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What is an NBFC? Top pointers to know about these financing companies

  • Published on: 9 Oct 2023
What is an NBFC? Top pointers to know about these financing companies

NBFC, meaning a Non-Banking Financial Company is a type of institution that you can rely on for financial services, such as taking a loan, booking a fixed deposit or more. In India, there are many NBFCs, over 9,000 in number as of October 2022, who have changed the financial landscape for the better. 

How? NBFCs play an important role in extending access to financial services across the country to a wide variety of people. This helps with financial inclusion.

NBFCs have different compliance requirements as compared to banks and also work in a digital-first mode. This helps them offer customers instant services at pocket-friendly rates. However, NBFCs also need to meet certain guidelines and frameworks as per the RBI.

Read on to know what they are and the types of NBFCs in India.

Understanding NBFCs: What are they?

Any company registered under the Companies Act of 1956 involved in the financial business of acquisition of market securities, such as stock shares, security bonds, debentures, leases and providing loans or advances, is a non-banking financial company or NBFC. 

In other words, they offer a range of financial products and services to individual groups and businesses that may not fulfil the banking eligibility criteria. Since the government and the RBI regulate these companies, NBFCs are a secure option for financing. 

To better understand what is a NBFC, here is the accurate definition as stated by the RBI. “A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.”

Also Read: RBI guidelines for personal loan

Various categories of NBFCs

In India, three broad categories help distinguish the nature and functions of NBFCs. They include:

  • Deposit-accepting and non-deposit-accepting NBFCs
  • Systemically important and other non-deposit-accepting NBFCs based on the size of their asset 
  • Based on the kind of activities they conduct

Under these categories, there are 10 NBFC types as follows:

  1. Asset finance company: These NBFCs provide financing for physical assets that contribute to economic activity, such as purchasing farming equipment, machinery, generators, etc. 
  2. Investment company: These NBFCs have the principal business of acquisition in securities, such as shares, bonds, stocks, etc. 
  3. Loan company: These are the types of NBFCs that provide financing, such as loans and advances to individuals and businesses.
  4. Infrastructure finance company: These NBFCs have at least 75% of their assets invested in infrastructure projects.
  5. Systemically important core investment company: Any NBFCs with an asset size above ₹100 crores, with more than 90% holding in equity, debt, loan, shares, bonds debentures are Systemically Important NBFCs.
  6. Infrastructure debt fund NBFCs: These are the companies that raise resources for infrastructure development projects with a minimum 5-year maturity period.
  7. NBFC micro-finance institution: These are non-deposit-accepting NBFCs that provide short-term financing to urban and semi-urban households.
  8. Non-banking financial company factor: This includes any non-deposit-accepting NBFC with at least 50% of its assets and income directed towards the factoring business.
  9. Mortgage guarantee companies: These are companies with net assets of ₹100 crores, having 90% of the gross income invested in mortgage guarantee business.
  10. Non-operative financial holding company: It is a company through which an individual or a group will be allowed to establish a new bank or other financial companies under the RBI. 

Range of services provided by NBFCs

While they are regulated as per RBI guidelines, the range of functions of NBFCs is limited. NBFCs can deal with loans, shares, bonds, credits and insurance. However, they cannot issue or accept demand deposits or issue self-drawn cheques. 

Moreover, unlike a bank, NBFCs cannot form a part of the payment and settlement system. Another factor that differentiates NBFC from banks is that there is no Deposit Insurance and Credit Guarantee Corporation (DICGC) facility available to NBFC depositors. 

Significance of NBFCs

Non-banking financial companies are an important element of the financial system as they cater to the sections of society that do meet traditional banking eligibility terms. These may include low-income households, small businesses, startups, students or those who are new to credit. This makes NBFCs a crucial factor in the growth of the economy. 

Now that you have a better understanding of the NBFC meaning, you can select your preferred NBFC for future financial needs. Fibe extends loans via Earlysalary Services Pvt Ltd, which is a Non-systemically important Non-deposit-taking NBFC registered with RBI.

If you need instant funds, you have the option to apply for a Personal Loan online on Fibe. The approval process takes only 2 minutes and you can secure a loan of up to ₹5 lakhs at favourable interest rates. To take advantage of this opportunity, simply download our Personal Loan App or register on our website.


What is an example of an NBFC?

Aditya Birla Capital, Bajaj Finserv, Earlysalary Services Pvt Ltd, Edelweiss Financial Services, L&T Finance Holdings Limited and Muthoot Fincorp are a few examples of NBFCs in India. 

What is the difference between an NBFC and a bank?

The key difference between banks and NBFCs is that NBFCs cannot issue or accept demand drafts. Apart from that, NBFCs do not provide transaction services and cannot form part of the payment and settlement systems. 

What is the role of an NBFC?

The most important role of an NBFC is to offer credit and financial services to individuals who may not be able to apply for these facilities at banks. This helps individuals with low incomes or no credit scores to apply for credit easily. 

Is an NBFC a private company?

NBFCs can be private limited or public limited companies that provide services similar to a bank and are regulated by the RBI. However, they do not hold a banking license.


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