Non Banking Financial
Services (NBFC Sector)
Ramkrishna Dikkatwar
What is NBFC?
• It is a company registered under the Companies Act, 1956 engaged in the
business of
• loans and advances,
• acquisition of shares/stocks/bonds/debentures/securities issued by
Government or local authority or other marketable securities of a
like nature,
• leasing, hire-purchase, insurance business,
• chit business
• but does not include
• any institution whose principal business is that of agriculture activity, industrial
activity, purchase or sale of any goods (other than securities) or providing any
services and sale/purchase/construction of immovable property.
• A non-banking institution which is a company and has principal business of
receiving deposits under any scheme or arrangement in one lump sum or in
installments by way of contributions or in any other manner, is also a non-
What is Principal business?
• Financial activity as principal business is when
• a company’s financial assets constitute more than 50 per
cent of the total assets and
• income from financial assets constitute more than 50 per
cent of the gross income.
• A company which fulfils both these criteria will be
registered as NBFC by RBI.
• This test is popularly known as 50-50 test and is
applied to determine whether or not a company is into
financial business.
Regulatory Mechanisms in NBFC
sector
Source: -https://www.rbi.org.in/upload/publications/pdfs/58850.pdf
Certain categories of NBFCs which are regulated by
other regulators are exempted from the requirement
of registration with RBI viz. Venture Capital
Fund/Merchant Banking companies/Stock broking
companies registered with SEBI, Insurance
Company holding a valid Certificate of Registration
issued by IRDA, Nidhi companies as notified under
Section 620A of the Companies Act, 1956, Chit
companies as defined in clause (b) of Section 2 of
the Chit Funds Act, 1982,Housing Finance
Companies regulated by National Housing Bank,
Stock Exchange or a Mutual Benefit company.
NBFC Vs Banks
• i. NBFC cannot accept demand deposits;
• ii. NBFCs do not form part of the payment and
settlement system and cannot issue cheques
drawn on itself;
• iii. deposit insurance facility of Deposit
Insurance and Credit Guarantee Corporation is
not available to depositors of NBFCs, unlike in
case of banks.
Each depositor in a bank is insured up to a
maximum of 5,00,000 (Rupees Five Lakhs)
for both principal and interest amount held
by him in the same right and same capacity
as on the date of liquidation/cancellation of
bank's license or the date on which the
scheme of
amalgamation/merger/reconstruction
comes into force by DICGC.
NBFC Categorization
• As of 30 September 2023, there were a total of 9,356
NBFCs registered with the Reserve Bank of India (RBI).
• Based on liability structure, NBFCs have been
traditionally categorized into
• Deposit-taking NBFCs (NBFCs-D), which are allowed to
raise term deposits and
• Non-deposit-taking NBFCs (NBFCs-ND).
NBFC New Categorization
• In October 2021, the RBI introduced a scale-based
regulation for NBFCs to align its regulatory framework
and further classify these financial institutions based
on their
• evolving risk profile,
• considering the evolution of NBFCs with regard to size,
complexity and interconnection within the financial
sector.
NBFC New Categorization
• This framework categorizes:
• NBFCs in the base layer (NBFC-BL) with assets less than
INR1,000 crore
• Middle layer (NBFC-ML) with assets more than INR1,000
crore
• Upper layer (NBFC-UL) and Top layer (NBFC-TL) which are
specifically identified by the RBI based on a set of
parameters and scoring methodology
NBFCs whose asset size is of ₹ 500 cr or more as per last audited balance
sheet are considered as systemically important NBFCs. The rationale for such
classification is that the activities of such NBFCs will have a bearing on the
financial stability of the overall economy.
Count of NBFC
Row Labels Name
NBFC -P2P 24
P2P 24
P2P P2P lending
Statistic
NBFC-D 26
ICC 26 AA Account Aggregators
NBFC-ND 8799 CIC Core Investment Company
al AA
CIC
12
53
Factor Factoring Services
Investment and Credit
ICC company
Snapsh Factor
ICC
3
8664
MFI Micro Finance Institutions
MGC Mortgage Guarantee Company
ot of NBFC-NDSI
MFI
MGC
66
1
507
IDF Infrastructure Debt Funds
Infrastructure Finance
NBFCs Factor
ICC
5
447
IFC Company
NOFH Non operative Financial
C Holding Company
in India IDF
IFC
3
8
PD Primary Dealers
… MFI
NOFHC
34
3
PD 7
Grand Total 9356
Types of NBFC - Asset Finance Company
(AFC)
• An AFC is a company which is a financial institution carrying on
as its principal business the financing of physical assets
supporting productive/economic activity, such as automobiles,
tractors, lathe machines, generator sets, earth moving and
material handling equipments, moving on own power and
general purpose industrial machines.
• Principal business for this purpose is defined as aggregate of
financing real/physical assets supporting economic activity and
income arising therefrom is not less than 60% of its total assets
and total income respectively.
Types of NBFC – Investment
Company (IC)
IC means any company which is a
financial institution carrying on as its
principal business pertaining to
acquisition of securities.
Useful for VC and PE funds.
Core Investment Company
Core Investment Companies, (CIC)
are those companies which have
their assets predominantly as
investments in shares for holding
stake in group companies but not
for trading, and also do not carry on
any other financial activity.
Factoring Company
‘Factoring Business’ as “the business of
acquisition of receivables of assignor by
accepting assignment of such
receivables or financing, whether by way
of making loans or advances or in any
other manner against the security interest
over any receivables”.
Infrastructure Debt Funds …
• IDFs are investment vehicles which can be sponsored by
commercial banks and NBFCs in India in which domestic/offshore
institutional investors, specially insurance and pension funds can
invest through units and bonds issued by the IDFs.
• IDFs would essentially act as vehicles for refinancing existing
debt of infrastructure companies, thereby creating fresh
headroom for banks to lend to fresh infrastructure projects.
• IDF-NBFCs would take over loans extended to infrastructure
projects which are created through the Public Private Partnership
(PPP) route and have successfully completed one year of
commercial production.
Non-Banking Financial Company –
Peer to Peer Lending Platform
Peer-to-peer lending (P2P) is a
way for people to lend money to
individuals or businesses. You –
as the lender – receive interest
and you get your money back
when the loan is repaid.
Infrastructure Finance Company
• An NBFC-IFC is a non-deposit taking NBFC which has a minimum
of 75% of its total assets deployed towards infrastructure
lending.
• For this purpose, the term ‘infrastructure lending’ means a credit
facility extended by an NBFC to a borrower, by way of
• term loan,
• project loan subscription to bonds/ debentures/ preference shares/ equity
shares in a project company acquired as a part of the project finance
package such that subscription amount to be “in the nature of advance” or
• any other form of long term funded facility for exposure in the
• infrastructure sub-sectors as notified by the Department of
Economic Affairs, Ministry of Finance, Government of India, from
time to time.
Master List of Infrastructure sub-sectors
• Transport & Logistics
• Energy
• Water and Sanitation
• Telecommunication
• Social and Commercial Infrastructure
Non-Operative Financial Holding
Company (NOFHC)
• NBFC- Non-Operative Financial Holding Company
(NOFHC) is financial institution through which promoter /
promoter groups will be permitted to set up a new bank.
• It’s a wholly-owned Non-Operative Financial Holding
Company (NOFHC) which will hold the bank as well as all
other financial services companies regulated by RBI or
other financial sector regulators, to the extent permissible
under the applicable regulatory prescriptions.
Major Sectors in NBFC from loan
book perspective …
• “Pure” Housing Finance Companies
• Micro Finance Institutions
• Gold Loan
• MSME Loan
• Auto / equipment /CV Finance
• Diversified NBFC straddling across these segments
NBFC Industry group….
1. Total Borrowings include Debt Securities Note: Growth is calculated for FY23 over FY22.
2. Analysis has been made based on 29 NBFCs (10 HFCs, 2 Gold, 3 MFI and 14 Diversified NBFCs)
Source: - https://web-assets.bcg.com/b4/26/e5c0876045d1ac0e51920b77deb4/nbfc-sector-update-fy23-vf.pdf
How money is raised by NBFCs?
Sources of borrowings of
NBFCs2 (Amount in INR crore)
Internationally, acceptance of public deposits is restricted to banks, and non-banks
including NBFCs raise resources from institutional sources or by accessing the capital
market.
NBFCs are encouraged to move in this direction in line with international practices.
Emerging sources of funds
additional to the traditional
options……….
• PE & VC
• This influx not only injects capital but
• also brings strategic guidance.
• Securitization and asset reconstruction
• NBFCs are increasingly turning to securitisation, selling loan
portfolios to investors and
• collaborating with Asset Reconstruction Companies (ARCs) to
manage risk and optimise balance sheets.
FAQs on NBFC
• https://www.rbi.org.in/commonperson/english/scripts/FAQs.aspx?
Id=1167#:~:text=Residuary%20Non%2DBanking%20Company%20is,
%2C%20Asset%20Financing%2C%20Loan%20Company.
