NBFCs: Types and Regulatory Framework
Much recovery work is for NBFCs. Here is what they are and how RBI regulates them.
A Non-Banking Financial Company (NBFC) is a company that lends money, invests, leases or does hire-purchase as its main business, but is not a bank. Many two-wheeler loans, gold loans, microfinance loans and app-based personal loans in India come from NBFCs.
That is why IIBF added Module D on NBFCs to the DRA syllabus. A large share of recovery work is for NBFCs, and RBI's 2027 recovery rules require NBFCs to use only IIBF-certified recovery agents, giving agents already engaged without the certificate one year to get it.
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NBFC vs Bank: The Three Differences
RBI lists these as the major differences. Everything else (lending, investing) is similar.
Demand deposits (savings and current accounts)
Bank
Can accept
NBFC
Cannot accept
Payment system and cheques
Bank
Part of it; customers write cheques drawn on the bank
NBFC
Not part of it; cannot issue cheques drawn on itself
Deposit insurance (DICGC)
Bank
Deposits insured
NBFC
Not available, even for deposit-taking NBFCs
| Point | Bank | NBFC |
|---|---|---|
| Demand deposits (savings and current accounts) | Can accept | Cannot accept |
| Payment system and cheques | Part of it; customers write cheques drawn on the bank | Not part of it; cannot issue cheques drawn on itself |
| Deposit insurance (DICGC) | Deposits insured | Not available, even for deposit-taking NBFCs |
How a Company Becomes an NBFC
RBI uses a "50-50 test" to decide whether a company's principal business is finance: financial assets must be more than 50% of total assets, and income from financial assets more than 50% of gross income. A company that meets both needs RBI registration under Section 45-IA of the RBI Act, 1934.
It must also have minimum Net Owned Funds (NOF), broadly its own capital. For most lending NBFCs this is ₹10 crore; existing NBFCs have until 31 March 2027 to reach it. Some types have their own figure, such as ₹300 crore for an Infrastructure Finance Company and ₹2 crore for a peer-to-peer lending platform.
Main Types of NBFC
RBI classifies NBFCs by the activity they do. The ones a recovery agent meets most are first.
- Investment and Credit Company (NBFC-ICC)
- The general lending NBFC: vehicle loans, personal loans, business loans, asset finance.
- NBFC-Micro Finance Institution (NBFC-MFI)
- Has at least 60% of its assets in microfinance loans: collateral-free loans to households with annual income up to ₹3 lakh.
- Housing Finance Company (HFC)
- Mainly finances housing: at least 60% of assets in housing finance, and at least 50% in housing loans to individuals.
- Infrastructure Finance Company (NBFC-IFC)
- Deploys at least 75% of its total assets in infrastructure lending.
- NBFC-Factor
- Buys a business's unpaid invoices (factoring) as its main business.
- Peer to Peer Lending Platform (NBFC-P2P)
- An online platform connecting individual lenders and borrowers.
- Others
- Core Investment Companies, Infrastructure Debt Funds, Mortgage Guarantee Companies, Account Aggregators, Standalone Primary Dealers and Non-Operative Financial Holding Companies. These rarely involve recovery agents.
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Scale Based Regulation: The Four Layers
RBI regulates NBFCs more strictly as they get bigger or riskier. Source: RBI's Scale Based Regulation Directions, 2025.
| Layer | Who is in it |
|---|---|
| Base Layer | Non-deposit-taking NBFCs below ₹1,000 crore in assets, plus all P2P platforms, Account Aggregators and Non-Operative Financial Holding Companies |
| Middle Layer | All deposit-taking NBFCs, non-deposit-taking NBFCs with ₹1,000 crore or more in assets, and all HFCs, IFCs, Core Investment Companies, Infrastructure Debt Funds and Standalone Primary Dealers |
| Upper Layer | NBFCs that RBI identifies each year; the current test is assets of ₹1,00,000 crore and above |
| Top Layer | Ideally empty. Used only if RBI sees a big rise in risk from a specific Upper Layer NBFC |
How the DRA Exam Tests This
Module D questions are likely to be direct facts: what an NBFC cannot do that a bank can, which Act NBFCs register under, which body regulates them, and what defines an NBFC-MFI. The trap is the deposit question. Some NBFCs can take fixed deposits, but no NBFC can take demand deposits, and NBFC deposits are not covered by DICGC insurance.
Another common trap: assuming RBI caps NBFC interest rates. It does not. RBI has deregulated NBFC lending rates, but NBFCs must disclose their rates and how they arrive at them.
FAQs
What is the difference between a bank and an NBFC?expand_more
An NBFC cannot accept demand deposits, cannot issue cheques drawn on itself because it is not part of the payment system, and its deposits are not insured by DICGC.
Who regulates NBFCs in India?expand_more
The Reserve Bank of India, under the RBI Act, 1934. NBFCs must register with RBI under Section 45-IA. Some finance companies, like insurers or stock brokers, are regulated by other bodies instead.
Do NBFCs need IIBF-certified recovery agents?expand_more
Yes. RBI's rules effective 1 January 2027 require NBFCs to use only agents holding the IIBF DRA certificate, and give agents already working without it one year to obtain it.
What are the layers of NBFCs under Scale Based Regulation?expand_more
Base, Middle, Upper and Top. Size, deposit-taking and type of activity decide the layer; the Top Layer is meant to stay empty.
Next steps
- NBFC Loan Typesarrow_forward
- NBFC Fair Practices Codearrow_forward
- Banking Structurearrow_forward
- Syllabusarrow_forward
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