What are type 1 and type 2 NBFCs?

Type 1 NBFCs do not accept public funds and do not have a customer interface. They primarily operate in a more restricted financial environment, such as investment holding or financing group companies. Type 2 NBFCs, on the other hand, accept public funds or have customer-facing operations, such as providing loans, leasing, or hire-purchase services. The classification helps the Reserve Bank of India (RBI) regulate entities based on their risk profile, with type 2 NBFCs facing stricter regulatory requirements to ensure stability and customer protection.

What are the four layers of NBFC?

The RBI has categorised NBFCs into four layers to enhance supervision: Base layer : Non-systemically important NBFCs with minimal risk, like peer-to-peer lenders. Middle layer : Includes systemically important NBFCs and deposit-taking NBFCs. Upper layer : Systemically significant NBFCs posing higher risks due to size or operations, requiring stricter oversight. Top layer : NBFCs identified by the RBI for further regulation due to substantial risks, though currently, this layer remains empty. This classification ensures proportionate regulation based on risk and scale.

How many NBFCs are there in India?

As of 2024, there are approximately 9,500 NBFCs registered with the Reserve Bank of India (RBI). Among them, a smaller subset is classified as systemically important or deposit-taking NBFCs, which face stricter regulations. The number varies over time as entities register or exit due to compliance challenges. These NBFCs contribute significantly to the financial ecosystem by providing credit to underserved segments, such as rural areas, small businesses, and individuals without access to traditional banking services.

Is it necessary that every NBFC should be registered with the RBI?

Yes, it is mandatory for NBFCs to register with the Reserve Bank of India (RBI) if they meet specific criteria, such as having a financial asset size exceeding 50% of their total assets and income from financial activities exceeding 50% of their total income. However, some entities, like housing finance companies or insurance providers, are regulated by their respective sectoral regulators and are exempt from direct RBI registration. Registration ensures that NBFCs comply with prudential norms and operate transparently, safeguarding the financial system and customer interests.

What are systemically important NBFCs?

Systemically important NBFCs are those with an asset size of Rs. 500 crore or more, posing a significant impact on the economy if they face financial instability. These entities are crucial to credit markets, often serving sectors like infrastructure, housing, and small businesses. Due to their size and influence, they are subject to stricter prudential norms, including higher capital adequacy requirements, liquidity management standards, and periodic regulatory inspections by the RBI to mitigate risks and maintain financial stability.

What are the various prudential regulations applicable to NBFCs?

Prudential regulations for NBFCs aim to ensure financial stability and include: Capital Adequacy Ratio (CAR) : Minimum capital requirement to absorb losses. Asset Classification and Provisioning Norms : Guidelines for classifying and provisioning bad loans. Liquidity Coverage Ratio (LCR) : Maintaining sufficient liquid assets to meet short-term obligations. Exposure Limits : Restrictions on lending to a single borrower or group. Corporate Governance Requirements : Ensuring transparency and ethical practices. These regulations vary across NBFC layers, with stricter norms for systemically important entities.

What are the main features of NBFCs?

Key features of NBFC include offering loans, credit, and investment products without a banking licence, along with flexible eligibility and quick disbursal processes.

Types of NBFCs in India - Non-Banking Finance Companies

Q: What is the full form of NBFC?

It stands for Non-Banking Financial Company, a financial institution that provides banking-like services without being a registered bank.

5 min read

21 July 2025

In India’s evolving financial landscape, Non-Banking Financial Companies (NBFCs) have emerged as key players by offering a wide range of financial services to diverse customer segments. From deposit-taking to providing secured and unsecured NBFC loan options, their role continues to grow in significance. There are different types of NBFC in India, such as Asset Finance Companies, Loan Companies, and Infrastructure Finance Companies, each catering to specific financial needs. For instance, companies like Bajaj Finance offer various loan and finance products, contributing to broader financial access across the country.

What is NBFC?

Let us understand the NBFC meaning and what it includes in a little more detail.

The NBFC full form is Non-Banking Financial Company. It refers to a financial institution that provides banking-like services such as loans, credit facilities, and asset financing, but does not hold a banking licence.

The broader NBFC meaning lies in its role as a financial intermediary that supports credit growth, especially in sectors underserved by traditional banks. NBFCs are instrumental in promoting financial inclusion by offering tailored financial solutions to small businesses, rural borrowers, and individuals who may not meet the strict eligibility criteria of banks.

In India, NBFCs are regulated by the Reserve Bank of India (RBI) under the provisions of the RBI Act, 1934. They have become a vital part of the country’s financial ecosystem by bridging the credit gap and making financial services more accessible across diverse population segments.

Examples of NBFCs in India

Non-Banking Financial Companies (NBFCs) in India play a pivotal role in financial services. A prominent NBFC example includes Bajaj Finance, offering personal loans and consumer finance. NBFCs include different type of organisations, such as loan companies, asset finance companies, and infrastructure finance companies, addressing diverse customer needs across sectors like housing, infrastructure, and vehicle financing.

Everything about NBFCs in India

Non-banking financial companies (NBFCs) in India are financial institutions that provide banking services without meeting the legal definition of a bank. They offer various financial products, such as loans, credit facilities, and investment services. NBFCs play a crucial role in extending financial inclusion by reaching underserved segments. The Reserve Bank of India (RBI) regulates and supervises an NBFC company, imposing prudential norms to ensure their stability. They contribute significantly to the Indian financial landscape, fostering economic growth and supporting diverse financial needs.

How does an NBFC company work?

Non-banking financial companies (NBFCs) operate by raising funds through deposits, loans, or other financial instruments, excluding traditional demand deposits. NBFC companies in India lend to individuals, businesses, or other entities, often focusing on specific sectors or niches. NBFCs earn revenue through interest on loans, fees, and other financial services. Regulatory compliance, risk management, and maintaining liquidity are essential aspects of their operations. NBFCs play a vital role in complementing traditional banking services, catering to a diverse range of financial needs.

What are the types of NBFCs in India?

Listed below are a few types of NBFCs in India and their respective contributions to the nation's financial landscape.

1. Asset Finance Companies (AFCs)

Asset Finance Companies, as the name suggests, primarily engage in financing assets such as machinery, vehicles, equipment, and other tangible assets. AFCs cater to individuals, small and medium-sized enterprises (SMEs), and corporates by offering customised financing solutions for the acquisition of essential assets. By providing loans and lease options, AFCs help businesses expand their operations while also promoting economic growth.

2. Loan companies

Loan Companies are significant players in the consumer finance sector, offering personal loans, home loans, education loans, and more. Additionally, they extend credit facilities to businesses in the form of working capital loans, trade finance, and project financing. Loan companies fill the gap left by traditional banks by serving customers with specific financial needs or limited access to formal credit channels.

3. Infrastructure Finance Companies (IFCs)

With the objective of funding infrastructure projects, IFCs play a crucial role in supporting the nation's infrastructural development. IFCs primarily finance projects in sectors like power, roads, telecommunications, and transportation. By providing long-term loans and project-specific funding, IFCs contribute to the creation of robust infrastructure, enabling economic progress and enhancing the overall quality of life.

4. Microfinance Institutions (MFIs)

Microfinance Institutions have emerged as essential players in financial inclusion, targeting the economically disadvantaged sections of society. MFIs provide small loans, also known as microloans to low-income individuals and self-help groups (SHGs). By extending credit to micro-entrepreneurs and marginalised communities, MFIs empower them to establish or expand small businesses, lifting them out of poverty and fostering sustainable livelihoods.

5. Investment companies

Investment companies are predominantly engaged in the acquisition and management of financial assets such as stocks, bonds, mutual funds, and securities. These NBFCs cater to both retail and institutional investors, facilitating investment opportunities across various asset classes. Through their expertise in financial markets, Investment companies contribute to capital formation, mobilising funds for productive use and encouraging responsible investing practices.

6. Systemically Important Core Investment Companies (CICs-SI)

Systemically Important Core Investment Companies (CIC-SI) are a subset of Investment Companies that play a significant role in the Indian financial system. A CIC-SI is an NBFC that holds at least 90% of its total assets in the form of investments in the equity shares, debt, or other financial assets of its group companies. These entities are systematically important due to their potential to impact the stability of the financial sector. To maintain financial stability, the Reserve Bank of India (RBI) regulates and supervises these companies more closely.

The wide array of NBFCs in India showcases the diversity and depth of the nation's financial sector. Each type of NBFC serves specific financial needs and plays a distinct role in contributing to economic growth. From providing asset financing and personal loan to promoting infrastructure development and empowering marginalized communities, NBFCs have become integral to India's financial ecosystem.

As India’s economy grows, every type of NBFC plays a crucial role in extending financial access and supporting sector-specific needs. The diverse types of NBFC in India help channel funds to areas like infrastructure, small businesses, and rural finance, contributing significantly to economic development. Going forward, a balanced approach from policymakers is essential—one that fosters innovation while ensuring financial stability. With robust regulation and strong governance, the NBFC sector in India can continue to expand and strengthen the country’s financial landscape.

Additional Read:

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NBFC vs banks: Find out which one is better for a personal loan	Factors behind the growth of NBFCs in India

Types of NBFCs in India