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NBFC: meaning, types and difference from a bank
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A non-banking financial company (NBFC) is a company registered under the Companies Act that carries out financial business such as lending, hire purchase, leasing, investment in shares or securities, and chit funds, but does not hold a banking licence. NBFCs are registered with and regulated by the RBI under the RBI Act, 1934. They reach customers whom banks serve less, such as small traders, vehicle buyers and gold-loan borrowers.
NBFC vs bank
| Point | Bank | NBFC |
|---|---|---|
| Demand deposits (savings, current) | Can accept | Cannot accept |
| Payment and settlement system | Part of it | Not part of it |
| Deposit insurance (DICGC) | Covered up to the limit | Not covered |
| CRR/SLR | Required | Not in the same form (deposit-taking NBFCs have liquid asset rules) |
| Governing Act | Banking Regulation Act | RBI Act, Chapter IIIB |
| Can issue cheques drawn on itself | Yes | No |
NBFCs borrow from banks, markets and, if allowed, public term deposits. See DICGC for why deposit insurance matters.
Common types
- NBFC-Investment and Credit Company (ICC): the broad category, which in 2019 absorbed the earlier asset finance, loan and investment companies.
- Infrastructure Finance Company (IFC)
- Micro Finance Institution (NBFC-MFI)
- Core Investment Company (CIC)
- Factors
- Peer-to-peer (P2P) lending platforms
- Account aggregators
- Housing finance companies, regulated by the RBI since August 2019
Scale-based regulation
From October 2022 the RBI regulates NBFCs in four layers: Base, Middle, Upper and Top. The bigger and riskier the NBFC, the tighter the rules, and the largest ones face norms closer to those of banks. Thresholds change, so use the RBI's current framework.
Why it matters for bank exams
NBFC questions test what they can and cannot do. Typical stems: "which of the following cannot be done by an NBFC" (accepting demand deposits), "NBFCs are regulated by", "which type of NBFC lends to the poor" (MFI) and "which law applies". RBI Grade B's finance and management topics name NBFCs under financial system. Compare them with small finance banks and payments banks, the differentiated banks, in banking awareness.
Where to check
The list of registered NBFCs and the latest regulations are at rbi.org.in.
Frequently asked questions
Is my money safe in an NBFC fixed deposit?
NBFC deposits are not insured by DICGC, so safety depends on the company's credit rating and financial health. Check the rating and RBI permission to accept deposits first.
Can an NBFC use SARFAESI?
Only certain notified NBFCs and housing finance companies can; check the SARFAESI Act entry and the current notification.
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