribed deductions.

Q3. Can an LLP apply for NBFC registration?

Ans. No. A regular NBFC applicant must be incorporated as a company under the Companies Act.

Q4. Where is the NBFC application filed?

Ans. The application is filed electronically through the RBI’s PRAVAAH portal with the prescribed documents.

Q5. Can a company start lending after filing the application?

Ans. No. Where registration is required, the company should wait until the RBI grants the Certificate of Registration before commencing NBFC activities.

Q6. Is RBI approval guaranteed after investing ₹10 crore?

Ans. No. The RBI also examines the source of capital, promoters, management, group structure, business plan, governance, policies and operational readiness.

Q7. Can an NBFC accept savings or current-account deposits?

Ans. No. An NBFC cannot accept demand deposits like a bank.

Q8. Can a newly registered NBFC accept fixed deposits?

Ans. A general NBFC registration does not permit public deposits. A specific deposit-taking authorisation is required, and the RBI has not issued new deposit-taking registrations since 1997.

Q9. What is the 50-50 test?

Ans. The 50-50 test examines whether financial assets exceed 50% of total assets and whether income from financial assets exceeds 50% of gross income. It is used to determine whether financial activity constitutes the principal business of a company.

Q10. What is a Type II NBFC?

Ans. A Type II NBFC has or intends to have customer interface, access public funds or both. Most retail, MSME, consumer and digital-lending businesses require Type II registration.