Non-banking financial companies (NBFCs) lend money, but they are not banks. They finance trucks and two-wheelers, lend against gold jewellery, make microfinance loans to women's groups, fund power plants and buy shares of group companies. At end-March 2025 their credit was equal to 14.6% of GDP and to about a quarter of all credit given by scheduled commercial banks. Banks lend heavily to them, and they lend to people and firms banks often do not reach. This part explains what makes a company an NBFC, how NBFCs differ from banks, the types the RBI recognises, how big they are and where their money comes from, the IL&FS shock of 2018, and the rules of the last three years on risk weights, co-lending, gold loans and digital lending. It ends with how their asset quality compares with that of banks.
How the RBI layers NBFCs by size (scale-based regulation, the upper-layer list and PCA for NBFCs) is covered in Part 18, RBI regulation of banks and NBFCs; this part links to it rather than repeating it. The IL&FS and DHFL crises are told in full in Part 15, the RBI and financial stability. Microfinance gets its own part, microfinance and financial inclusion (Part 32).
In the news
- 6 October 2026: NBFC credit growth at 15.8%. The RBI's monthly data for August 2026 showed NBFC credit up 15.8% year on year, against 10.0% a year earlier. Retail loans grew 22.0%, led by housing loans and loans against gold jewellery. Why it matters for the exam: NBFC credit is growing faster than it did in 2025, after the RBI eased the brakes it had applied in 2023.
- 6 August 2026: 17 NBFCs in the upper layer. The first list under the new ₹1 lakh crore asset test (set by amendment directions of 24 June 2026) added four government NBFCs: REC, PFC, IRFC and HUDCO. Why it matters for the exam: government-owned NBFCs are now inside the upper layer; details are in Part 18.
- 30 June 2026: FSR finds NBFCs sound. The Financial Stability Report put credit growth of upper- and middle-layer NBFCs at 16.6% in March 2026 and their GNPA ratios at 2.7% (upper layer) and 2.2% (middle layer). In the severe stress scenario, 15 of 174 NBFCs tested could fall below the 15% minimum CRAR. Why it matters for the exam: the GNPA and CRAR numbers are the latest official measures of NBFC health.
- 29 April 2026: small "Type I" NBFCs freed from registration. NBFCs that take no public funds and have no customer interface, with assets below ₹1,000 crore, are exempt from registration under Sections 45-IA and 45-IC from 1 July 2026. Existing ones may apply to deregister by 31 December 2026. Why it matters for the exam: it is the first time the RBI has shrunk the registration net on purpose, and it explains part of the fall in the number of NBFCs.
- 1 January 2026: new co-lending rules take effect. The Co-Lending Arrangements Directions of 6 August 2025 widened co-lending from priority-sector loans to all loans, cut the minimum share each lender must keep to 10% and allowed a default loss guarantee of up to 5%. Why it matters for the exam: the 20% rule of 2020 no longer applies.
- 29 December 2025: Trend and Progress report. The RBI reported that NBFC credit rose to 25.3% of bank credit at end-March 2025 (23.6% a year earlier), and that the NBFC GNPA ratio fell to 2.9% from 3.5%. Why it matters for the exam: this is the statutory annual report, and examiners take numbers from it.
- 3 October 2025: an SRO for NBFCs. The RBI recognised the Finance Industry Development Council (FIDC) as the self-regulatory organisation for NBFCs. Why it matters for the exam: FIDC joins MFIN and Sa-Dhan (microfinance) and FACE (fintech) as RBI-recognised SROs.
What makes a company an NBFC
The legal definition
An NBFC is a company registered under the Companies Act whose principal business is lending, investing in shares, bonds and other securities, leasing, hire purchase and similar financial activity. Section 45-I of the RBI Act, 1934 defines a "non-banking financial company", and Section 45-IA says no NBFC may carry on business without a certificate of registration (CoR) from the RBI (see Part 18 for the rest of Chapter III-B).
A company whose main business is farming, manufacturing, trading in goods (other than securities), services, or buying, selling or building property is not an NBFC, even if it lends some money on the side.
The 50-50 test
The RBI Act never defines "principal business". The RBI filled the gap with a press release of 8 April 1999 that set the principal business criteria, now part of the consolidated directions. A company is an NBFC if both tests are met on its last audited balance sheet:
- Financial assets are more than 50% of total assets (net of intangible assets); and
- Income from financial assets is more than 50% of gross income.
Worked example. A company has total assets of ₹100 crore, including ₹10 crore of intangibles (brand value, software). Its loans and investments are ₹48 crore. Its gross income is ₹20 crore, of which ₹11 crore is interest and dividends.
- Assets test: 48 ÷ (100 − 10) = 48 ÷ 90 = 53.3%, above 50%. Passed.
- Income test: 11 ÷ 20 = 55%, above 50%. Passed.
Both tests are passed, so the company must register with the RBI. If its loans had been ₹44 crore, the assets ratio would be 44 ÷ 90 = 48.9% and it would not be an NBFC, however much interest it earned. Note that the intangibles are taken out first: on gross assets, 48 ÷ 100 would be only 48%.
Net owned fund
A new NBFC needs a net owned fund (NOF) of ₹10 crore to register (for ICCs, MFIs and factors). Existing ones are on a glide path: ₹5 crore by 31 March 2025 and ₹10 crore by 31 March 2027 for ICCs (₹7 crore, then ₹10 crore, for MFIs and factors). Specialised types need more: ₹300 crore for infrastructure finance companies and IDF-NBFCs, ₹100 crore for mortgage guarantee companies and ₹20 crore for HFCs. P2P platforms, account aggregators and Type I NBFCs need ₹2 crore.
Who is exempt
Some companies are NBFCs in substance but registered with another regulator, so the RBI exempts them from registration to avoid dual regulation: stock brokers, merchant bankers, insurance companies, nidhi companies, chit fund companies, alternative investment funds and stock exchanges. Since 1 July 2026, small Type I NBFCs (no public funds, no customer interface, assets below ₹1,000 crore) are also exempt.
How NBFCs differ from banks
The RBI's own FAQ lists three differences that matter most:
- No demand deposits. An NBFC cannot accept deposits repayable on demand, so it has no savings or current accounts.
- No cheques. NBFCs are not part of the payment and settlement system and cannot issue cheques drawn on themselves.
- No deposit insurance. The DICGC cover of ₹5 lakh is not available to depositors of deposit-taking NBFCs (see deposit insurance and DICGC, Part 30).
Several others follow from the law:
| Bank | NBFC | |
|---|---|---|
| Law | Banking Regulation Act, 1949 | RBI Act, 1934 (Chapter III-B) and Companies Act |
| Permission | Banking licence (BR Act, Section 22) | Certificate of registration (RBI Act, Section 45-IA) |
| Deposits | Demand and time deposits | Only term deposits of 12 to 60 months, and only with a deposit-taking CoR |
| CRR and SLR | Must keep CRR (3%) and SLR (18%) | No CRR or SLR; a liquidity coverage ratio applies to larger NBFCs |
| Capital | CRAR 9% plus 2.5% CCB | CRAR 15%, Tier 1 at least 10% |
| Foreign investment | Caps apply (for example 74% in private banks) | Up to 100% under the automatic route |
| Priority-sector targets | Yes (40% of credit for commercial banks) | No |
Deposit-taking NBFCs are few and tightly controlled. Only 23 of the 8,502 registered NBFCs on 30 September 2026 held a CoR to take public deposits. They need at least a BBB− credit rating, can raise deposits of no more than 1.5 times their NOF, and cannot pay more than 12.5% a year. Five deposit-takers held 96.9% of all NBFC deposits at end-March 2025.
Types of NBFCs
The RBI classifies NBFCs in three ways: by liabilities (deposit-taking or not), by size (base, middle, upper and top layers; see Part 18), and by activity.
The 2019 merger: ICC
Until 2019 lending NBFCs were split into asset finance companies (AFCs), loan companies (LCs) and investment companies (ICs), each with its own rules. A circular of 22 February 2019 merged the three into a single category, the NBFC-Investment and Credit Company (NBFC-ICC), so that regulation follows the activity rather than the label. The ICC is now the default type: on 30 September 2026, 8,033 of 8,502 registered NBFCs were ICCs. Bajaj Finance, Shriram Finance, Muthoot Finance and Tata Capital are all ICCs.
The activity-based types
| Type | What it does | Key test or rule |
|---|---|---|
| ICC | Asset finance, loans, investment in securities | Any NBFC that is not another type |
| HFC (housing finance company) | Home loans | At least 60% of assets in housing finance, at least 50% in housing loans to individuals |
| NBFC-MFI (microfinance) | Collateral-free loans to low-income households | At least 60% of assets in microfinance loans (household income up to ₹3 lakh) |
| NBFC-IFC (infrastructure finance) | Infrastructure loans | At least 75% of assets in infrastructure lending; NOF ₹300 crore |
| IDF-NBFC (infrastructure debt fund) | Refinances infrastructure projects with a year of commercial operations | Always in the middle layer |
| CIC (core investment company) | Holds shares and loans of group companies | At least 90% of net assets in group companies; registers only if assets are ₹100 crore or more and it takes public funds |
| NBFC-Factor | Buys trade receivables | Registered under the Factoring Regulation Act, 2011 |
| NBFC-P2P | Online platform matching lenders and borrowers | Cannot lend itself; always in the base layer |
| NBFC-AA (account aggregator) | Moves a customer's financial data with consent | Always in the base layer |
| NOFHC | Holding company for a bank and its group's financial firms | Non-deposit-taking; always in the base layer |
| MGC | Mortgage guarantees | NOF ₹100 crore |
| SPD (standalone primary dealer) | Underwrites government securities | Always in the middle layer |
Three points are worth fixing in memory:
- HFCs were regulated by the National Housing Bank until the Finance (No. 2) Act, 2019 moved regulation to the RBI with effect from 9 August 2019. NHB still supervises them and handles their complaints. There were 91 HFCs at end-March 2025.
- CICs are the holding companies of business groups. Tata Sons is the best-known, and it is on the 2026-27 upper-layer list while it seeks to give up its registration.
- NOFHCs exist because the 2013 bank licensing rules required new private banks promoted by groups to be held through one. They always stay in the base layer.
How many NBFCs, and why the number keeps falling
On 30 September 2026 the RBI's register listed 8,502 NBFCs (including HFCs), plus 33 asset reconstruction companies. The base layer had 7,862, the middle layer 621 and the upper layer 19 (the 17 on the 2026-27 list plus PNB Housing Finance and Sammaan Capital, which keep upper-layer rules for five years). The separate list of cancelled certificates ran to 6,780 names.
The number falls every year because cancellations outrun new registrations. The Trend and Progress reports give the yearly flows:
| Year | New registrations | Cancellations |
|---|---|---|
| 2019-20 | 116 | 298 |
| 2020-21 | 55 | 44 |
| 2021-22 | 44 | 99 |
| 2022-23 | 66 | 158 |
| 2023-24 | 57 | 143 |
| 2024-25 | 62 | 172 |
Reasons include voluntary exit, mergers, conversion and non-compliance, such as failing to reach the NOF floor. Most exits are small companies; the RBI announces batches of surrenders and cancellations almost every month (for example, 13 cancellations in the release of 9 October 2026).
Numbers mislead, though. At end-March 2025 the upper layer was 0.2% of NBFCs by number but held 30.2% of assets; the middle layer was 7.0% by number and 64.6% of assets; the base layer, 92.8% by number, held only 5.2%. Government-owned NBFCs (mainly the infrastructure lenders PFC, REC, IRFC and HUDCO) held 36.5% of the sector's assets.
How big NBFCs are
Credit compared with banks and GDP
The Trend and Progress report for 2024-25 puts NBFC credit at 14.6% of GDP at end-March 2025, up from 13.5% a year earlier, and at 25.3% of scheduled commercial banks' credit, up from 23.6%. In plain terms, for every ₹4 that banks lend, NBFCs lend about ₹1 more.
The balance sheet of upper- and middle-layer NBFCs (excluding CICs, HFCs and SPDs) was ₹61.1 lakh crore at end-March 2025, with loans of ₹48.4 lakh crore, growing 19.4% in 2024-25. By end-September 2025 assets had reached ₹65.5 lakh crore.
Where NBFC credit goes
At end-March 2025 industry took ₹22.9 lakh crore of NBFC credit, of which power alone was ₹12.9 lakh crore (the government infrastructure lenders). Retail loans were ₹16.3 lakh crore, services ₹7.4 lakh crore and agriculture only ₹0.8 lakh crore. Within retail, NBFCs are strongest in:
- Vehicle loans: ₹5.7 lakh crore; NBFCs gave 47.9% of all vehicle credit from banks and NBFCs combined at end-March 2025, growing more than twice as fast as banks.
- Gold loans: ₹2.1 lakh crore (₹2.6 lakh crore by September 2025).
- Microfinance: ₹1.3 lakh crore, shrinking in 2024-25 as stress in the sector rose.
These three made up 56% of NBFC retail loans.
Growth since 2025
NBFC credit growth slowed in 2024 after the RBI's 2023 risk-weight increase, then picked up again. The FSR put growth for upper- and middle-layer NBFCs at 16.6% in March 2026. The RBI's monthly sample of large NBFCs and HFCs showed 14.4% in June 2026, 14.9% in July and 15.8% in August, against about 10–11% a year earlier.
Where NBFCs get their money
Without current and savings accounts, NBFCs fund themselves through borrowing: from banks, through bonds and commercial paper, and from abroad.
The FSR of June 2026 (Table 2.8) gives the mix for upper- and middle-layer NBFCs at end-March 2026:
| Source | Share of total funds |
|---|---|
| Borrowings from banks (loans, plus debentures and CPs held by banks) | 30.4% |
| Share capital and reserves | 21.5% |
| Debentures (held by others) | 21.5% |
| Other borrowings (from FIs, inter-corporate, subordinated debt, foreign) | 16.2% |
| Provisions and other liabilities | 6.5% |
| Public deposits | 2.0% |
| Commercial paper (held by others) | 1.8% |
Total borrowings were 69.9% (secured 40.8% plus unsecured 29.1%; the "other borrowings" line is what is left after the named items). The FSR notes that dependence on bank borrowings rose in 2025-26 for both layers.
Three points stand out:
- Banks are the biggest single source. Bank lending to NBFCs was 8.5% of all bank credit at end-March 2025 (8.9% a year earlier). This is the main channel through which trouble at an NBFC could hit banks.
- Bonds matter almost as much. Debentures were 35.3% of NBFC borrowings at end-March 2025 and bank loans 37.2%. Mutual funds are big buyers of NBFC bonds and commercial paper.
- Foreign money is rising. Borrowings from foreign sources rose to 8.1% of total liabilities by September 2025, from 5.0% in March 2024, mostly through external commercial borrowings.
The 2023 risk-weight increase and its reversal
On 16 November 2023 the RBI, worried that NBFCs were leaning too heavily on banks and that consumer credit was growing too fast, raised the risk weight on bank loans to NBFCs by 25 percentage points wherever the rating-based weight was below 100%. Loans to HFCs and priority-sector-eligible loans to NBFCs were excluded. It also raised the weight on NBFCs' own retail consumer loans (other than housing, education, vehicle, gold and microfinance loans) from 100% to 125%.
It worked: bank lending to NBFCs slowed and NBFCs turned to bonds and foreign borrowing. On 25 February 2025 the RBI restored the rating-based weights for bank loans to NBFCs, effective 1 April 2025. The higher weight on consumer credit itself was not reversed. The general use of risk weights as a macroprudential tool is in Part 15.
Worked example. A bank lends ₹1,000 crore to an NBFC rated AA, which carries a 30% risk weight. The bank must hold total capital of 11.5% of risk-weighted assets (9% CRAR plus the 2.5% CCB).
- Before November 2023: RWA = 30% × 1,000 = ₹300 crore. Capital = 11.5% × 300 = ₹34.5 crore.
- From November 2023: weight 30% + 25 = 55%. RWA = ₹550 crore. Capital = 11.5% × 550 = ₹63.25 crore.
- Extra capital = ₹28.75 crore, an 83% rise for the same loan.
For a AAA-rated NBFC (20% weight, rising to 45%), the capital need more than doubled (₹23 crore to ₹51.75 crore). For a BBB-rated NBFC, already at 100%, nothing changed. The rule bit hardest on the best-rated NBFCs, which were the biggest bank borrowers. From 1 April 2025 the numbers went back to ₹34.5 crore and ₹23 crore.
The IL&FS shock of 2018
The reason the RBI watches NBFC funding so closely is IL&FS. Infrastructure Leasing & Financial Services, a group with about ₹94,000 crore of debt and top credit ratings, began defaulting in mid-2018, including on loans and deposits in September 2018. On 1 October 2018 the government took it to the NCLT and replaced its board. Part 15 tells the story in full in the RBI and financial stability.
For NBFCs, the lesson was about funding:
- NBFCs were borrowing short (commercial paper of up to a year, much of it from mutual funds) and lending long (housing loans of 15–20 years). This asset-liability mismatch was fine while money flowed.
- When IL&FS defaulted, mutual funds stopped rolling over NBFC paper. Healthy NBFCs found they could not refinance, and the weaker ones failed. DHFL, a large HFC, defaulted in 2019 and became the first financial firm sent to the IBC under special rules for financial service providers (see the Insolvency and Bankruptcy Code, Part 26).
The RBI's response shaped today's rules: a liquidity risk framework with a liquidity coverage ratio for larger NBFCs (2019), the power to supersede NBFC boards (Section 45-IE, 2019), the transfer of HFC regulation to the RBI (2019), the scale-based regulation framework (2021) and PCA for NBFCs (2021). The ALM position today is much healthier: over two-thirds of NBFC loans and borrowings had maturities beyond 12 months at end-March 2025.
Co-lending with banks
Why co-lend
Banks have cheap deposits but find it costly to reach small borrowers in small towns. NBFCs have the reach but pay more for money. Co-lending combines the two: the NBFC finds and services the borrower, both lenders fund the loan, and the borrower pays a blended rate lower than the NBFC alone would charge.
From 2018 to 2025
- 21 September 2018: "co-origination" of priority-sector loans by banks and systemically important NBFCs.
- 5 November 2020: the Co-Lending Model (CLM) replaced it. Banks could co-lend with all registered NBFCs and HFCs, but only for priority-sector loans. The NBFC had to keep at least 20% of each loan; the bank took its share on a back-to-back basis.
- 6 August 2025: the Co-Lending Arrangements Directions, 2025, in force from 1 January 2026, extended co-lending to all loans, secured or unsecured, and to arrangements among banks, AIFIs and NBFCs.
The 2025 rules
| Rule | What it says |
|---|---|
| Minimum share | Each lender keeps at least 10% of every loan (was 20% for the NBFC) |
| Transfer window | The partner's share must be in its books within 15 calendar days of disbursement; otherwise the loan stays with the originator |
| Interest | One blended rate: each lender's rate weighted by its funding share, shown in the Key Facts Statement |
| Money flow | All disbursements and repayments through an escrow account |
| Default loss guarantee | The originator may cover losses up to 5% of loans outstanding |
| Asset classification | Borrower-level: if either lender marks the loan SMA or NPA, the other must too, sharing data by the next working day |
| Disclosure | Each lender lists its co-lending partners on its website |
| Priority sector | A bank counts its share as PSL if the loan qualifies (see priority sector lending, Part 35) |
Worked example. An NBFC sanctions a ₹10 lakh loan to a small business. On its own it would charge 16%. Its partner bank prices the same borrower at 9%.
- Under the 2025 rules the NBFC can keep just 10%: blended rate = 0.10 × 16% + 0.90 × 9% = 1.6% + 8.1% = 9.7%.
- Under the 2020 CLM the NBFC had to keep 20%: 0.20 × 16% + 0.80 × 9% = 3.2% + 7.2% = 10.4%.
The borrower saves 0.7 percentage points, about ₹7,000 a year on ₹10 lakh, from the lower minimum share alone.
Gold-loan NBFCs
India's households hold large amounts of gold jewellery, and loans against it are quick, small and secured. Two NBFCs, Muthoot Finance and Manappuram Finance, built national businesses on this, and Muthoot is on the 2026-27 upper-layer list.
Banks have moved in fast. NBFCs' share of gold loans given by banks and NBFCs together fell to 50.3% at end-March 2025, as banks' gold loans grew 121.1% in 2024-25. NBFCs' own gold loans still grew 35.1% that year, and they made up 17.4% of NBFC retail loans in March 2026.
The June 2025 directions
On 6 June 2025 the RBI issued final directions on lending against gold and silver collateral, now part of the consolidated Credit Facilities Directions. The main rules for NBFCs:
- Loan-to-value (LTV) limits for consumption loans, by total loan per borrower: 85% up to ₹2.5 lakh, 80% above ₹2.5 lakh and up to ₹5 lakh, 75% above ₹5 lakh. The LTV must be kept throughout the loan, and for bullet-repayment loans it is worked out on the total amount due at maturity.
- Valuation at the lower of the 30-day average closing price and the previous day's closing price (from IBJA or a SEBI-regulated commodity exchange), for the actual purity, counting only the metal and not stones.
- Caps on collateral: 1 kg of gold ornaments and 50 g of gold coins per borrower (10 kg and 500 g for silver).
- No loans to buy gold, or against primary gold (bullion) or gold ETFs and gold mutual funds.
- Bullet-repayment consumption loans capped at 12 months.
- A full credit assessment of repayment capacity when the total loan is above ₹2.5 lakh.
Worked example. A borrower pledges 25 g of 22-carat jewellery. The 30-day average price for 22-carat gold is ₹9,000 a gram; yesterday's close was ₹9,200. The NBFC must use the lower, ₹9,000, so the collateral is worth 25 × 9,000 = ₹2,25,000. A loan of 85% would be ₹1,91,250, which is below ₹2.5 lakh, so the 85% cap applies and the maximum loan is ₹1,91,250. If gold prices fall 10%, the collateral is worth ₹2,02,500 and the LTV becomes 1,91,250 ÷ 2,02,500 = 94.4%, so the borrower must pay down part of the loan or add gold.
Digital lending
Fintech apps grew fast after 2020, and so did complaints about hidden charges, harassment and illegal lending apps. The RBI's Guidelines on Digital Lending of 2 September 2022 set the basic rules for banks and NBFCs, and the Digital Lending Directions of 8 May 2025 consolidated them. For NBFCs they now sit in the Credit Facilities Directions. The key rules:
- Money goes straight to the borrower. Loans must be paid into the borrower's bank account, and repaid directly to the lender, never through a pool account of a lending service provider (LSP) such as a fintech app. Co-lending flows between lenders are the main exception.
- The lender is responsible. The NBFC must do due diligence on every LSP, and the LSP is its agent.
- Key Facts Statement with the all-in annual percentage rate (APR) before the loan is signed.
- Cooling-off period of at least one day, during which the borrower can exit by paying back the principal and proportionate APR without penalty.
- Default loss guarantee (DLG) from an LSP or another lender is capped at 5% of the loan portfolio.
- Grievance officers at both the NBFC and the LSP.
- The 2025 directions added two things: when an LSP works with several lenders, the app must show the borrower all matching loan offers in a standard format; and a public directory of digital lending apps lets borrowers check whether an app is linked to a regulated lender.
The broader picture of fraud and illegal apps is in banking fraud and cybersecurity (Part 39).
Asset quality: NBFCs compared with banks
NBFCs usually carry higher NPA ratios than banks, because they lend to riskier borrowers (used-vehicle buyers, small traders, microfinance borrowers) and because smaller NBFCs long used a looser 180-day rule to classify NPAs. The scale-based framework moved all of them, in steps, to the 90-day rule that banks use.
| End-March | Banks (SCBs) | NBFCs (upper and middle layers) |
|---|---|---|
| 2024 | 2.8% | 3.5% |
| 2025 | 2.3% | 2.9% |
| 2026 | 1.8% | 2.7% (upper layer), 2.2% (middle layer) |
The gap has narrowed. NBFCs also hold far more capital: their CRAR was 25.9% at end-March 2025, against a minimum of 15%, and in March 2026 it was 20.2% for the upper layer and 27.5% for the middle layer. Banks' CRAR was 17.7% in March 2026. NBFCs' provision coverage ratio was 66.6% at end-March 2025.
The weak spots are specific:
- Microfinance: the GNPA ratio of NBFC-MFIs rose from 2.0% to 4.1% in 2024-25 as borrowers became over-indebted (see Part 32).
- Fresh slippages: the June 2026 FSR warned that new NPAs were trending up and write-offs growing, even as the ratio fell.
- Stress tests: in the FSR's baseline scenario the GNPA ratio of 174 sample NBFCs rises from 2.4% to 2.8% by March 2027 and their CRAR dips from 22.3% to 20.8%; seven NBFCs would breach 15%, and 15 under the severe scenario.
How NPAs are defined and resolved is covered in NPAs and bad loans (Part 25).
Common exam traps
NBFCs can take deposits, but not demand deposits. A deposit-taking NBFC can take term deposits of 12 to 60 months. It cannot open savings or current accounts or issue cheques, and its deposits are not insured by DICGC.
HFCs: regulated by the RBI, supervised by NHB. Regulation moved on 9 August 2019; supervision and grievance redressal stayed with NHB.
ICC is a merger of three, not two. AFCs, loan companies and investment companies merged on 22 February 2019.
The 50-50 test needs both halves. Financial assets above 50% of total assets and financial income above 50% of gross income. Intangibles are netted off the assets.
Co-lending share is now 10%, not 20%. The 20% minimum NBFC share came from the 2020 CLM; since 1 January 2026 each lender keeps at least 10%.
The 2023 risk-weight increase was partly reversed. Bank loans to NBFCs went back to rating-based weights on 1 April 2025; the 125% weight on consumer credit stays.
NBFC CRAR is 15%, not 9%. The bank minimum is 9% (11.5% with the CCB).
Gold LTV is not a flat 75%. Since the June 2025 directions it is 85%, 80% or 75% depending on loan size.
Key facts at a glance
| Law | RBI Act, 1934, Chapter III-B; registration under Section 45-IA |
| Principal business criteria | Financial assets > 50% of total assets and financial income > 50% of gross income (8 April 1999) |
| Minimum NOF | ₹10 crore (ICC, MFI, factor; glide path to 31 March 2027); ₹300 crore for IFC and IDF |
| Registered NBFCs | 8,502 on 30 September 2026; 23 can take deposits |
| ICC created | 22 February 2019 (AFC + LC + IC) |
| HFCs to RBI regulation | 9 August 2019 (Finance (No. 2) Act, 2019) |
| NBFC credit | 14.6% of GDP and 25.3% of SCB credit (end-March 2025) |
| Biggest funding source | Banks: 30.4% of NBFC funds (March 2026) |
| Bank risk weights on NBFC loans | +25 pp on 16 November 2023; restored from 1 April 2025 |
| NBFC deposit rules | 12–60 months; up to 1.5 × NOF; rate ≤ 12.5%; rating ≥ BBB−; no DICGC cover |
| Co-lending | CLM 5 November 2020 (PSL, 20%); Directions 6 August 2025, effective 1 January 2026 (all loans, 10%, 15 days, 5% DLG) |
| Gold loan LTV | 85% (≤ ₹2.5 lakh), 80% (to ₹5 lakh), 75% (above); directions of 6 June 2025 |
| Digital lending | Guidelines 2 September 2022; Directions 8 May 2025; DLG cap 5% |
| NBFC GNPA | 2.9% (March 2025); 2.7% UL and 2.2% ML (March 2026) |
| NBFC CRAR | 25.9% (March 2025); minimum 15% |
| SRO for NBFCs | FIDC, recognised 3 October 2025 |
Exam corner: what to remember
- An NBFC needs a CoR under Section 45-IA and must pass both halves of the 50-50 test.
- NBFCs cannot take demand deposits, cannot issue cheques, and their depositors get no DICGC cover.
- ICC (2019) merged AFCs, LCs and ICs. HFCs came under RBI regulation in 2019; NHB still supervises them.
- Base layer always: P2P, AA, NOFHC, Type I. Middle layer always (or upper): deposit-takers, CICs, IFCs, HFCs; SPDs and IDFs stay in the middle.
- NBFC credit: 14.6% of GDP, 25.3% of bank credit (March 2025); growth 15.8% in August 2026.
- Banks are the largest lenders to NBFCs (30.4% of funds in March 2026); bank loans to NBFCs were 8.5% of bank credit in March 2025.
- 16 November 2023: risk weight on bank loans to NBFCs up 25 points; restored 1 April 2025.
- Co-lending 2025: all loans, 10% minimum share, 15-day transfer, blended rate, escrow, 5% DLG, effective 1 January 2026.
- Gold loans: LTV 85/80/75; no loans against bullion; 12-month cap on bullet loans.
- Digital lending: disbursal to the borrower's account only, KFS with APR, cooling-off of at least one day, DLG cap 5%.
- Type I NBFCs under ₹1,000 crore exempt from registration from 1 July 2026.
For exam-specific syllabus and pattern details, see our pages for RBI Grade B, SBI PO and IBPS PO.
Test yourself
Which of the following can an NBFC NOT do?
Show answer
Answer: (b) NBFCs are not part of the payment and settlement system and cannot issue cheques drawn on themselves; the other three are allowed.
A company has total assets of ₹200 crore, including ₹20 crore of intangible assets, and financial assets of ₹95 crore. Its gross income is ₹40 crore, of which ₹22 crore comes from financial assets. Under the principal business criteria it is:
Show answer
Answer: (a) Assets: 95 ÷ (200 − 20) = 52.8%, above 50%. Income: 22 ÷ 40 = 55%, above 50%. Both tests pass.
The NBFC-Investment and Credit Company (NBFC-ICC) category was created in 2019 by merging:
Show answer
Answer: (a) The circular of 22 February 2019 merged asset finance companies, loan companies and investment companies into the ICC.
Under the RBI's Co-Lending Arrangements Directions, 2025, each lender must retain at least what share of every individual loan?
Show answer
Answer: (b) The minimum is 10%, down from the 20% the NBFC had to keep under the 2020 co-lending model.
An NBFC originates a loan under co-lending, keeps 10% and charges 15% on its share; the partner bank funds 90% at 8.5%. The blended rate to the borrower is:
Show answer
Answer: (b) 0.10 × 15% + 0.90 × 8.5% = 1.5% + 7.65% = 9.15%.
In August 2026, according to the RBI's data on sectoral deployment of credit by NBFCs, NBFC credit grew year on year by:
Show answer
Answer: (c) 15.8%, against 10.0% in August 2025; 22.0% was the growth of NBFC retail loans and 14.4% the figure for June 2026.
Under the June 2025 directions on lending against gold collateral, the maximum LTV for a consumption loan of ₹4 lakh is:
Show answer
Answer: (b) 80% applies to total loans above ₹2.5 lakh and up to ₹5 lakh; 85% is for loans up to ₹2.5 lakh and 75% above ₹5 lakh.
In November 2023 the RBI raised the risk weight on banks' exposures to NBFCs by 25 percentage points. From which date were the original rating-based weights restored?
Show answer
Answer: (c) The circular was issued on 25 February 2025 but took effect on 1 April 2025.
In October 2025 the RBI recognised which body as the self-regulatory organisation for NBFCs?
Show answer
Answer: (d) FIDC was recognised on 3 October 2025; Sa-Dhan and MFIN are SROs for microfinance, and FACE for fintech.
Housing finance companies came under the regulation of the RBI in 2019. Which body still supervises them?
Show answer
Answer: (c) The Finance (No. 2) Act, 2019 moved regulation to the RBI from 9 August 2019, but the NHB continues to supervise HFCs.
Further reading
- Report on Trend and Progress of Banking in India 2024-25, Chapter VI: Non-Banking Financial Institutions: the RBI's annual review of NBFCs, with balance sheets, funding, sectoral credit and asset quality tables.
- Financial Stability Report, June 2026: Section II.3 has the latest layer-wise NBFC data and stress tests.
- RBI FAQs on NBFCs: the RBI's own plain-language answers on the 50-50 test, types, deposits and bank-NBFC differences.
- RBI (NBFCs – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025: the consolidated rulebook on registration, NOF, types and layers, with the 2026 amendments.
- RBI (NBFCs – Credit Facilities) Directions, 2025: digital lending, gold and silver loans and microfinance loans in one place.
- RBI (Co-Lending Arrangements) Directions, 2025: the full co-lending framework that took effect on 1 January 2026.
- Regulatory measures towards consumer credit and bank credit to NBFCs (16 November 2023): a short, clear example of macroprudential policy aimed at NBFCs.
Sources
- RBI, Report on Trend and Progress of Banking in India 2024-25, Chapter VI and its PDF: NBFC credit 14.6% of GDP and 25.3% of SCB credit (March 2025), 13.5% and 23.6% a year earlier; Table VI.1 types; Table VI.2 layer shares of number and assets; Table VI.3 ownership (government 36.5%); Table VI.4 balance sheet (₹61.1 lakh crore assets, ₹48.4 lakh crore loans, growth 19.4%); Table VI.6 sectoral credit; Table VI.7 borrowings (debentures 35.3%, banks 37.2%); bank lending to NBFCs 8.5% of bank credit; foreign borrowings 8.1%; Chart VI.3 registrations and cancellations 2020-21 to 2024-25; Chart VI.8 gold and vehicle loan shares; GNPA 2.9% (March 2025) and 3.5% (March 2024); MFI GNPA 4.1%; CRAR 25.9%; PCR 66.6%; deposit rules and 96.9% concentration; footnotes on the SRO (3 October 2025), HFC regulation, and risk weights of 16 November 2023 and 25 February 2025 (accessed 24 October 2026)
- RBI, Report on Trend and Progress of Banking in India 2023-24, Chapter VI and its PDF: Chart VI.2a NBFC credit-to-GDP ratios for 2015 to 2023; Chart VI.3 registrations and cancellations for 2019-20; HFC regulation from 9 August 2019 (accessed 24 October 2026)
- RBI, Financial Stability Report, June 2026, Chapter II: NBFC credit growth 16.6% (March 2026); Table 2.8 sources of funds; Chart 2.29 GNPA 2.7% (UL) and 2.2% (ML), CRAR 20.2% (UL) and 27.5% (ML); gold loans 17.4% of retail loans; stress test of 174 NBFCs (accessed 24 October 2026)
- RBI press release, 30 June 2026: release of the FSR and its assessment of NBFCs (accessed 24 October 2026)
- RBI press release, 6 October 2026: NBFC credit growth of 15.8% in August 2026 and sectoral details (accessed 24 October 2026)
- RBI press release, 7 September 2026: NBFC credit growth of 14.9% in July 2026 (accessed 24 October 2026)
- RBI press release, 7 August 2026: NBFC credit growth of 14.4% in June 2026 (accessed 24 October 2026)
- RBI press release, 6 August 2026: 17 NBFCs in the upper layer for 2026-27 (accessed 24 October 2026)
- RBI press release, 24 June 2026: ₹1 lakh crore asset test for the upper layer and inclusion of government NBFCs (accessed 24 October 2026)
- RBI press release, 29 April 2026 and the Registration and SBR Directions: Type I exemption from 1 July 2026, deregistration by 31 December 2026; principal business criteria; NOF requirements and glide path; definitions of ICC, IFC, IDF-NBFC, NOFHC; layer placement (accessed 24 October 2026)
- RBI press release, 9 October 2026: cancellation of the CoRs of 13 NBFCs (accessed 24 October 2026)
- RBI list of registered NBFCs (spreadsheet): 8,502 NBFCs and 33 ARCs on 30 September 2026, counts by type and layer, 23 deposit-taking; cancelled list of 6,780 (counted by Pareto Academy) (accessed 24 October 2026)
- RBI FAQs on NBFCs: differences between banks and NBFCs; 50-50 test; types and their tests; NOF for specialised types; exempt categories; deposit definitions (accessed 24 October 2026)
- RBI circular on harmonisation of NBFC categories, 22 February 2019: merger of AFCs, LCs and ICs into ICC (accessed 24 October 2026)
- RBI circular, 16 November 2023: risk weights on consumer credit and bank credit to NBFCs (accessed 24 October 2026)
- RBI circular, 25 February 2025: restoration of rating-based risk weights on SCB exposures to NBFCs from 1 April 2025 (accessed 24 October 2026)
- RBI circular on co-lending, 5 November 2020: CLM for priority-sector loans, NBFC minimum share of 20%, supersession of the 2018 co-origination circular (accessed 24 October 2026)
- RBI (Co-Lending Arrangements) Directions, 2025 and the Commercial Banks – Transfer and Distribution of Credit Risk Directions: 6 August 2025, effective 1 January 2026; 10% share, 15 days, blended rate, escrow, 5% DLG, borrower-level classification, disclosures (accessed 24 October 2026)
- RBI Annual Report 2025-26, Chapter VI: co-lending directions of 6 August 2025 (share cut from 20% to 10%); digital lending directions of 8 May 2025 (multiple offers, DLA directory); gold and silver directions of 6 June 2025 and LTV slabs; Type I review (accessed 24 October 2026)
- RBI (NBFCs – Credit Facilities) Directions, 2025: digital lending rules (disbursal, cooling-off, DLG cap of 5%); gold and silver lending rules (valuation, weight caps, 12-month bullet loans, ₹2.5 lakh assessment threshold, LTV) (accessed 24 October 2026)
- RBI Guidelines on Digital Lending, 2 September 2022: the original framework, later repealed by the 2025 directions (accessed 24 October 2026)
- RBI press release, 3 October 2025: FIDC recognised as SRO for NBFCs (accessed 24 October 2026)
- RBI press release, 29 December 2025: release of the Trend and Progress report 2024-25 (accessed 24 October 2026)