NBFC (Non-Banking Financial Company)- Everything you need to know

An NBFC deals in financial services like loans and investments, fund transfers, insurance, and other services. Check how NBFCs work and how they differ from banks.
NBFC (Non-Banking Financial Company)- Everything you need to know
5 min read
8 February 2024

In India's continuously evolving financial landscape, Non-banking Financial Companies (NBFCs) play a pivotal role by offering a wide range of financial services to various population segments. Over recent years, NBFCs have experienced notable growth and have become increasingly significant. These entities participate in the financial sector through activities that encompass deposit acceptance, provision of secured and unsecured loans, leasing, hire-purchase services, and more. The multifaceted contributions of NBFCs have positioned them as key players, catering to the diverse financial needs of different sections of the population.

Bajaj Finance Limited is one of the leading NBFCs in the country, offering a host of products including personal loans, fixed deposits, insurance, and more.

What are NBFCs?

NBFCs full form is Non-banking Financial Companies. It refers to an institution that delivers financial services akin to traditional banks but operates without a banking licence. NBFCs hold significance within the financial ecosystem, particularly in countries such as India, where they play a vital role in addressing the credit gap and fostering financial inclusion. In India, the Reserve Bank of India (RBI) regulates and oversees NBFCs, ensuring compliance with the provisions outlined in the RBI Act of 1934. This regulatory framework underscores the pivotal role NBFCs play in augmenting financial services and contributing to the overall economic landscape.

All about an NBFC in India

A Non-Banking Financial Company (NBFC) in India is a financial institution that provides banking services without holding a banking license. They offer loans, investments, and other financial services. NBFCs play a vital role in financial inclusion, catering to diverse needs, but they operate under different regulations compared to traditional banks.

Eligibility to get an NBFC license in India

To obtain an NBFC license in India, entities must meet certain criteria set by the Reserve Bank of India (RBI). Key requirements include a minimum net owned fund, a specific business plan, fit and proper management, and adherence to regulatory guidelines. Detailed documentation, financial soundness, and compliance with RBI norms are essential.

Documents required to get an NBFC license

To obtain an NBFC license in India, required documents typically include:

  • Detailed business plan
  • Memorandum and Articles of Association
  • Board resolution for NBFC application
  • Certificate of Incorporation
  • Audited financial statements
  • KYC documents of directors
  • Regulatory compliance documents
  • Legal opinion on stamp duty
  • Non-refundable application fee

Guidelines of RBI for NBFCs in India

  • Minimum Net Owned Fund (NOF): Prescribed minimum capital requirement.
  • Prudential norms: Guidelines for asset classification and provisioning.
  • Risk management: Implementation of effective risk management systems.
  • Corporate governance: Adherence to governance principles.
  • Statutory compliance: Fulfilment of legal and regulatory obligations.
  • Reporting requirements: Timely submission of reports to RBI.

Functions of NBFCs

Non-banking Financial Companies (NBFCs) serve vital functions in the financial sector.

Credit provision: NBFCs extend credit facilities, providing loans and financial assistance to individuals and businesses. Read all about the features of our personal loan.

Investment activities: They engage in various investment avenues, including securities, stocks, and bonds, contributing to market liquidity.

Accepting deposits: Certain NBFCs accept deposits, offering an alternative to traditional banking institutions.

Financial advisory: Many NBFCs offer financial advisory services, guiding clients on investments, financial planning, and risk management.

Promoting financial inclusion: NBFCs play a pivotal role in bridging the credit gap, especially in underserved areas, promoting financial inclusion in diverse communities.

Types of NBFCs

In India, various types of NBFCs contribute distinctively to the nation's financial landscape:

Asset Finance Companies (AFCs): Specialising in financing tangible assets like machinery and vehicles, AFCs aid individuals and businesses in acquiring essential assets, and facilitating economic expansion.

Loan Companies: Prominent in consumer finance, they offer personal, home, and education loans, addressing specific financial needs and providing credit to those with limited access to formal banking channels.

Infrastructure Finance Companies (IFCs): Focused on funding infrastructure projects in sectors like power and transportation, IFCs play a pivotal role in supporting national development and economic progress.

Microfinance Institutions (MFIs): Targeting economically disadvantaged segments, MFIs empower individuals and self-help groups with small loans, fostering entrepreneurship and sustainable livelihoods.

Investment Companies: Engaged in managing financial assets, investment companies cater to retail and institutional investors, contributing to capital formation and responsible investing practices.

Systemically Important Core Investment Companies (CICs-SI): A subset of investment companies, CICs-SI, with their significant role, are closely regulated by RBI due to their potential impact on financial stability. They hold substantial assets in the equity shares, debt, or other financial assets of their group companies.

NBFCs vs banks

Comparing NBFC and bank offers reveals a competitive landscape, with both entities presenting similar terms. However, banks adhere to stringent eligibility protocols, limiting accessibility. Higher credit score prerequisites, typically above 750, make bank loans challenging for individuals with weaker profiles. In contrast, NBFCs demonstrate flexibility, approving loans for those with lower credit scores. Check out the eligibility criteria and documents required for a Bajaj Finance Personal Loan.

India's NBFC sector, with its diverse range, mirrors the richness and complexity of the nation's financial landscape. Each category of NBFC caters to distinct financial requirements, contributing uniquely to economic expansion. From facilitating asset financing and personal loans to driving infrastructure development and empowering marginalised communities, NBFCs have ingrained themselves deeply into India's financial fabric.

Apply for a personal loan today

Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

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Frequently asked questions

What is the difference between a bank and an NBFC?

Banks and NBFCs differ in their regulatory structures. Banks, regulated by central banks like the RBI, offer a wide range of financial services and can create money. NBFCs, regulated by the RBI but not authorised to create money, provide specific financial services like loans and investments but cannot accept demand deposits like traditional banks.

Are NBFCs governed by the RBI?

Yes, non-banking financial companies (NBFCs) in India are regulated and governed by the Reserve Bank of India (RBI). The RBI issues guidelines, sets regulations, and monitors the operations of NBFCs to ensure financial stability, protect consumers, and maintain the integrity of the financial system.

Who finances the NBFC?

NBFCs obtain finances from various sources, including:

  1. Borrowings: bank loans, debentures, and commercial paper.
  2. Equity Capital: issuing shares to raise capital.
  3. Reserves and surpluses: accumulated profits.
  4. Inter-Corporate Deposits: Borrowings from other corporate entities.
  5. Securitization: converting illiquid assets into marketable securities.
  6. Financial Institutions: Loans from other financial entities.
What type of NBFC is Bajaj Finserv?

Bajaj Finserv is a deposit-taking non-banking financial company (NBFC) in India. It operates in various financial sectors, including lending, insurance, wealth management, and more. As a diversified NBFC, Bajaj Finserv provides a wide range of financial products and services to cater to diverse consumer needs.

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