NBFC Registration in India — RBI Licence, Capital & Process

A Non-Banking Financial Company is an entity registered under the Companies Act that carries on a financial business — lending, investment, acquisition of shares and securities, hire purchase, insurance or chit business — without holding a banking licence. If financial activity is the principal business of your company, you need registration with the Reserve Bank of India before you begin. Operating without it is an offence, and the RBI has become markedly more active in pursuing unregistered lenders and their digital partners.

When registration is actually required

The trigger is the principal business test, applied on the audited balance sheet. Broadly, a company is treated as an NBFC where financial assets make up more than half of total assets and income from those financial assets makes up more than half of gross income. Both limbs must be satisfied. This is why a manufacturer with surplus funds parked in securities does not become an NBFC, while a company whose entire activity is lending does.

Certain entities carrying on financial activity are regulated by other authorities and are outside RBI NBFC registration — insurance companies, stock broking entities, merchant bankers, housing finance companies, chit fund companies and Nidhi companies each fall under their own regulator. If your model resembles a member-only savings and lending society, a Nidhi company may be the correct vehicle instead and avoids RBI licensing altogether.

Categories of NBFC

The category you apply under determines your capital requirement, your permitted activities and your ongoing compliance load. The main distinctions are:

• Deposit-taking versus non-deposit-taking. Most new licences are granted as non-deposit-taking. Deposit acceptance attracts a much heavier regime and is rarely granted to new applicants.
• Systemically important or not, determined by asset size, which brings additional prudential norms.
• Activity-based classes — investment and credit company, infrastructure finance company, infrastructure debt fund, microfinance institution, factor, account aggregator, peer-to-peer lending platform and core investment company, among others.

The RBI’s scale-based regulatory framework layers these into tiers, with governance, capital and disclosure requirements rising with tier. Decide your category before you draft the object clause, because changing it later means a fresh approval.

Eligibility conditions

• Company form. The applicant must be a company registered under the Companies Act. A partnership, LLP or proprietorship cannot hold an NBFC licence.
• Net owned funds. A minimum net owned funds figure is prescribed and has been raised under the scale-based framework, with a glide path for existing entities. Net owned funds are computed after deducting investments in group companies and certain other items, so the paid-up capital you need is usually higher than the headline figure. Confirm the current requirement for your category before capitalising.
• Clean funds. The capital must be genuine and traceable, contributed from disclosed sources. The RBI examines the source of funds closely.
• Fit and proper directors. Promoters and directors must satisfy fit-and-proper criteria, with clean credit records and no history of default, and at least some board members are expected to have relevant financial sector experience.
• Credible business plan. A five-year plan with realistic projections, defined target segment, credit policy and risk framework.

The application process

Step 1 — Incorporate and capitalise

Incorporate the company with a financial-activity object clause, then bring in the required capital and place it in a deposit. The RBI will want to see the funds in place, not merely committed.

Step 2 — File the online application on COSMOS

The application is filed on the RBI’s COSMOS portal. On submission you receive a Company Application Reference Number.

Step 3 — Submit the physical file to the Regional Office

A hard copy of the application with all annexures goes to the RBI Regional Office having jurisdiction over your registered office. The annexure set typically runs to: certificate of incorporation, MOA and AOA, board resolution approving the application and confirming no acceptance of public deposits, audited accounts, banker’s report on the deposited capital, statutory auditor’s certificate on net owned funds, directors’ profiles, credit reports for directors and shareholders, the business plan and projections, and the KYC, fair practices and credit policies.

Step 4 — Scrutiny and Certificate of Registration

The Regional Office examines the file and reverts with queries, often more than once. Applications are commonly returned for incomplete documentation rather than rejected outright. Once satisfied, the file goes to the Central Office and a Certificate of Registration is issued. Realistically this is a multi-month process, and applicants should plan for the better part of a year from incorporation to licence rather than a few weeks.

What compliance looks like once licensed

Registration is the beginning of the obligation, not the end. Expect prudential norms on income recognition, asset classification and provisioning; capital adequacy requirements; exposure limits on single borrowers and groups; a board-approved fair practices code and grievance redressal machinery; KYC and anti-money-laundering procedures with reporting to FIU-IND; periodic returns to the RBI through its reporting platforms; statutory audit plus the auditor’s separate report to the RBI; and appointment of a compliance officer and, at higher tiers, internal audit and risk functions.

Digital lending brings a further layer — rules on direct disbursal and repayment between borrower and regulated entity, disclosure of the lending service provider, key fact statements and data localisation. Partnering with a fintech front end does not shift regulatory responsibility away from the licensed NBFC.

Practical advice before you apply

• Do not launch lending operations while the application is pending. Ask for permission first.
• Capitalise above the minimum. Applications with exactly the floor figure and no buffer read as under-resourced.
• Get the directors’ credit reports checked early — an adverse record on a single promoter can sink the file.
• Write the business plan for a regulator, not an investor. Emphasise risk control and collections, not growth.
• Consider whether you need a licence at all. A lending service provider partnership, or operating as a Nidhi or a co-operative, may achieve your commercial aim faster.

TAXAJ advises on category selection, capital structuring and the full NBFC registration and RBI application process.

Frequently asked questions

Can an LLP get an NBFC licence?

No. Only a company registered under the Companies Act is eligible. An LLP or partnership carrying on lending as its principal business would need to convert or incorporate a new company.

How long does NBFC registration take?

Plan for several months at minimum, and often longer. The variables are the completeness of the initial file, how quickly you answer Regional Office queries, and the RBI’s own workload. Applications are frequently delayed by document gaps rather than substantive objections.

Can an NBFC accept deposits from the public?

Only if it holds a deposit-taking registration, which is rarely granted to new applicants. The vast majority of NBFCs are non-deposit-taking and fund themselves through equity, bank borrowing, non-convertible debentures and securitisation.

What is the minimum capital needed?

A minimum net owned funds figure applies and varies by category, and it was increased under the scale-based framework with a phased timeline. Because net owned funds are computed after specified deductions, the paid-up capital required is usually higher than the stated minimum. Check the requirement for your specific category and application date rather than working from a general figure.