Different Types of NBFCs in India

Different Types of NBFCs in India. A Non-Banking Financial Company (NBFC) is a financial institution that performs functions similar to that of a bank, but it does not hold a banking license. Although they cannot accept demand deposits like savings or current accounts, NBFCs provide a wide range of financial services to individuals and businesses. Their role in the Indian financial sector is important, especially when it comes to supporting sectors that may not have easy access to traditional banking channels.
NBFCs have gained prominence over the years due to their flexibility, niche service offerings, and their ability to address gaps left by traditional banks. This article explains the different types of NBFCs in India, their classification based on liabilities, size, and activities, along with their functions and regulatory requirements.
Role and Functions of NBFCs
NBFC support economic development by offering credit facilities to sectors that are often underserved by banks. These include Micro, Small, and Medium Enterprises (MSMEs), individual borrowers, and specific industries like infrastructure, trade, and agriculture.
Some of the key functions performed by NBFCs include:
1. Retail Financing: NBFCs offer loans to individuals and households who may not meet the credit assessment criteria of commercial banks. They provide personal loans, education loans, consumer durable loans, and more.
2. Infrastructure Financing: NBFCs play an active role in funding large-scale infrastructure projects such as highways, power plants, ports, and telecom networks.
3. Hire Purchase Services: Through hire purchase agreements, NBFCs help customers acquire essential equipment, vehicles, and machinery without the burden of upfront payments.
4. Trade Finance: NBFCs facilitate trade by offering instruments like letters of credit, bill discounting, and factoring services to businesses, supporting both domestic and international trade transactions.
5. Asset Management: Many NBFCs also operate as asset management companies that help clients invest in financial instruments including equities, debt instruments, mutual funds, and real estate.
6. Venture Capital Funding: NBFCs support early-stage businesses with high growth potential by providing venture capital funding.
7. Microfinance Services: NBFC-Microfinance Institutions (NBFC-MFIs) are crucial in offering microloans to self-employed individuals, low-income families, and small business owners in rural and semi-urban areas.
8. Investment Banking: Some NBFCs provide services such as mergers and acquisitions advisory, IPO preparation, and equity research to corporate clients.
9. Payments and Remittances: NBFCs also facilitate fund transfers and payment solutions, especially in rural areas with limited banking access.
10. Insurance Services: Several NBFCs act as intermediaries for insurance services, enabling access to risk coverage and financial security for individuals and businesses.
Types of NBFCs in India
The following are the different types of NBFCs in India and it is divided into 2 categories:
Types of NBFCs Based on Liabilities
The Reserve Bank of India classifies NBFCs into Deposit Taking and Non-Deposit Taking categories based on whether they accept public deposits.
1. Deposit Taking NBFCs (NBFC-D): These companies accept deposits from the public under various schemes. However, they are not allowed to offer demand deposits like banks. They are more tightly regulated by the RBI and need to follow capital adequacy, asset classification, and exposure norms.
2. Non-Deposit Taking NBFCs (NBFC-ND): These NBFCs do not accept public deposits but still offer financial services. They are further divided into:

Systemically Important NBFCs (NBFC-ND-SI): These are non-deposit taking NBFCs with total assets of Rs. 500 crores or more. Given their large size, they are considered to have systemic importance and are subjected to stricter regulations.

Other NBFC-NDs: These are smaller companies with assets below Rs. 500 crores. Although they follow regulatory guidelines, their compliance requirements are less stringent compared to systemically important NBFCs.

Types of NBFCs Based on Activities
NBFCs are also classified based on their core business activities. This functional classification helps determine the specific regulatory framework applicable to each category.
1. Asset Finance Company (AFC): An AFC primarily provides loans for acquiring physical assets such as vehicles, industrial machines, and construction equipment. At least 60% of its total assets and income should come from such financing. AFCs cater to manufacturing and infrastructure sectors, promoting productive asset creation.
2. Investment Company (IC): Investment Companies are primarily engaged in acquiring and holding securities. Their main source of income is from dividends, interest, and capital gains earned through investments in shares, debentures, and bonds. These companies typically manage large portfolios.
3. Loan Company (LC): A Loan Company is an NBFC whose main business is providing loans and advances to individuals and businesses. Unlike AFCs, they do not focus on financing physical assets but cater to working capital needs, education loans, and personal credit.
4. Infrastructure Finance Company (IFC): IFCs specialize in financing infrastructure projects. To qualify as an IFC, a company must:

Have a minimum Net Owned Fund (NOF) of Rs. 300 crores.

Allocate at least 75% of total assets to infrastructure loans.

Maintain a minimum credit rating of ‘A’.

Have a Capital to Risk Weighted Assets Ratio (CRAR) of 15%. These companies help bridge the infrastructure funding gap in the country.

5. Mortgage Guarantee Company (MGC): MGCs provide guarantees against home loans granted by housing finance institutions and banks. To be classified as an MGC:

At least 90% of the company’s business turnover must come from mortgage guarantee services.

The company should have a minimum NOF of Rs. 100 crores. These companies enhance the security of housing finance and promote home ownership.

6. Micro Finance Institution (NBFC-MFI): NBFC-MFIs cater to financially underserved populations, especially in rural areas. Key conditions include:

At least 85% of total assets should be in the form of qualifying assets.

Loan amount should not exceed Rs. 50,000 in the first cycle and Rs. 1 lakh in subsequent cycles.

Household income of borrowers should not exceed Rs. 1 lakh for rural and Rs. 1.6 lakh for urban households. MFIs play a critical role in financial inclusion.

7. Infrastructure Debt Fund – NBFC (NBFC-IDF): NBFC-IDFs raise long-term capital by issuing bonds for funding infrastructure projects. These companies channel investments into roadways, renewable energy, and other capital-intensive sectors. Only IFCs are eligible to sponsor IDFs.
8. Core Investment Company – ND – SI (CIC-ND-SI): These companies primarily invest in the equity and debt instruments of group companies. Key features include:

Minimum asset size of Rs. 100 crores.

At least 90% of assets must be in the form of investments in group companies.

Not allowed to trade investments except for strategic disinvestment. CICs are typically holding companies of business conglomerates.

9. Non-Operative Financial Holding Company (NOFHC): NOFHCs are created for setting up new banks. Promoters of new banks use these as holding companies to hold equity in the bank and other financial subsidiaries. NOFHCs are regulated by the RBI and must be completely owned by promoters.
10. NBFC-Factor: These NBFCs are involved in factoring, which is the business of purchasing receivables from businesses. To qualify:

At least 50% of total assets must be in factoring business.

At least 50% of gross income must be from factoring operations. Factoring helps improve the liquidity of businesses by converting receivables into immediate cash.

Conclusion
NBFCs form an important part of India’s financial sector. Their ability to serve diverse sectors, including those ignored by traditional banks, makes them vital players in economic development. The RBI has created various categories of NBFCs to ensure that each one operates within a defined regulatory framework according to its business model and risk profile. Knowing the different types of NBFCs—based on liabilities, size, and activities—helps businesses, investors, and regulators assess their scope, potential, and role in the economy. As the financial needs of the country evolve, NBFCs will continue to innovate and play a key role in supporting inclusive growth and development.
Whether it’s funding startups, offering microloans, financing infrastructure, or managing investments, NBFCs have emerged as versatile institutions that complement the traditional banking system in India.
If you have any queries regarding NBFC Registration, then you can connect with Compliance Calendar experts through email info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs on Types of NBFCs in India
Q1. What is the minimum capital requirement to start an NBFC in India?
Ans. As per Section 45-IA of the RBI Act, the minimum Net Owned Fund (NOF) required is Rs.2 crore. For certain NBFCs like NBFC-IFC, it is higher (Rs.300 crore).
Q2. Can NBFCs accept deposits from the public?
Ans. Only those NBFCs specifically registered as Deposit-taking NBFCs (NBFC-D) can accept deposits, subject to RBI approval and norms.
Q3. Are NBFCs as safe as banks?
Ans. NBFCs are regulated by the RBI, but they do not offer the same level of deposit protection as banks. They are safe when well-managed and compliant with RBI norms.
Q4. Can an NBFC convert from one type to another?
Ans. Yes, but it must get RBI’s approval and meet the eligibility criteria for the new category.
Q5. What is the difference between NBFC and Bank?
Ans. NBFCs cannot issue cheques drawn on themselves or accept demand deposits. Banks are part of the payment and settlement system, NBFCs are not.

A Non-Banking Financial Company (NBFC) is a financial institution that performs functions similar to that of a bank, but it does not hold a banking license. Although they cannot accept demand deposits like savings or current accounts, NBFCs provide a wide range of financial services to individuals and businesses. Their role in the Indian financial sector is important, especially when it comes to supporting sectors that may not have easy access to traditional banking channels.

NBFCs have gained prominence over the years due to their flexibility, niche service offerings, and their ability to address gaps left by traditional banks. This article explains the different types of NBFCs in India, their classification based on liabilities, size, and activities, along with their functions and regulatory requirements.

Role and Functions of NBFCs

NBFC support economic development by offering credit facilities to sectors that are often underserved by banks. These include Micro, Small, and Medium Enterprises (MSMEs), individual borrowers, and specific industries like infrastructure, trade, and agriculture.

Some of the key functions performed by NBFCs include:

1. Retail Financing: NBFCs offer loans to individuals and households who may not meet the credit assessment criteria of commercial banks. They provide personal loans, education loans, consumer durable loans, and more.

2. Infrastructure Financing: NBFCs play an active role in funding large-scale infrastructure projects such as highways, power plants, ports, and telecom networks.

3. Hire Purchase Services: Through hire purchase agreements, NBFCs help customers acquire essential equipment, vehicles, and machinery without the burden of upfront payments.

4. Trade Finance: NBFCs facilitate trade by offering instruments like letters of credit, bill discounting, and factoring services to businesses, supporting both domestic and international trade transactions.

5. Asset Management: Many NBFCs also operate as asset management companies that help clients invest in financial instruments including equities, debt instruments, mutual funds, and real estate.

6. Venture Capital Funding: NBFCs support early-stage businesses with high growth potential by providing venture capital funding.

7. Microfinance Services: NBFC-Microfinance Institutions (NBFC-MFIs) are crucial in offering microloans to self-employed individuals, low-income families, and small business owners in rural and semi-urban areas.

8. Investment Banking: Some NBFCs provide services such as mergers and acquisitions advisory, IPO preparation, and equity research to corporate clients.

9. Payments and Remittances: NBFCs also facilitate fund transfers and payment solutions, especially in rural areas with limited banking access.

10. Insurance Services: Several NBFCs act as intermediaries for insurance services, enabling access to risk coverage and financial security for individuals and businesses.

Types of NBFCs in India

The following are the different types of NBFCs in India and it is divided into 2 categories:

Types of NBFCs Based on Liabilities

The Reserve Bank of India classifies NBFCs into Deposit Taking and Non-Deposit Taking categories based on whether they accept public deposits.

1. Deposit Taking NBFCs (NBFC-D): These companies accept deposits from the public under various schemes. However, they are not allowed to offer demand deposits like banks. They are more tightly regulated by the RBI and need to follow capital adequacy, asset classification, and exposure norms.

2. Non-Deposit Taking NBFCs (NBFC-ND): These NBFCs do not accept public deposits but still offer financial services. They are further divided into:

Systemically Important NBFCs (NBFC-ND-SI): These are non-deposit taking NBFCs with total assets of Rs. 500 crores or more. Given their large size, they are considered to have systemic importance and are subjected to stricter regulations.
Other NBFC-NDs: These are smaller companies with assets below Rs. 500 crores. Although they follow regulatory guidelines, their compliance requirements are less stringent compared to systemically important NBFCs.

Types of NBFCs Based on Activities

NBFCs are also classified based on their core business activities. This functional classification helps determine the specific regulatory framework applicable to each category.

1. Asset Finance Company (AFC): An AFC primarily provides loans for acquiring physical assets such as vehicles, industrial machines, and construction equipment. At least 60% of its total assets and income should come from such financing. AFCs cater to manufacturing and infrastructure sectors, promoting productive asset creation.

2. Investment Company (IC): Investment Companies are primarily engaged in acquiring and holding securities. Their main source of income is from dividends, interest, and capital gains earned through investments in shares, debentures, and bonds. These companies typically manage large portfolios.

3. Loan Company (LC): A Loan Company is an NBFC whose main business is providing loans and advances to individuals and businesses. Unlike AFCs, they do not focus on financing physical assets but cater to working capital needs, education loans, and personal credit.

4. Infrastructure Finance Company (IFC): IFCs specialize in financing infrastructure projects. To qualify as an IFC, a company must:

Have a minimum Net Owned Fund (NOF) of Rs. 300 crores.
Allocate at least 75% of total assets to infrastructure loans.
Maintain a minimum credit rating of ‘A’.
Have a Capital to Risk Weighted Assets Ratio (CRAR) of 15%. These companies help bridge the infrastructure funding gap in the country.

5. Mortgage Guarantee Company (MGC): MGCs provide guarantees against home loans granted by housing finance institutions and banks. To be classified as an MGC:

At least 90% of the company’s business turnover must come from mortgage guarantee services.
The company should have a minimum NOF of Rs. 100 crores. These companies enhance the security of housing finance and promote home ownership.

6. Micro Finance Institution (NBFC-MFI): NBFC-MFIs cater to financially underserved populations, especially in rural areas. Key conditions include:

At least 85% of total assets should be in the form of qualifying assets.
Loan amount should not exceed Rs. 50,000 in the first cycle and Rs. 1 lakh in subsequent cycles.
Household income of borrowers should not exceed Rs. 1 lakh for rural and Rs. 1.6 lakh for urban households. MFIs play a critical role in financial inclusion.

7. Infrastructure Debt Fund – NBFC (NBFC-IDF): NBFC-IDFs raise long-term capital by issuing bonds for funding infrastructure projects. These companies channel investments into roadways, renewable energy, and other capital-intensive sectors. Only IFCs are eligible to sponsor IDFs.

8. Core Investment Company – ND – SI (CIC-ND-SI): These companies primarily invest in the equity and debt instruments of group companies. Key features include:

Minimum asset size of Rs. 100 crores.
At least 90% of assets must be in the form of investments in group companies.
Not allowed to trade investments except for strategic disinvestment. CICs are typically holding companies of business conglomerates.

9. Non-Operative Financial Holding Company (NOFHC): NOFHCs are created for setting up new banks. Promoters of new banks use these as holding companies to hold equity in the bank and other financial subsidiaries. NOFHCs are regulated by the RBI and must be completely owned by promoters.

10. NBFC-Factor: These NBFCs are involved in factoring, which is the business of purchasing receivables from businesses. To qualify:

At least 50% of total assets must be in factoring business.
At least 50% of gross income must be from factoring operations. Factoring helps improve the liquidity of businesses by converting receivables into immediate cash.

Conclusion

NBFCs form an important part of India’s financial sector. Their ability to serve diverse sectors, including those ignored by traditional banks, makes them vital players in economic development. The RBI has created various categories of NBFCs to ensure that each one operates within a defined regulatory framework according to its business model and risk profile. Knowing the different types of NBFCs—based on liabilities, size, and activities—helps businesses, investors, and regulators assess their scope, potential, and role in the economy. As the financial needs of the country evolve, NBFCs will continue to innovate and play a key role in supporting inclusive growth and development.

Whether it’s funding startups, offering microloans, financing infrastructure, or managing investments, NBFCs have emerged as versatile institutions that complement the traditional banking system in India.

If you have any queries regarding NBFC Registration, then you can connect with Compliance Calendar experts through email info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs on Types of NBFCs in India

Q1. What is the minimum capital requirement to start an NBFC in India?

Ans. As per Section 45-IA of the RBI Act, the minimum Net Owned Fund (NOF) required is Rs.2 crore. For certain NBFCs like NBFC-IFC, it is higher (Rs.300 crore).

Q2. Can NBFCs accept deposits from the public?

Ans. Only those NBFCs specifically registered as Deposit-taking NBFCs (NBFC-D) can accept deposits, subject to RBI approval and norms.

Q3. Are NBFCs as safe as banks?

Ans. NBFCs are regulated by the RBI, but they do not offer the same level of deposit protection as banks. They are safe when well-managed and compliant with RBI norms.

Q4. Can an NBFC convert from one type to another?

Ans. Yes, but it must get RBI’s approval and meet the eligibility criteria for the new category.

Q5. What is the difference between NBFC and Bank?

Ans. NBFCs cannot issue cheques drawn on themselves or accept demand deposits. Banks are part of the payment and settlement system, NBFCs are not.