NBFC stands for Non-Banking Financial Company. These institutions provide financial services—such as loans, fixed deposits and other credit products—outside the traditional banking framework. In India, NBFCs have grown substantially; by October 2022 there were over 9,000 registered NBFCs, many of which have expanded access to finance and supported financial inclusion across the country.
NBFCs play a vital role in making financial services available to a wider segment of the population. Operating with different regulatory and compliance requirements than banks and often using digital-first processes, NBFCs can deliver faster services and competitive pricing. At the same time, they must follow Reserve Bank of India (RBI) guidelines and regulatory frameworks.
Below is an overview of what NBFCs are, the main types found in India, the services they offer, and their importance in the financial ecosystem.
Understanding NBFCs: What are they?
An NBFC is a company registered under the Companies Act that engages in financial activities such as providing loans and advances, acquiring shares, stocks, bonds, debentures, leasing, hire-purchase, and certain other financial services. NBFCs serve individuals, groups and businesses that may not meet traditional banking criteria, offering alternatives for credit and investment.
The RBI defines a Non-Banking Financial Company as a company registered under the Companies Act that carries on one or more of the financial activities listed above, excluding institutions whose principal business is agriculture, industrial activity, trade in goods (other than securities), provision of services or real estate development. Because NBFCs operate under government and RBI oversight, they are generally considered secure financing options within their regulated scope.
Various categories of NBFCs
NBFCs in India are classified in several ways. Broadly, they fall into three categories:
- Deposit-accepting and non-deposit-accepting NBFCs
- Systemically important and other non-deposit-accepting NBFCs (based on asset size)
- Classification based on the type of activities they perform
Under these classifications, common NBFC types include:
- Asset finance company: Provides financing for physical assets that drive economic activity, such as agricultural equipment, industrial machinery and generators.
- Investment company: Focuses on acquiring securities like shares, bonds and stocks as its principal business.
- Loan company: Offers loans and advances to individuals and businesses for various purposes.
- Infrastructure finance company: Holds at least 75% of its assets in infrastructure-related projects and finances long-term infrastructure development.
- Systemically important core investment company: NBFCs with asset size above ₹100 crore and high holdings in equity, debt, loans, shares and debentures fall into this category.
- Infrastructure debt fund NBFCs: Mobilize long-term resources for infrastructure projects, typically with minimum maturity tenors of five years or more.
- NBFC-microfinance institution: Non-deposit-taking entities that provide small short-term loans to low-income households in urban and semi-urban areas.
- Non-banking financial company (factor): NBFCs where at least 50% of assets and income derive from factoring business (purchase of receivables).
- Mortgage guarantee companies: Entities with minimum net assets (for example, ₹100 crore) and a major portion of income from mortgage guarantee services.
- Non-operative financial holding company: A holding structure through which promoters can set up new banks or other financial companies under RBI norms.
Range of services provided by NBFCs
NBFCs offer a variety of financial products and services, such as loans, asset financing, investment in securities, credit facilities and certain insurance-related products. However, their scope is limited compared with banks. NBFCs cannot accept demand deposits, issue cheques, or directly participate in the payment and settlement systems.
Another key difference is that depositors with NBFCs do not receive deposit insurance from the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is available to bank depositors. Despite these differences, NBFCs perform complementary functions in the financial sector and often serve niche markets or customer segments underserved by banks.
Significance of NBFCs
NBFCs are important participants in the financial system because they extend credit and financial services to individuals and businesses that may not qualify for traditional bank services. This includes low-income households, small enterprises, start-ups, students and first-time borrowers. By filling these gaps, NBFCs contribute to entrepreneurship, consumption and overall economic growth.
With a clearer understanding of what NBFCs are and how they operate, borrowers can make informed choices about the right financial partner for their needs. Some NBFCs focus on quick digital-lending experiences, while others specialize in asset finance, infrastructure funding or microfinance—so it helps to match your requirements with the NBFC’s core strengths.
FAQs on NBFCs
What is an example of an NBFC?
Examples of NBFCs in India include various well-known financial firms that operate in lending, investment and asset financing space. These organizations provide a range of consumer and corporate financial services outside the traditional banking structure.
What is the difference between an NBFC and a bank?
The primary differences are that NBFCs cannot accept demand deposits, issue cheques, or participate directly in the payment and settlement system. Banks typically offer transactional services, have access to deposit insurance for customers and operate under a different licensing regime.
What is the role of an NBFC?
NBFCs primarily provide credit and financial services to individuals and businesses that might not meet banks’ lending criteria. They help expand access to finance for underserved groups and support economic activity by lending against assets or providing small-ticket loans.
Is an NBFC a private company?
NBFCs can be structured as either private limited or public limited companies. They are regulated by the RBI but do not hold a banking license. Their corporate form and regulatory obligations depend on the type of activities they undertake and whether they accept deposits.