Introduction

Non-Banking Financial Companies, commonly known as NBFCs, have become an important part of India’s financial system. They provide loans, investment facilities, asset finance, vehicle finance, microfinance and various other financial services to individuals and businesses.

NBFCs help bridge the gap between traditional banks and borrowers who may not receive timely or adequate financial support from banks. They serve salaried individuals, small businesses, MSMEs, self-employed persons, rural customers, first-time borrowers and other underserved sections of society.

Due to the growing demand for digital loans, business finance, consumer credit and specialised financial products, many entrepreneurs and fintech companies are planning to start an NBFC in India.

However, obtaining an NBFC licence is not the same as incorporating a normal private limited company. A company proposing to carry on non-banking financial activities must obtain a Certificate of Registration from the Reserve Bank of India, subject to the applicable exemptions.

The RBI carefully examines the applicant’s capital, source of funds, promoters, directors, business model, technology systems, policies, risk-management framework and financial projections before granting approval.

This article explains the complete NBFC registration process in India, including eligibility conditions, minimum capital, required documents, RBI application procedure and post-registration compliance.

What Is an NBFC?

An NBFC is a company incorporated under the Companies Act that is principally engaged in financial activities.

These activities may include:

• Providing loans and advances
• Financing vehicles, equipment or machinery
• Acquiring shares, bonds, debentures and other securities
• Providing microfinance loans
• Undertaking factoring activities
• Offering peer-to-peer lending services
• Operating account aggregation platforms
• Providing infrastructure finance
• Carrying out investment and credit activities

Although NBFCs provide several services similar to banks, they are not considered banks.

A normal NBFC cannot accept demand deposits like savings or current accounts. It also cannot issue cheques drawn on itself or directly participate in the payment and settlement system in the same manner as a bank.

Only specifically authorised deposit-taking NBFCs may accept public deposits, subject to strict RBI conditions.

Why Start an NBFC in India?

India has a large and continuously growing demand for credit. Many individuals and businesses require financial services that are faster, more flexible and more specialised than those offered through traditional banking channels.

An NBFC can focus on a specific customer segment or financial product, such as:

• Personal loans
• MSME loans
• Business loans
• Used-vehicle finance
• Two-wheeler finance
• Consumer durable loans
• Loan against property
• Education finance
• Supply-chain finance
• Equipment finance
• Microfinance
• Digital lending
• Rural finance

An NBFC can also use technology for customer onboarding, KYC verification, credit analysis, loan processing, repayment tracking and collection management.

However, the lending business involves credit risk, customer-protection responsibilities and regulatory obligations. Therefore, proper planning and RBI approval are necessary before commencing operations.

Is RBI Registration Mandatory for Every Financial Company?

Section 45-IA of the Reserve Bank of India Act, 1934 requires companies carrying on non-banking financial business to obtain a Certificate of Registration from RBI unless they fall within a specific exemption.

The applicability of registration can be examined under the following categories.

Type II NBFC

A company generally requires RBI registration as a Type II NBFC when it has or intends to have:

• Public funds
• Customer interface
• Retail or business borrowers
• Bank borrowings
• Inter-corporate deposits
• Debentures or commercial paper
• Customer-facing loan or investment products
• Guarantees or other financial obligations
• Commercial financial transactions with customers or group entities

Public funds may include bank finance, public deposits, debentures, commercial paper, inter-corporate deposits and other external borrowings.

Customer interface may include lending money, accepting deposits, providing guarantees or entering into financial transactions with customers.

Most consumer-lending companies, fintech lenders and commercial finance businesses will require registration as Type II NBFCs.

Type I NBFC and Exemption from Registration

From 1 July 2026, certain companies operating entirely through their own funds may qualify as Unregistered Type I NBFCs.

A company may qualify for this exemption when:

• It does not use public funds
• It does not have customer interface
• Its total asset size is below ₹1,000 crore
• Its business model is intended to operate permanently without public funds and customer interface

Such a company must pass an annual Board Resolution confirming that it will not access public funds or have customer interface.

It must also disclose its status appropriately in its financial statements and continuously monitor the asset size of similar entities within its group.

If such a company later proposes to raise public funds or deal with customers, it must obtain RBI registration before changing its business model.

A Type I NBFC having an asset size of ₹1,000 crore or more may still be required to obtain RBI registration.

This exemption does not generally apply to a normal lending company intending to provide loans to individuals or businesses.

Principal Business Criteria or 50-50 Test

A company is normally considered to be carrying on financial activity as its principal business when both the following conditions are satisfied:

1. Financial assets are more than 50% of the company’s total assets.
2. Income from financial assets is more than 50% of the company’s gross income.

This is commonly known as the 50-50 test.

Both conditions must be fulfilled.

For example, a manufacturing company may occasionally provide a loan to another company. This alone may not make it an NBFC if its main assets and income continue to arise from manufacturing activities.

However, where a company’s main assets are loans, investments or receivables and its major income is earned through interest or financial activities, it may be treated as carrying on NBFC business.

The substance of the transactions is more important than the name used in the company’s objects or agreements.

Eligibility Criteria for NBFC Registration

A company applying for NBFC registration must fulfil several legal, financial and operational conditions.

1. Incorporation under the Companies Act

The applicant must be incorporated as a company under the Companies Act, 2013 or the earlier Companies Act.

Both private limited companies and public limited companies may apply for an NBFC licence.

An LLP, partnership firm or sole proprietorship cannot directly obtain an NBFC Certificate of Registration under Section 45-IA.

The Memorandum of Association should contain appropriate object clauses permitting the company to conduct lending, financing, investment or the relevant financial activity.

2. Minimum Net Owned Fund

The minimum Net Owned Fund depends on the category of NBFC.

For an NBFC-Investment and Credit Company, the minimum Net Owned Fund is generally ₹10 crore.

The indicative minimum requirements for major categories are:

• NBFC-Investment and Credit Company: ₹10 crore
• NBFC-Micro Finance Institution: ₹10 crore
• NBFC-Factor: ₹10 crore
• NBFC-Peer-to-Peer Lending Platform: ₹2 crore
• NBFC-Account Aggregator: ₹2 crore
• Registered Type I NBFC: ₹2 crore
• Infrastructure Finance Company: ₹300 crore
• Infrastructure Debt Fund-NBFC: ₹300 crore

Net Owned Fund broadly represents paid-up equity capital and free reserves after making prescribed deductions.

The promoters must introduce the capital through genuine and properly documented sources.

Simply depositing ₹10 crore temporarily into the company’s bank account does not ensure RBI approval. RBI may examine the source of each promoter’s contribution, bank statements, income-tax returns, net-worth certificates and other supporting documents.

The funds should be available to the company without unexplained borrowing, layering or temporary accommodation.

3. Fit and Proper Promoters and Directors

The promoters, directors and key managerial persons must satisfy RBI’s fit-and-proper criteria.

RBI may examine:

• Educational qualifications
• Professional background
• Experience in finance, banking or lending
• Credit history
• Income-tax compliance
• Criminal proceedings
• Regulatory actions
• Directorships in other companies
• Association with failed or cancelled financial entities
• Personal net worth
• Source of wealth
• Integrity and reputation

The proposed management should have the ability to operate a regulated financial institution.

Having experienced professionals in lending, credit, banking, legal compliance, audit, risk management or financial technology can strengthen the application.

4. Clear and Viable Business Plan

The applicant must submit a detailed business plan explaining how the proposed NBFC will operate.

The business plan should cover:

• Nature of financial products
• Target customers
• Proposed loan amount
• Loan tenure
• Interest rates and charges
• Customer-acquisition channels
• Geographical areas of operation
• Underwriting methodology
• Credit-assessment process
• Risk-based pricing
• Collection and recovery strategy
• Technology platform
• KYC and AML controls
• Data-protection measures
• Grievance-redressal system
• Funding strategy
• Expected cost of funds
• Capital adequacy
• Financial projections
• Profitability expectations

The projections should be realistic.

An aggressive loan-book projection without adequate capital, manpower, technology or funding arrangements may raise concerns during RBI scrutiny.

5. Proper Technology and Infrastructure

Modern lending operations depend heavily on technology.

The applicant should demonstrate that it has or proposes to develop appropriate systems for:

• Customer onboarding
• Digital KYC
• Loan origination
• Credit assessment
• Document verification
• Loan management
• Repayment tracking
• Collection monitoring
• Customer support
• Regulatory reporting
• Data security
• Cybersecurity
• Business continuity

RBI may examine whether the proposed system is suitable for the company’s expected scale and business model.

Documents Required for NBFC Registration

The exact list of documents depends on the category of NBFC, company structure and business activities.

A general NBFC registration application may require the following documents.

Company Documents

• Certificate of Incorporation
• Memorandum of Association
• Articles of Association
• PAN of the company
• Registered-office documents
• Board Resolution approving the NBFC application
• Latest shareholding pattern
• Details of shareholders
• Group-company structure
• Details of associate and related entities
• Description of existing business activities

Promoter and Director Documents

• PAN card
• Aadhaar card
• Passport, where applicable
• Address proof
• Educational certificates
• Professional qualifications
• Detailed resume or profile
• Income-tax returns
• Bank statements
• Credit reports
• Net-worth certificate
• Source-of-funds declaration
• Fit-and-proper declaration
• Details of directorships
• Details of substantial shareholding
• Details of legal or regulatory proceedings

Financial Documents

• Audited financial statements
• Provisional balance sheet
• Bank statements showing capital infusion
• Statutory Auditor’s certificate confirming Net Owned Fund
• Banker’s report, where required
• Details of unsecured loans or liabilities
• Source-of-capital documents
• Projected balance sheet
• Projected profit and loss account
• Projected cash-flow statement
• Capital-adequacy calculations

Policies and Operational Documents

The applicant may also need to prepare the following policies:

• Fair Practices Code
• KYC and Anti-Money Laundering Policy
• Interest Rate Policy
• Credit Policy
• Risk Management Policy
• Recovery and Collection Policy
• Grievance Redressal Policy
• Outsourcing Policy
• Information Technology Policy
• Cybersecurity Policy
• Customer Data Privacy Policy
• Digital Lending Policy
• Related Party Transaction Policy
• Asset Liability Management Policy
• Business Continuity Plan
• Disaster Recovery Plan

RBI can ask for additional documents or explanations based on the applicant’s business model and background.

Therefore, the application should be prepared as a complete regulatory proposal rather than merely a form-filing exercise.

Step-by-Step NBFC Registration Process

Step 1: Select the Appropriate NBFC Category

The first step is to identify the correct registration category.

The proposed business may fall under:

• NBFC-Investment and Credit Company
• NBFC-Micro Finance Institution
• NBFC-Factor
• NBFC-Peer-to-Peer Lending Platform
• NBFC-Account Aggregator
• Core Investment Company
• Infrastructure Finance Company
• Housing Finance Company
• Mortgage Guarantee Company
• Infrastructure Debt Fund-NBFC

Selecting the incorrect category can result in delays, restructuring or additional capital requirements.

Step 2: Incorporate the Company

A new company should be incorporated under the Companies Act with appropriate object clauses.

The name of the company may also be reviewed to ensure that it does not create any misleading impression or conflict with regulatory restrictions.

For an existing company, its historical activities, financial transactions, shareholding pattern and object clauses should be reviewed.

The company may need to amend its Memorandum of Association before proceeding with the RBI application.

Step 3: Infuse the Required Capital

The promoters must introduce the applicable minimum capital through proper banking channels.

Every capital contribution should be supported by:

• Bank statements
• Income-tax returns
• Net-worth certificates
• Sale documents, where relevant
• Investment-redemption records
• Dividend records
• Other lawful source documents

The capital should remain available to the company and should not be borrowed temporarily for the purpose of obtaining registration.

Step 4: Appoint a Suitable Management Team

The applicant should identify directors and senior professionals capable of managing the proposed lending business.

The management structure may include:

• Chief Executive Officer
• Credit Head
• Risk Officer
• Compliance Officer
• Finance Head
• Technology Head
• Grievance Redressal Officer
• Collection Head
• Internal Auditor

The appropriate structure will depend on the size and complexity of the proposed NBFC.

Step 5: Prepare the Business Plan and Policies

The business plan and financial projections should be prepared after considering the proposed product, target market, expected funding, operational costs and regulatory requirements.

The policies should be aligned with the proposed business model.

For example, a digital consumer-lending NBFC will require strong digital-lending, data-privacy, cybersecurity, customer-consent and outsourcing controls.

A microfinance institution will require policies relating to household-income assessment, repayment obligations, pricing and borrower protection.

Step 6: Submit the Application Through PRAVAAH

The RBI application for a Certificate of Registration is submitted online through the PRAVAAH portal.

PRAVAAH is RBI’s centralised portal for submitting regulatory applications, approvals and licences.

The applicant must select the appropriate application form, enter the required details and upload supporting documents.

All information submitted on the portal should be accurate and consistent with the company’s records, policies, projections and supporting documents.

Step 7: Respond to RBI Queries

After examining the application, RBI may seek clarification on various matters.

Queries may relate to:

• Source of capital
• Promoter experience
• Credit history
• Shareholding structure
• Group-company transactions
• Business model
• Interest-rate methodology
• Loan products
• Customer-acquisition model
• Funding plan
• Technology systems
• Data protection
• Outsourcing arrangements
• Recovery practices
• Financial projections
• Pending litigation
• Regulatory history

Responses should be complete, clear and supported by evidence.

Generic, delayed or incomplete replies may extend the registration process.

Step 8: RBI Due Diligence

RBI may independently verify the applicant’s background and financial information.

It may review:

• Promoter integrity
• Director suitability
• Capital availability
• Source of funds
• Financial strength
• Public-interest considerations
• Governance arrangements
• Operational readiness
• Regulatory compliance capability

RBI may also obtain reports from banks, regulators or other authorities as part of its due-diligence process.

Step 9: Grant of Certificate of Registration

When RBI is satisfied that the applicant meets all applicable conditions, it may issue the Certificate of Registration.

The company can commence the permitted NBFC business after receiving the Certificate of Registration and completing other applicable operational requirements.

Submitting an RBI application does not authorise the company to begin regulated NBFC lending.

Common Reasons for Delay or Rejection

Many NBFC applications face delays because the applicant has not properly prepared the regulatory and operational framework.

Common reasons include:

• Unclear business model
• Incorrect NBFC category
• Inadequate promoter experience
• Poor credit history
• Unexplained source of capital
• Borrowed or temporary capital
• Undisclosed litigation
• Regulatory proceedings against promoters
• Unrealistic financial projections
• Weak risk-management controls
• Incomplete policies
• Inadequate technology arrangements
• Inconsistency between documents
• Mismatch between company objects and proposed activities
• Unexplained group-company transactions
• Weak customer-protection arrangements

Before filing the application, the company should conduct proper legal, financial, regulatory and promoter due diligence.

Post-Registration Compliance for NBFCs

Obtaining the RBI Certificate of Registration is only the beginning.

After registration, an NBFC must comply with several ongoing regulatory requirements.

These may include:

• Maintaining the required Net Owned Fund
• Maintaining capital adequacy
• Following leverage requirements
• Complying with Scale Based Regulation
• Conducting KYC and AML verification
• Following the Prevention of Money Laundering Act
• Adopting the Fair Practices Code
• Disclosing interest rates and charges
• Following asset-classification norms
• Making provisions for bad loans
• Filing RBI returns
• Reporting to credit-information companies
• Conducting statutory and internal audits
• Maintaining a grievance-redressal system
• Complying with digital-lending guidelines
• Protecting customer data
• Monitoring outsourced service providers
• Controlling recovery agents
• Following cybersecurity requirements
• Maintaining proper books and records

Non-compliance can result in penalties, restrictions, regulatory action or cancellation of the Certificate of Registration.

Can a Newly Registered NBFC Accept Public Deposits?

No. A normal NBFC licence does not automatically permit the company to accept public deposits.

Only specifically authorised deposit-taking NBFCs can accept deposits, subject to strict conditions.

RBI has generally not granted fresh deposit-taking permissions to new NBFCs for many years.

A newly registered lending company should therefore structure its funding through promoter capital, bank finance, institutional borrowing, debentures or other legally permitted sources after considering the applicable RBI requirements.

How Long Does NBFC Registration Take?

There is no fixed approval period for every NBFC registration application.

The time required depends on:

• Category of NBFC
• Quality of documents
• Promoter background
• Complexity of shareholding
• Source-of-funds verification
• RBI queries
• Completeness of the business plan
• Technology readiness
• Operational arrangements
• Speed and quality of responses

A professionally prepared application can reduce avoidable delays, but no consultant or advisor can guarantee RBI approval or a fixed approval date.

The final decision remains entirely with the Reserve Bank of India.

Frequently Asked Questions

Can an LLP obtain an NBFC licence?

No. An NBFC applicant must be incorporated as a company under the Companies Act.

What is the minimum capital required for an NBFC?

The minimum Net Owned Fund for an NBFC-Investment and Credit Company is generally ₹10 crore. Different requirements apply to specialised categories.

Is ₹10 crore enough to obtain the RBI licence?

No. It is only one of the eligibility conditions. RBI also reviews the promoters, directors, source of funds, business plan, technology systems, governance and compliance framework.

Can an NBFC application be filed for an existing company?

Yes. However, the company’s object clauses, historical transactions, financial statements, liabilities and ownership structure should be reviewed before filing.

Can the company begin lending after submitting the application?

No. A Type II NBFC applicant should commence regulated lending activities only after RBI grants the Certificate of Registration.

Can the capital be withdrawn after obtaining registration?

The NBFC must continuously maintain the applicable Net Owned Fund and capital requirements. Capital should not be introduced temporarily only for obtaining the licence.

Is NBFC registration required when the company uses only its own money?

From 1 July 2026, a company without public funds, customer interface and assets of ₹1,000 crore or more may qualify for the Type I exemption, subject to prescribed conditions.

However, a company intending to provide loans to customers or raise outside funds will generally require registration.

Why Choose NBFC Advisor?

NBFC registration requires proper coordination between legal, regulatory, financial, operational and technology teams.

NBFC Advisor can assist businesses with:

• NBFC registration feasibility assessment
• Selection of the correct NBFC category
• Company incorporation
• Review of object clauses
• Promoter and director due diligence
• Net Owned Fund planning
• Capital-source documentation
• Preparation of business plans
• Preparation of financial projections
• Drafting of RBI-compliant policies
• PRAVAAH application assistance
• Responses to RBI queries
• Technology-readiness assessment
• Post-registration compliance setup
• Ongoing NBFC regulatory support

A structured registration strategy can help prevent errors, unnecessary restructuring and delays during RBI scrutiny.

Conclusion

The NBFC sector offers significant business opportunities in digital lending, consumer credit, MSME finance, vehicle loans, microfinance, equipment finance and other specialised financial services.

However, NBFC registration in India is a detailed regulatory process.

An applicant must demonstrate sufficient capital, transparent sources of funds, fit-and-proper promoters, an experienced management team, a realistic business plan and proper customer-protection systems.

The Type I NBFC exemption introduced from 1 July 2026 provides regulatory relief to certain companies that operate without public funds and customer interface. However, the exemption does not apply to ordinary commercial lending businesses dealing with customers.

For most lending companies, obtaining a Type II NBFC registration from RBI remains compulsory.

Before investing capital or developing the lending platform, promoters should carefully assess the applicable NBFC category, capital requirement, ownership structure, technology framework and compliance obligations.

Professional planning at the initial stage can significantly improve the quality of the RBI application and reduce the risk of avoidable queries or restructuring.

Businesses planning to start an NBFC can connect with NBFC Advisor for assistance with RBI registration, regulatory documentation, business planning and ongoing compliance.

Disclaimer: This article is for general informational purposes only and should not be treated as legal, financial or regulatory advice. RBI regulations, eligibility requirements and application procedures may change from time to time. Applicants should verify the latest directions and seek professional advice before proceeding.