{"id":9644,"date":"2023-12-05T16:53:41","date_gmt":"2023-12-05T11:23:41","guid":{"rendered":"https:\/\/razorpay.com\/learn\/?p=9644"},"modified":"2025-02-13T17:19:31","modified_gmt":"2025-02-13T11:49:31","slug":"what-is-nbfc","status":"publish","type":"post","link":"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/","title":{"rendered":"All You Need to Know About NBFCs"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e79cf7d6719\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e79cf7d6719\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#What-is-an-NBFC\" >What is an NBFC?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#Functions-of-an-NBFC\" >Functions of an NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#Types-of-NBFCs\" >Types of NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#Residuary-Non-Banking-Company-RNBC\" >Residuary Non-Banking Company (RNBC)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#Net-Owned-Fund\" >Net Owned Fund<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#What-Impacts-the-NOF\" >What Impacts the NOF?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#How-to-Calculate-NOF\" >How to Calculate NOF?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#RBI-Guidelines-for-NBFCs\" >RBI Guidelines for NBFCs<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#Process-of-Getting-an-NBFC-License-in-India\" >Process of Getting an NBFC License in India<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#NBFCs-vs-Banks\" >NBFCs vs Banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#NBFCs-and-Banks\" >NBFCs and Banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-nbfc\/#FAQs\" >FAQs<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What-is-an-NBFC\"><\/span>What is an NBFC?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>An NBFC (Non-Banking Financial Company) is a financial institution that provides financial services similar to banks but does not hold a banking license.<\/p>\n<p>NBFCs play an important role in the economy by providing credit and other financial services to parties usually not served by traditional banks.<\/p>\n<p>The <a href=\"https:\/\/rbidocs.rbi.org.in\/rdocs\/Publications\/PDFs\/RBIA1934170510.PDF\" target=\"_blank\" rel=\"noopener\">concept of an NBFC<\/a> emerged in the early 1960s when the financial needs of the population were not being met by traditional banks.<\/p>\n<p style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/razorpay.com\/x\/digital-lending\/?r=blog_cta_business_banking_nbfc_blog&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Learn More about Digital Lending<\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Functions-of-an-NBFC\"><\/span>Functions of an NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>NBFCs promote economic growth in the country by catering to sections of the society not served by traditional banks. These may be high-risk industries or individuals like low-income farmers or MSMEs.<\/p>\n<p>Here is a list of the functions of an NBFC:<\/p>\n<ul data-sourcepos=\"3:1-22:0\">\n<li data-sourcepos=\"3:1-4:0\">\n<p data-sourcepos=\"3:4-3:347\">Retail Financing to individuals, households and businesses who may not qualify for traditional bank loans.<\/p>\n<\/li>\n<li data-sourcepos=\"5:1-6:0\">\n<p data-sourcepos=\"5:4-5:339\">Infrastructure financing for projects essential for economic growth and development, such as roads, bridges, power plants, and telecommunication networks.<\/p>\n<\/li>\n<li data-sourcepos=\"7:1-8:0\">\n<p data-sourcepos=\"7:4-7:282\">Hire Purchase Services to help individuals and businesses acquire assets such as vehicles, machinery, and equipment without <a href=\"https:\/\/razorpay.com\/blog\/upfront-payment\/\">upfront payment<\/a>.<\/p>\n<\/li>\n<li data-sourcepos=\"9:1-10:0\">\n<p data-sourcepos=\"9:4-9:300\">Trade Finance solutions to businesses, facilitating domestic and international trade transactions like letters of credit, factoring, and bill discounting.<\/p>\n<\/li>\n<li data-sourcepos=\"11:1-12:0\">\n<p data-sourcepos=\"11:4-11:306\">Asset Management services enable individuals and institutions to invest in various asset classes such as equities, debt, and real estate.<\/p>\n<\/li>\n<li data-sourcepos=\"13:1-14:0\">\n<p data-sourcepos=\"13:4-13:266\">Providing venture capital funding to early-stage and high-growth potential businesses.<\/p>\n<\/li>\n<li data-sourcepos=\"15:1-16:0\">\n<p data-sourcepos=\"15:4-15:290\">NBFC-MFIs (Microfinance Institutions) provide microloans and other financial services to low-income individuals and small businesses in rural and unbanked areas.<\/p>\n<\/li>\n<li data-sourcepos=\"17:1-18:0\">\n<p data-sourcepos=\"17:4-17:292\">Investment Banking Services to assist businesses in raising capital and executing strategic transactions.<\/p>\n<\/li>\n<li data-sourcepos=\"19:1-20:0\">\n<p data-sourcepos=\"19:4-19:276\"><a href=\"https:\/\/razorpay.com\/learn\/facilitation-payment\/\">Facilitating payments<\/a> and remittances, enabling individuals and businesses to transfer funds seamlessly.<\/p>\n<\/li>\n<li data-sourcepos=\"21:1-22:0\">\n<p data-sourcepos=\"21:5-21:249\">Insurance services provide individuals and businesses with risk protection and financial security against various contingencies.<\/p>\n<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Types-of-NBFCs\"><\/span>Types of NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The categorization of NBFCs is constantly changing based on RBI regulations.<\/p>\n<p>The RBI categorizes NBFCs in terms of whether they take deposits or not, the activity they conduct, and their systemic importance.<\/p>\n<h5>Asset Finance Company (AFC)<\/h5>\n<p>An asset finance company helps individuals and businesses finance the purchase of physical assets like automobiles, tractors or other equipment that support economic or productive activity.<\/p>\n<p>To be classified as an AFC, at least 60% of the NBFC&#8217;s business has to come from this kind of lending.<\/p>\n<h5>Investment Company (IC)<\/h5>\n<p>An investment company is an NBFC that makes money from acquiring securities in the form of equity shares, debt instruments or government securities.<\/p>\n<p>NBFC ICs help both corporate and individual investors invest their money in the best and most productive way.<\/p>\n<h5>Loan Company (LC)<\/h5>\n<p>Any NBFC providing loans but not fulfilling the AFC requirement is categorized as a Loan Company.<\/p>\n<h5>Infrastructure Finance Company (IFC)<\/h5>\n<p>An NBFC-IFC finances the country&#8217;s infrastructural development. They finance sectors like power, roads, telecom and transport. These NBFCs are crucial for economic development and progress.<\/p>\n<p>Here are the criteria required for an NBFC to be categorized as an NBFC-IFC:<\/p>\n<ul>\n<li>At least 75% of the NBFC&#8217;s total assets have to be invested in infrastructure loans<\/li>\n<li>Minimum of Rs 300 crore in net owned funds<\/li>\n<li>Minimum credit rating of &#8216;A&#8217; or equivalent<\/li>\n<li>Credit risk adequacy ratio (CRAR) of 15%<\/li>\n<\/ul>\n<h5>Systemically Important Core Investment Company (CIC-ND-SI)<\/h5>\n<p>CIC-ND-SI engages in acquiring shares and securities.<\/p>\n<p>They are different from NBFC-IC because CIC-ND-SI invests at least 90% of its total assets in its own group companies, and 60% of its total assets must be invested in equity shares of its group companies.<\/p>\n<p>Other conditions that an NBFC must meet to be classified as a CIC-ND-SI:<\/p>\n<ul>\n<li>It does not actively trade its investments in shares, debt, or loans in group companies, except through block sales for dilution or disinvestment purposes.<\/li>\n<li>It should not engage in financial activities specified in <a href=\"https:\/\/www.rbi.org.in\/Scripts\/BS_NBFCNotificationView.aspx?Id=557\" target=\"_blank\" rel=\"noopener\">Section 45I(c) and 45I(f) of the RBI Act, 1934<\/a>, except for activities like investing in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies, or guarantees issued on behalf of group companies<\/li>\n<li>The company must have an asset size of \u20b9100 crores or more<\/li>\n<li>It must accept public funds<\/li>\n<\/ul>\n<h5>Infrastructure Debt Fund<\/h5>\n<p data-sourcepos=\"1:1-1:150\">An Infrastructure Debt Fund Non-Banking Financial Company (IDF-NBFC) channels long-term debt into infrastructure projects.<\/p>\n<p data-sourcepos=\"1:1-1:150\">It raises funds primarily by issuing rupee or dollar-denominated bonds of at least 5 years of maturity, and can only be sponsored by an NBFC-IFC (Infrastructure Finance Company).<\/p>\n<h5>Non-Banking Financial Company Micro-Finance Institution (NBFC-MFI)<\/h5>\n<p>These are non-deposit-taking NBFCs that disburse at least 85% of their total loans according to the following criteria:<\/p>\n<ul>\n<li>Loan to rural households with annual income of less than Rs 1,00,000, or urban\/semi-urban households with income of less than Rs 1,60,000<\/li>\n<li>Loan less than Rs 50,000 in first cycle and Rs 1,00,000 in subsequent cycles<\/li>\n<li>Total loan less than Rs 1,00,000<\/li>\n<li>Tenure of the loan less than 2 years<\/li>\n<li>\n<p data-sourcepos=\"3:1-3:63\">For loans of \u20b915,000 or more, the loan repayment period must be at least 24 months; prepayment is allowed without penalty<\/p>\n<\/li>\n<li>Loans extended without collateral<\/li>\n<li>Loans given for income generation make up at least 50% of the total loans given by the NBFC<\/li>\n<li>Loans are repayable on weekly, fortnightly or monthly instalments<\/li>\n<\/ul>\n<h5>Non-Banking Financial Company Factors (NBFC-Factors)<\/h5>\n<p>These are another kind of non-deposit-taking NBFC which provides <a href=\"https:\/\/razorpay.com\/learn\/business-banking\/factoring\/\">factoring<\/a> services.<\/p>\n<p>The NBFC should derive at least 50% of its total income from factoring services, and the factoring business should constitute at least 50% of its total assets.<\/p>\n<h5>Mortgage Guarantee Companies (MGC)<\/h5>\n<p>At least 90% of the business turnover or gross income has to be from the mortgage guarantee business; the net owned fund of this NBFC also has to be at least Rs 100 crore.<\/p>\n<h5>NBFC Non-Operative Financial Holding (NBFC-NOFHC) Company<\/h5>\n<div class=\"flex-1 overflow-hidden\">\n<div class=\"react-scroll-to-bottom--css-rzhta-79elbk h-full\">\n<div class=\"react-scroll-to-bottom--css-rzhta-1n7m0yu\">\n<div class=\"flex flex-col pb-9 text-sm\">\n<div class=\"w-full text-token-text-primary\" data-testid=\"conversation-turn-9\">\n<div class=\"px-4 py-2 justify-center text-base md:gap-6 m-auto\">\n<div class=\"flex flex-1 text-base mx-auto gap-3 md:px-5 lg:px-1 xl:px-5 md:max-w-3xl lg:max-w-[40rem] xl:max-w-[48rem] } group final-completion\">\n<div class=\"relative flex w-full flex-col lg:w-[calc(100%-115px)] agent-turn\">\n<div class=\"flex-col gap-1 md:gap-3\">\n<div class=\"flex flex-grow flex-col max-w-full\">\n<div class=\"min-h-[20px] text-message flex flex-col items-start gap-3 whitespace-pre-wrap break-words [.text-message+&amp;]:mt-5 overflow-x-auto\" data-message-author-role=\"assistant\" data-message-id=\"aaf016f7-039b-4858-963c-dcdea401d6bc\">\n<div class=\"markdown prose w-full break-words dark:prose-invert dark\">\n<p>An NBFC-Non-Operative Financial Holding Company (NOFHC) serves as a financial entity allowing promoters or promoter groups to establish a new bank.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Residuary-Non-Banking-Company-RNBC\"><\/span>Residuary Non-Banking Company (RNBC)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<\/div>\n<p>Any NBFC that holds deposits but cannot be classified as an AFC, LC or IC is classified as an RNBC.<\/p>\n<p>These companies function differently from NBFCs in terms of deposit mobilization and requirement of depositor fund deployment.<\/p>\n<p>The RBI has<a href=\"https:\/\/rbi.org.in\/commonman\/English\/scripts\/notification.aspx?id=1854\" target=\"_blank\" rel=\"noopener\"> guidelines and regulations<\/a> for these companies as well.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Net-Owned-Fund\"><\/span>Net Owned Fund<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The NOF is the difference between an NBFC&#8217;s paid-up capital,\u00a0free reserves,\u00a0and other surplus funds,\u00a0and its intangible assets,\u00a0accumulated losses,\u00a0and deferred revenue expenditure.<\/p>\n<p>The Net Owned Fund is like an NBFC&#8217;s &#8220;net worth&#8221;: what it owns, minus what it owes.<\/p>\n<p>It represents the financial strength and stability of an NBFC, indicating its capacity to absorb losses and fulfil its financial obligations.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"What-Impacts-the-NOF\"><\/span>What Impacts the NOF?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul data-sourcepos=\"17:1-20:0\">\n<li data-sourcepos=\"17:1-17:116\">Profits and losses directly affect the NOF.\u00a0Consistent profitability increases the NOF,\u00a0while losses can erode it.<\/li>\n<li data-sourcepos=\"18:1-18:100\">NBFCs can also strengthen their NOF by raising additional capital through issuing shares or bonds.<\/li>\n<li data-sourcepos=\"19:1-20:0\">Conversely,\u00a0high expenses,\u00a0write-offs of bad loans,\u00a0and distributions to shareholders can decrease the NOF.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"How-to-Calculate-NOF\"><\/span>How to Calculate NOF?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ol data-sourcepos=\"16:1-20:0\">\n<li data-sourcepos=\"16:1-16:95\">Gather the relevant financial data for the NBFC, such as the balance sheet and income statement.<\/li>\n<li data-sourcepos=\"17:1-17:89\">Identify the values for each component mentioned above based on the financial reports.<\/li>\n<li data-sourcepos=\"18:1-18:175\">Substitute the values into the formula:<\/li>\n<\/ol>\n<p><strong>NOF = Paid-up Capital + Free Reserves + Other Surplus Funds &#8211; Intangible Assets &#8211; Accumulated Losses &#8211; Deferred Revenue Expenditure<\/strong><\/p>\n<table data-sourcepos=\"3:1-11:104\">\n<tbody>\n<tr data-sourcepos=\"3:1-3:44\">\n<th data-sourcepos=\"3:1-3:11\">Component<\/th>\n<th data-sourcepos=\"3:13-3:25\">Description<\/th>\n<th data-sourcepos=\"3:27-3:42\">Formula Source<\/th>\n<\/tr>\n<tr data-sourcepos=\"5:1-5:86\">\n<td data-sourcepos=\"5:1-5:23\">Paid-up Capital (PUC)<\/td>\n<td data-sourcepos=\"5:25-5:68\">Total amount raised through issuing shares<\/td>\n<td data-sourcepos=\"5:70-5:84\">Balance Sheet<\/td>\n<\/tr>\n<tr data-sourcepos=\"6:1-6:92\">\n<td data-sourcepos=\"6:1-6:20\">Free Reserves (FR)<\/td>\n<td data-sourcepos=\"6:22-6:74\">Accumulated profits not distributed to shareholders<\/td>\n<td data-sourcepos=\"6:76-6:90\">Balance Sheet<\/td>\n<\/tr>\n<tr data-sourcepos=\"7:1-7:126\">\n<td data-sourcepos=\"7:1-7:27\">Other Surplus Funds (OSF)<\/td>\n<td data-sourcepos=\"7:29-7:102\">Share premium, retained earnings from subsidiaries, contingency reserves<\/td>\n<td data-sourcepos=\"7:104-7:124\">Balance Sheet\/Notes<\/td>\n<\/tr>\n<tr data-sourcepos=\"8:1-8:89\">\n<td data-sourcepos=\"8:1-8:24\">Intangible Assets (IA)<\/td>\n<td data-sourcepos=\"8:26-8:71\">Brand value, intellectual property, goodwill<\/td>\n<td data-sourcepos=\"8:73-8:87\">Balance Sheet<\/td>\n<\/tr>\n<tr data-sourcepos=\"9:1-9:77\">\n<td data-sourcepos=\"9:1-9:25\">Accumulated Losses (AL)<\/td>\n<td data-sourcepos=\"9:27-9:59\">Total losses incurred over time<\/td>\n<td data-sourcepos=\"9:61-9:75\">Balance Sheet<\/td>\n<\/tr>\n<tr data-sourcepos=\"10:1-10:111\">\n<td data-sourcepos=\"10:1-10:36\">Deferred Revenue Expenditure (DRE)<\/td>\n<td data-sourcepos=\"10:38-10:87\">Expenses incurred in advance for future benefits<\/td>\n<td data-sourcepos=\"10:89-10:109\">Balance Sheet\/Notes<\/td>\n<\/tr>\n<tr data-sourcepos=\"11:1-11:104\">\n<td data-sourcepos=\"11:1-11:22\">Net Owned Fund (NOF)<\/td>\n<td data-sourcepos=\"11:24-11:69\">Financial strength &amp; stability indicator<\/td>\n<td data-sourcepos=\"11:71-11:102\">PUC + FR + OSF &#8211; IA &#8211; AL &#8211; DRE<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2 class=\"markdown prose w-full break-words dark:prose-invert dark\"><span class=\"ez-toc-section\" id=\"RBI-Guidelines-for-NBFCs\"><\/span><span style=\"font-family: Roboto, Arial, sans-serif; font-size: 1.6315em;\">RBI Guidelines for NBFCs<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<p>The RBI has issued a number of circulars and policies to regulate NBFCs and protect the interests of depositors and investors.<\/p>\n<p data-sourcepos=\"3:1-3:26\"><strong>Prudential Guidelines<\/strong><\/p>\n<ul data-sourcepos=\"5:1-5:42\">\n<li data-sourcepos=\"5:1-5:42\"><strong>Minimum Net Owned Funds (NOF):<\/strong>\u00a0NBFCs require a minimum NOF to maintain a buffer against losses and absorb financial shocks.\u00a0The minimum amount varies based on the type of NBFC and its activities.<\/li>\n<li data-sourcepos=\"6:1-6:127\"><strong>Capital Adequacy Ratio (CAR):<\/strong>\u00a0Similar to banks,\u00a0NBFCs must maintain a minimum CAR,\u00a0which is the ratio of their capital to their risk-weighted assets.\u00a0This ensures they have sufficient capital to cover potential losses.<\/li>\n<li data-sourcepos=\"7:1-7:206\"><strong>Liquidity Requirements:<\/strong>\u00a0NBFCs need to maintain a minimum level of liquid assets,\u00a0such as cash and government securities,\u00a0to meet their short-term liabilities.\u00a0This helps them avoid liquidity crunches.<\/li>\n<li data-sourcepos=\"8:1-8:195\"><strong>Income Recognition and Asset Classification:<\/strong> RBI prescribes income recognition and asset classification norms to ensure accurate financial reporting and timely recognition of bad loans.<\/li>\n<li data-sourcepos=\"9:1-10:0\"><strong>Concentration Limits:<\/strong>\u00a0NBFCs cannot have excessive exposure to a single borrower or group of borrowers to avoid concentration risk.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Process-of-Getting-an-NBFC-License-in-India\"><\/span>Process of Getting an NBFC License in India<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>According to the RBI, any company where income from financial assets makes up more than 50% of its gross income and financial assets constitute more than 50% of its total assets, can be called an NBFC.<\/p>\n<p>Once the applicant company feels they fulfil this criteria, they can apply for an NBFC license <a href=\"https:\/\/xbrl.rbi.org.in\/orfsxbrl\/\" target=\"_blank\" rel=\"noopener\">online<\/a>.<\/p>\n<p>The applicant will have to provide certain <a href=\"https:\/\/www.rbi.org.in\/Scripts\/BS_ViewNBFCForms.aspx\" target=\"_blank\" rel=\"noopener\">documents<\/a> and fill out forms.<\/p>\n<p>The RBI will then assess the &#8220;fit and proper&#8221; status of the NBFC&#8217;s promoters and senior management to ensure integrity and whether they fit the criteria of selection.<\/p>\n<p>Other records, like the company&#8217;s CIBIL record, are also assessed.<\/p>\n<p>Here are the other criteria that a company must fulfil in order to get an NBFC license:<\/p>\n<ul>\n<li>The company must be registered as a public or private company<\/li>\n<li>Must have at least Rs 10 crores are minimum NOF<\/li>\n<li>One-third of all directors must have finance-related work experience<\/li>\n<li>Fulfilment of regulations and norms under Capital compliances and FEMA laws.<\/li>\n<\/ul>\n<p>Once all these checks are completed, the RBI issues an application reference number (ARN), which can be used to check the status of the application.<\/p>\n<p>If satisfied, the RBI will then issue an NBFC license to the company. The NBFC must then submit regular financial and prudential reports to the RBI for monitoring and supervision.<\/p>\n<h2 class=\"markdown prose w-full break-words dark:prose-invert dark\"><span class=\"ez-toc-section\" id=\"NBFCs-vs-Banks\"><\/span><span style=\"font-size: 19px;\">NBFCs vs Banks<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"markdown prose w-full break-words dark:prose-invert dark\">\n<div class=\"markdown markdown-main-panel\" dir=\"ltr\">\n<div class=\"horizontal-scroll-wrapper\">\n<div class=\"table-block-component\">\n<div class=\"table-block\">\n<div class=\"table-content\">\n<table data-sourcepos=\"3:1-11:145\">\n<tbody>\n<tr data-sourcepos=\"3:1-3:25\">\n<th data-sourcepos=\"3:1-3:9\">Feature<\/th>\n<th data-sourcepos=\"3:11-3:16\">Bank<\/th>\n<th data-sourcepos=\"3:18-3:23\">NBFC<\/th>\n<\/tr>\n<tr data-sourcepos=\"5:1-5:73\">\n<td data-sourcepos=\"5:1-5:13\"><strong>License<\/strong><\/td>\n<td data-sourcepos=\"5:15-5:40\">Banking license from RBI<\/td>\n<td data-sourcepos=\"5:42-5:71\">Non-banking license from RBI<\/td>\n<\/tr>\n<tr data-sourcepos=\"6:1-6:110\">\n<td data-sourcepos=\"6:1-6:14\"><strong>Deposits<\/strong><\/td>\n<td data-sourcepos=\"6:16-6:59\">Accepts demand deposits (savings, current)<\/td>\n<td data-sourcepos=\"6:61-6:108\">Limited deposit acceptance (bonds, debentures)<\/td>\n<\/tr>\n<tr data-sourcepos=\"7:1-7:153\">\n<td data-sourcepos=\"7:1-7:11\"><strong>Focus<\/strong><\/td>\n<td data-sourcepos=\"7:13-7:69\">Broad range of services (retail, corporate, investment)<\/td>\n<td data-sourcepos=\"7:71-7:151\">Niche areas (microfinance, infrastructure, equipment leasing, gold loans, etc.)<\/td>\n<\/tr>\n<tr data-sourcepos=\"8:1-8:145\">\n<td data-sourcepos=\"8:1-8:17\"><strong>Regulations<\/strong><\/td>\n<td data-sourcepos=\"8:19-8:77\">Stricter (capital adequacy, liquidity, lending practices)<\/td>\n<td data-sourcepos=\"8:79-8:143\">More flexible, but still regulated (based on activity and size)<\/td>\n<\/tr>\n<tr data-sourcepos=\"9:1-9:150\">\n<td data-sourcepos=\"9:1-9:15\"><strong>Strengths<\/strong><\/td>\n<td data-sourcepos=\"9:17-9:69\">One-stop shop for financial needs, deposit security<\/td>\n<td data-sourcepos=\"9:71-9:148\">Specialized expertise, faster approvals, competitive rates in specific areas<\/td>\n<\/tr>\n<tr data-sourcepos=\"10:1-10:137\">\n<td data-sourcepos=\"10:1-10:16\"><strong>Weaknesses<\/strong><\/td>\n<td data-sourcepos=\"10:18-10:69\">Less flexibility, may not specialize in your needs<\/td>\n<td data-sourcepos=\"10:71-10:135\">More limited deposit options, higher risk profile in some areas<\/td>\n<\/tr>\n<tr data-sourcepos=\"11:1-11:145\">\n<td data-sourcepos=\"11:1-11:18\"><strong>Suitable for<\/strong><\/td>\n<td data-sourcepos=\"11:20-11:73\">Individuals, businesses with diverse financial needs<\/td>\n<td data-sourcepos=\"11:75-11:143\">Individuals, and businesses seeking focused solutions in specific areas<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<p>&nbsp;<\/p>\n<div class=\"markdown markdown-main-panel\" dir=\"ltr\">\n<div class=\"horizontal-scroll-wrapper\">\n<h2><span class=\"ez-toc-section\" id=\"NBFCs-and-Banks\"><\/span>NBFCs and Banks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A salient feature of NBFCs is their inherent flexibility in working with other businesses like fintechs or banks.<\/p>\n<p>Many fintechs are getting NBFC licenses or partnering with existing NBFCs to provide an extended range of services to the public.<\/p>\n<p>The best example of NBFCs and Banks working together for the benefit of society is in a <a href=\"https:\/\/razorpay.com\/learn\/business-banking\/co-lending-ultimate-guide\/\">co-lending<\/a> partnership.<\/p>\n<p style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/razorpay.com\/x\/digital-lending\/?r=blog_cta_business_banking_nbfc_blog&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Learn More about Digital Lending<\/a><\/p>\n<p><strong>Read more:<\/strong><\/p>\n<p><a href=\"https:\/\/razorpay.com\/learn\/business-banking\/current-account-opening-documents-required\/\"><span style=\"font-weight: 400;\">Current Account Documents<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/blog\/business-banking\/what-is-current-account\/\"><span style=\"font-weight: 400;\">What is Current Account<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/learn\/business-banking\/what-is-a-business-account-for-startups\/\"><span style=\"font-weight: 400;\">Business Account<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/learn\/business-banking\/mab-monthly-average-balance-current-account\/\"><span style=\"font-weight: 400;\">Monthly Average Balance<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/blog\/business-banking\/zero-balance-current-account-business\/\"><span style=\"font-weight: 400;\">Zero Balance Current Account<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/learn\/business-banking\/types-of-current-accounts\/\"><span style=\"font-weight: 400;\">Types of Current Account<\/span><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\nNo schema found.\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>What is an NBFC? An NBFC (Non-Banking Financial Company) is a financial institution that provides financial services similar to banks but does not hold a banking license. NBFCs play an important role in the economy by providing credit and other financial services to parties usually not served by traditional banks. The concept of an NBFC<\/p>\n","protected":false},"author":151156542,"featured_media":9646,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3437],"tags":[3760,3761],"class_list":{"0":"post-9644","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-banking","8":"tag-nbfc","9":"tag-non-banking-financial-institution"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/9644","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156542"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=9644"}],"version-history":[{"count":6,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/9644\/revisions"}],"predecessor-version":[{"id":15811,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/9644\/revisions\/15811"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/9646"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=9644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=9644"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=9644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}