What is NBFC?

NBFC stands for Non-Banking Financial Company. It is a company registered under the Companies Act, which provides financial services similar to banks but does not hold a banking license.

  • ✔ Provides loans, advances, asset financing, and investment services
  • ✔ Cannot accept demand deposits like banks
  • ✔ Regulated by the Reserve Bank of India (RBI)
  • ✔ Plays a crucial role in bridging financial gaps in underserved sectors

NBFCs are instrumental in financial inclusion and economic development across India.

Types of Non-Banking Financial Companies (NBFCs)

✅ Based on Activities:

1. NBFC-Investment and Credit Company (NBFC-ICC)

Engages in lending and investing in securities. Merged version of Loan, Asset Finance, and Investment Companies.

2. NBFC-Infrastructure Finance Company (NBFC-IFC)

Finances infrastructure projects. At least 75% of assets must be in infrastructure loans.

3. NBFC-Micro Finance Institution (NBFC-MFI)

Provides small, unsecured loans (≤ ₹1.25 lakh) to low-income groups. 85% assets in qualifying loans.

4. NBFC-Factor

Provides factoring services like managing accounts receivable for businesses.

5. NBFC-Housing Finance Company (NBFC-HFC)

Provides loans for housing and construction. Regulated by NHB/RBI.

6. NBFC-Infrastructure Debt Fund (NBFC-IDF)

Invests in long-term infrastructure projects using bonds and loans.

7. NBFC-Account Aggregator (NBFC-AA)

Facilitates sharing of financial data with user consent. Doesn’t hold funds or lend.

✅ Based on Liabilities:

1. Deposit-taking NBFCs (NBFCs-D)

Accept public deposits and are regulated by the RBI.

2. Non-Deposit taking NBFCs (NBFCs-ND)

Do not accept public deposits. Categorized into:

  • Systemically Important (SI): Assets ≥ ₹500 crore
  • Others: Assets < ₹500 crore
🚫 Key Differences Between NBFC and Bank:
  • NBFCs cannot issue cheques or demand deposits.
  • Not part of payment and settlement systems.
  • Engage in lending, investment, leasing, and other financial services.

Does the Reserve Bank Regulate All Financial Companies?

✅ Regulated by RBI:
  • Banks
  • Registered NBFCs (Non-Banking Financial Companies)
  • Payment Banks
  • Small Finance Banks
  • Primary Dealers
  • Payment System Operators (e.g., UPI, Wallets)
❌ Not Fully Regulated by RBI:
  • Co-operative Banks: Jointly regulated by RBI and State Co-operative Authorities/NABARD
  • Insurance Companies: Regulated by IRDAI (Insurance Regulatory and Development Authority of India)
  • Mutual Funds & Stock Brokers: Regulated by SEBI (Securities and Exchange Board of India)
  • Pension Funds: Regulated by PFRDA (Pension Fund Regulatory and Development Authority)
  • Chit Funds & Nidhis: Regulated by Ministry of Corporate Affairs (MCA) & State Governments
  • Microfinance Institutions (non-NBFC-MFIs): May be governed by NGOs, Trust Acts, or State laws
Note: RBI mainly regulates entities involved in banking and core financial services like NBFCs, while other regulators supervise sector-specific institutions.

Are Banks and NBFCs Similar?

While both banks and NBFCs offer financial services, they operate under different rules and have key differences.

Aspect Banks NBFCs
Regulator Reserve Bank of India (RBI) RBI (only if registered); some are under other regulators too
Accepts Demand Deposits ✅ Yes ❌ No
Issues Cheque Book Facility ✅ Yes ❌ No
Part of Payment & Settlement System ✅ Yes ❌ No
Required to Maintain CRR/SLR ✅ Yes ❌ No
Loan & Credit Services ✅ Yes ✅ Yes
Deposit Insurance Available via DICGC Not Available
Examples SBI, HDFC Bank, ICICI Bajaj Finance, Muthoot Finance, LIC Housing Finance
Note: NBFCs provide various credit and investment services but cannot perform full banking functions like accepting demand deposits or issuing cheques.

Frequently Asked Questions (Banks vs NBFCs)

No, NBFCs and banks are different. Banks are fully regulated by the RBI and can accept demand deposits, issue cheques, and participate in payment systems. NBFCs cannot do these activities but can offer loans and other financial services.

Only some NBFCs, known as Deposit-taking NBFCs (NBFCs-D), are allowed to accept limited public deposits under RBI guidelines. Most NBFCs are non-deposit taking.

Yes, NBFCs can offer personal loans, vehicle loans, gold loans, and more. However, interest rates and terms may vary compared to banks.

The Reserve Bank of India (RBI) regulates NBFCs that are registered under its framework. Some financial institutions are regulated by other bodies like SEBI, IRDAI, and MCA depending on their function.

No, NBFCs cannot open savings or current accounts. Only banks are allowed to accept demand deposits and offer such facilities.