NBFC

Types of NBFCs to Register in India Based on Your Vision

Non-banking finance companies (NBFCs) play a very important role in the Indian financial system. They provide various types of loans, investments, and financial services without a banking license. If you want to form an NBFC, then the first thing you need to do is understand which type of NBFC suits your business objectives.

The regulations, capital requirements, and governance structures vary depending on the type of NBFC under the RBI. If your goal is to provide microfinance, then an MFI may be the best choice. On the other hand, if you want to provide housing loans, then a Housing Finance Company will be suitable.

In this blog, we will discuss in detail how the different types of NBFCs are classified in India, which type of business is suitable for which NBFC, and how to choose the structure that suits your vision.

An Overview of NBFC Registration in India

The first step in forming an NBFC is to register the company under the Indian Companies Act, 2013 (or 1956). The aims and objectives clause of your company must mention the financial activities (lending, investment, financing).

Before starting to operate an NBFC, it is mandatory to obtain a valid license from the Reserve Bank of India (RBI). This license is granted under Section 45-IA of the RBI Act, 1934.

Also, the applicant company has to maintain a minimum capital of ₹10 crore or Net Owned Fund (NOF). If all the documents are properly prepared, the process is usually completed within 180 working days.

Thus, NBFC registration follows a planned and legal framework, through which the RBI allows only suitable and financially strong companies to enter the market.

Types of NBFCs Based on Accepting Deposits

NBFCs in India are divided into two main categories based on their deposit-taking capacity:

1. Deposit-taking NBFCs (NBFC-D):

This category of NBFCs can accept deposits from the public. As a result, the RBI controls them strictly. NBFC-D is suitable for institutions that want to provide large-scale financial services and collect money directly from the public. Such companies require additional reporting, auditing, and regulatory compliance.

2. Non-Deposit NBFC (NBFC-ND):

This category of NBFC can only provide loans or investments. It cannot accept deposits directly from the public. It is generally more suitable for startups or financial institutions with limited capital, as their regulatory burden is relatively low.

Through this classification, entrepreneurs can choose the appropriate NBFC structure according to their business model.

Types of NBFCs by Business Activity

Another important classification of NBFCs in India is based on their core activities. This category includes two types of NBFCs—NBFC-D and NBFC-ND.

Deposit Taking NBFCs (NBFC-D)

1. Asset Finance Company (AFC):

This type of NBFC primarily provides loans for the purchase of physical assets, such as cars, machinery, tractors, etc. If your business objective is to support MSMEs or the agriculture sector, then AFC is a viable option.

2. Core Investment Company (CIC):

A CIC is an NBFC that primarily invests in its own group companies. It acts like a holding company and invests at least 90% of its assets in equity or debt of the group company.

3. Housing Finance Company (HFC):

This NBFC provides loans for the purchase, construction, or renovation of residential properties. It is regulated by the National Housing Bank. This is the ideal structure for housing development companies.

4. Micro Finance Institution (MFI):

MFIs primarily provide microloans to the poor and low-income groups. This usually benefits rural areas or self-help groups.

5. Mutual Benefit Finance Company (MBFC):

This is a type of NBFC that provides loans and accepts deposits, and is largely run like a cooperative society.

Non-Deposit Taking NBFCs (NBFC-ND)

1. Infrastructure Debt Fund (IDF-NBFC):

This NBFC provides long-term loans for large-scale infrastructure projects. It is suitable if the developer or government wants to invest in projects.

2. Infrastructure Finance Company (IFC):

It provides long-term financing to the infrastructure sector, and at least 75% of the total loans have to be used in the infrastructure sector.

3. Investment Company (IC):

This type of NBFC provides financial assistance to the customer through various investment services such as shares, debentures, securities, etc.

4. Loan Company:

Loan Company provides loans and advances, which are usually for working capital or personal needs, but not to purchase assets.

5. Systemically Important Core Investment Company (CIC-ND-SI):

These CICs have total assets of more than ₹100 crore and invest 90% of their assets in their group companies. They come under the special surveillance of the RBI.

NBFC Categories by RBI Scale-Based Regulatory Framework

Since 2021, the Reserve Bank of India (RBI) has introduced a scale-based regulatory framework. NBFCs are divided into four tiers based on their asset size, risk exposure, and business activities. This classification is regulated to maintain financial stability and maintain strict vigilance on institutions that take inappropriate risks.

1. Base Layer (NBFC-BL):

NBFCs in this tier have assets of less than ₹1,000 crore. These include Peer-to-Peer (P2P) lending platforms, NBFC-Account Aggregators (NBFC-AA), and Non-Operative Financial Holding Companies (NOFHC). These are considered to be relatively low risk.

2. Middle Layer (NBFC-ML):

This layer includes all deposit-taking NBFCs and some non-deposit NBFCs with large public relations or specialized activities (e.g., MFIs, AFCs). They are subject to strict regulatory checks.

3. Upper Layer (NBFC-UL):

The top 10 NBFCs identified by the RBI (based on business size and risk) are placed in this layer. They are subject to bank-like monitoring and auditing.

4. Top Layer (NBFC-TL):

This layer is usually kept empty. However, if the risk level of any Upper Layer NBFC increases excessively, the RBI then moves them to this layer and keeps them under special surveillance.

This layer-based structure helps entrepreneurs to understand how much regulation they may face as per their company profile and how they should plan for the future.

How to Choose the Right NBFC Structure?

There is no single rule to follow when deciding on the type of NBFC. You should choose the right structure based on your business vision, goals, and customer base.

• If you want to provide microfinance or social impact loans, then a Micro Finance Institution (MFI) might be the best choice.

• If your goal is to finance housing or the housing sector, then a Housing Finance Company (HFC) is suitable.

• If you want to invest in large infrastructure projects, consider an IFC or IDF-NBFC.

• A Core Investment Company (CIC) is suitable only for investing in group companies.

The wrong structure can provide additional regulatory trouble in the future, so it is good to start with the right advice.

The Final Words

Choosing the right NBFC structure is one of the cornerstones of your business success. You should choose the type of NBFC you want to offer loans, investments, housing, or microfinance, depending on the type of financial services you want to provide. The wrong structure can increase regulatory complexity and risk in the future.

Enterslice is ready to support you at every stage of planning, documentation, and RBI approval. With experienced advice and accurate guidance, we make the NBFC registration process easy and hassle-free.

Contact Enterslice today and start your NBFC journey in the right direction.

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