NBFC Registration with RBI: Capital Requirements, Net Owned Funds & Regulatory Compliance (2026)

Quick Answer

A Non-Banking Financial Company (NBFC) must be registered with the Reserve Bank of India (RBI) under Section 45-IA of the Reserve Bank of India Act, 1934 before commencing or carrying on the business of a non-banking financial institution. The minimum Net Owned Fund (NOF) requirement is Rs 10 Cr (enhanced from Rs 2 Cr, effective from October 2022 for new applications). The company must be incorporated as a Public Limited Company or a Private Limited Company under the Companies Act, 2013, with financial activity comprising more than 50% of its total assets and total income (principal business criteria). At Virtual Auditor, we provide end-to-end NBFC registration assistance — from company incorporation to RBI application filing — and our compliance retainers ensure ongoing regulatory adherence.

Definition — Non-Banking Financial Company (NBFC): Under Section 45-I(f) of the RBI Act, 1934, a non-banking financial company means a company which is a financial institution, a non-banking institution which is a company and which has as its principal business the receiving of deposits under any scheme or arrangement or in any other manner, or lending in any manner. Under the RBI’s Master Direction — Non-Banking Financial Company — Scale Based Regulation (SBR), 2023, NBFCs are regulated based on their size, activity, and perceived riskiness.

Definition — Net Owned Fund (NOF): Under Section 45-IA(1)(a), NOF is defined as the aggregate of paid-up equity capital and free reserves as per the latest audited balance sheet, minus accumulated losses, deferred revenue expenditure, and other intangible assets, minus investments in shares of subsidiaries, companies in the same group, and all other NBFCs, and the book value of debentures, bonds, outstanding loans, and advances (including hire-purchase and lease finance) made to and deposits with subsidiaries and companies in the same group to the extent it exceeds 10% of the owned fund.

Types of NBFCs: Which Registration Do You Need?

Classification by Activity

RBI classifies NBFCs based on the type of financial activity they carry on. Choosing the correct category is critical because each type has specific NOF requirements, permitted activities, and regulatory norms:

NBFC-Investment and Credit Company (NBFC-ICC): This is the most common category. It includes companies whose principal business is lending (asset finance, loan companies) or investment in securities. Most fintech lending platforms, gold loan companies, vehicle finance companies, and microfinance institutions (MFIs) register as NBFC-ICC. Minimum NOF: Rs 10 Cr.

NBFC-Micro Finance Institution (NBFC-MFI): An NBFC-ICC with not less than 75% of its total assets (excluding cash, balances with banks, and government securities) in the form of qualifying assets — loans to economically weaker sections with household annual income not exceeding Rs 3,00,000 (rural) or Rs 3,00,000 (urban/semi-urban). Loan size, pricing, and collection norms are prescribed under the Revised Regulatory Framework for Microfinance Loans (March 2022). Minimum NOF: Rs 5 Cr (subject to enhancement).

NBFC-Account Aggregator (NBFC-AA): A financial data intermediary that retrieves and consolidates financial data of customers from Financial Information Providers (FIPs) and shares it with Financial Information Users (FIUs) with explicit customer consent. Governed by the Account Aggregator Master Direction, 2016. Minimum NOF: Rs 2 Cr. Cannot undertake any lending or investment activity.

NBFC-Peer to Peer Lending Platform (NBFC-P2P): An intermediary providing an online platform to bring lenders and borrowers together. Governed by the NBFC-P2P Master Direction, 2017. Minimum NOF: Rs 2 Cr. The P2P platform itself cannot lend — it only acts as an intermediary. Maximum aggregate exposure of a lender across all P2P platforms: Rs 50 lakh. Maximum lending to a single borrower across all P2P platforms: Rs 50 lakh.

NBFC-Infrastructure Finance Company (NBFC-IFC): At least 75% of total assets deployed in infrastructure loans. Minimum NOF: Rs 300 Cr. Capital adequacy requirement: 15%. Given the high capital requirement, this category is relevant only for large corporate groups.

NBFC-Infrastructure Debt Fund (NBFC-IDF): Provides long-term debt to infrastructure projects that have completed at least one year of commercial operations. Minimum NOF: Rs 300 Cr. Must be sponsored by an NBFC-IFC or a bank.

NBFC-Housing Finance Company (NBFC-HFC): Regulated by NHB (National Housing Bank) under the NHB Act, 1987, not directly by RBI for day-to-day regulation. However, registration is granted by RBI. Minimum NOF: Rs 25 Cr (for new HFCs). At least 50% of net assets must be in housing finance. Principal business must be providing finance for housing.

Core Investment Company (CIC): An NBFC with at least 90% of its net assets as investments in equity shares, preference shares, bonds, debentures, debt, or loans in group companies. CICs with asset size of Rs 100 Cr or more must register with RBI. Adjusted net worth must be at least 30% of aggregate risk-weighted assets. At least 60% of net assets must be in equity shares (including instruments compulsorily convertible into equity within 10 years).

Scale-Based Regulation (SBR) Framework

Since October 2022, RBI regulates NBFCs under four layers based on size and systemic importance:

Base Layer (BL): NBFCs with asset size below Rs 1,000 Cr. NBFC-P2P, NBFC-AA, and non-systemically important NBFCs fall here. Lighter regulatory touch.
Middle Layer (ML): All deposit-taking NBFCs (regardless of size), non-deposit-taking NBFCs with asset size Rs 1,000 Cr and above, standalone primary dealers, IFCs, IDFs, HFCs, and CICs with asset size Rs 100 Cr and above. Enhanced regulations on governance, capital, and disclosure.
Upper Layer (UL): Top 10 NBFCs by asset size (as identified by RBI), plus any NBFC specifically identified by RBI based on parameters including size, interconnectedness, substitutability, and complexity. Currently includes entities like Bajaj Finance, Muthoot Finance, Shriram Finance, etc. Subject to bank-like regulation.
Top Layer (TL): Ideally empty. NBFCs placed here if RBI perceives specific risk from an Upper Layer NBFC. Most stringent regulation.

Eligibility Criteria for NBFC Registration

Company Incorporation

The applicant must be a company registered under the Companies Act, 2013 (or the Companies Act, 1956). An LLP, partnership firm, proprietorship, or Section 8 company cannot obtain NBFC registration. The company must be incorporated as either a Private Limited Company or a Public Limited Company. However, certain NBFC types (NBFC-P2P, NBFC-AA) may have additional structural requirements.

Net Owned Fund Requirements (as of 2026)

NBFC-ICC (standard): Minimum NOF of Rs 10 Cr at the time of application. This was enhanced in a phased manner — Rs 5 Cr by 31 March 2025 and Rs 10 Cr by 31 March 2027 for existing NBFCs. New applicants must have Rs 10 Cr NOF upfront.
NBFC-MFI: Rs 5 Cr (Rs 2 Cr for NBFCs registered in North Eastern Region).
NBFC-P2P: Rs 2 Cr.
NBFC-AA: Rs 2 Cr.
NBFC-IFC: Rs 300 Cr.
NBFC-HFC: Rs 25 Cr.
CIC (systemically important): Adjusted net worth of 30% of aggregate risk-weighted assets.

Principal Business Criteria

The company must satisfy the asset-income test: financial assets must constitute more than 50% of total assets AND income from financial assets must constitute more than 50% of gross income. Financial assets include loans and advances, inter-corporate deposits and loans, investments in shares, debentures, bonds, government securities, and other financial instruments. If the company does not meet this test, it is not carrying on NBFC business and does not require RBI registration — even if it engages in some lending activity as ancillary to its main business.

Step-by-Step NBFC Registration Process

Step 1: Incorporate the Company

Incorporate a Private Limited Company or Public Limited Company through the SPICe+ form on the MCA portal. The MOA must include objects related to financial activities — lending, investment, hire purchase, insurance broking, or other NBFC activities as applicable. Ensure the authorised capital is sufficient to accommodate the required NOF. For an NBFC-ICC, we recommend an authorised capital of at least Rs 15 Cr (Rs 10 Cr for NOF compliance plus buffer for operational expenses before profitability).

Step 2: Infuse Capital and Build NOF

The paid-up equity share capital and free reserves must aggregate to at least the minimum NOF before applying to RBI. The capital must be actually received and reflected in the company’s bank account and audited/certified financial statements. RBI verifies the source of funds — the capital must come from legitimate, identifiable sources. Capital infused through layered entities, circular transactions, or funds of doubtful origin will lead to rejection.

Obtain a Statutory Auditor’s certificate confirming the NOF computation as on the date of the application. The certificate must be on the auditor’s letterhead with UDIN.

Step 3: Prepare and File Online Application with RBI

File the application online through the RBI’s COSMOS portal (Company-wise Online Supervisory Monitoring System). The application form requires:

Company details — CIN, PAN, registered office, directors, shareholding pattern
Business plan for the next 3 years — projected balance sheet, P&L, capital adequacy, product lines, target customer segments, geographical reach
Fair practices code and KYC/AML policy
IT infrastructure details — core banking system, data security, disaster recovery
Details of group entities and connected lending (if any)
Director fit and proper declarations — educational qualifications, experience, net worth, no criminal convictions, no disqualifications
Auditor’s certificate on NOF
Certified copies of MOA, AOA, Board Resolution authorising the application
CIBIL/credit reports of promoters and directors

Step 4: RBI Scrutiny and Due Diligence

After filing, the Regional Office of RBI where the company’s registered office is situated examines the application. RBI conducts due diligence on promoters and directors, including verification of antecedents, financial track record, and source of funds. RBI may call for additional information, clarifications, or personal hearings with promoters. The scrutiny period typically takes 6-12 months.

Common reasons for RBI queries during scrutiny:

Inadequate business plan — no clear lending strategy, unrealistic projections
Promoter antecedents — pending litigations, adverse CIBIL score, association with defaulting entities
Source of capital not satisfactorily explained
MOA objects too broad or not aligned with NBFC activity
Insufficient IT infrastructure or governance framework
Directors not meeting fit and proper criteria

Step 5: Certificate of Registration (CoR)

If RBI is satisfied, it issues a Certificate of Registration (CoR) under Section 45-IA. The CoR specifies the type of NBFC and whether the company is authorised to accept public deposits (most new NBFCs are registered as non-deposit-taking). The NBFC can commence financial business only after receiving the CoR.

Practitioner Insight — CA V. Viswanathan, IBBI/RV/03/2019/12333

At Virtual Auditor, the single biggest factor determining NBFC application success or rejection is the quality of the business plan. RBI expects a detailed, credible 3-year projection with specific target segments, product design, pricing rationale, credit risk framework, and technology infrastructure. Generic plans copied from templates are immediately flagged. We prepare each business plan from scratch, incorporating the promoter’s specific domain expertise, target geography, and competitive positioning. The second critical factor is the promoter’s background — RBI conducts extensive due diligence, and even a single adverse remark in the promoter’s credit history can delay or derail the application. We advise clients to clean up their credit profiles 6-12 months before filing the application.

Ongoing Compliance After NBFC Registration

Capital Adequacy (CRAR)

Under the SBR Framework, NBFCs must maintain a minimum Capital to Risk-weighted Assets Ratio (CRAR):

Base Layer NBFCs: 15% CRAR
Middle Layer NBFCs: 15% CRAR, of which Tier I capital must be at least 10%
Upper Layer NBFCs: 15% CRAR (9% Common Equity Tier 1). Additionally required to maintain a Common Equity Tier 1 capital conservation buffer of 2.5%.

Asset Classification and Provisioning (IRACP Norms)

NBFCs must classify their loan assets and make provisions in accordance with the Income Recognition, Asset Classification, and Provisioning (IRACP) norms:

Standard assets: 0.40% provision (0.25% for NBFC-MFI on qualifying assets)
Sub-standard assets: 10% provision (unsecured — 10%; secured — 10%). Loans overdue for more than 90 days classified as sub-standard.
Doubtful assets: 20-100% depending on period and security. Assets remaining sub-standard for 12 months become doubtful.
Loss assets: 100% provision.

From 1 April 2026, RBI’s Expected Credit Loss (ECL) framework will apply to Middle Layer and Upper Layer NBFCs (implementation deferred from the originally announced date — verify current timeline). ECL requires forward-looking provisioning based on probability of default, loss given default, and exposure at default.

Regulatory Returns and Filings

NBS-7 (Quarterly return): Quarterly return on deposits, prudential norms, balance sheet. Filed within 15 days of quarter end.
ALM Returns (NBS-ALM1, ALM2, ALM3): Asset-Liability Mismatch returns. Monthly for NBFCs with asset size above Rs 100 Cr. Quarterly for others.
Statutory Audit: Annual audit by a Chartered Accountant. The audit must cover compliance with IRACP norms, CRAR computation, ALM, KYC/AML, Fair Practices Code, and other RBI directions.
Annual Return to RBI: Certified by the statutory auditor, covering compliance with all Master Direction requirements.
Branch opening/closure intimation: 30 days’ prior notice to RBI for opening new branches.
Change in management/directors: Prior approval of RBI for change in control, and fit and proper certification for new directors.

Fair Practices Code (FPC)

Every NBFC must adopt a Board-approved Fair Practices Code in line with RBI’s guidelines. The FPC must cover loan application and processing, interest rate methodology (must be on reducing balance), pre-payment/foreclosure charges (nil for floating rate loans to individuals), recovery practices (no harassment, no threatening), grievance redressal mechanism, and disclosure of all charges upfront.

KYC/AML Compliance

NBFCs must comply with the Prevention of Money Laundering Act (PMLA), 2002 and RBI’s Master Direction on KYC, 2016. This includes customer due diligence (CDD), enhanced due diligence (EDD) for high-risk customers, suspicious transaction reporting (STR) to Financial Intelligence Unit (FIU-IND), and cash transaction reporting (CTR) for transactions above Rs 10 lakh.

NBFC-Fintech Considerations

Digital Lending Guidelines (September 2022)

RBI’s Digital Lending Guidelines (issued 2 September 2022) significantly impact NBFCs that lend through digital platforms or partner with fintech companies (Lending Service Providers — LSPs). Key requirements:

All loan disbursements and repayments must flow directly between the NBFC’s bank account and the borrower’s bank account — no pass-through of funds via third-party accounts.
The Key Fact Statement (KFS) must disclose all charges, annual percentage rate (APR), and cooling-off/look-up period.
First Loss Default Guarantee (FLDG) by LSPs is permitted up to 5% of the outstanding loan portfolio.
Borrower data collected by LSPs must be purpose-limited, with explicit consent. Data must not be stored with the LSP beyond the loan tenure.
The NBFC remains fully responsible for regulatory compliance even when origination is through an LSP.

Practitioner Insight — CA V. Viswanathan

Many fintech founders approach us wanting to start a “lending app” without understanding that the regulatory capital requirement alone is Rs 10 Cr. For early-stage fintechs that do not have Rs 10 Cr to deploy, we advise two alternatives: (1) partner with an existing NBFC as a Lending Service Provider (LSP) under the Digital Lending Guidelines — this requires no NBFC licence but limits the fintech to lead generation, credit scoring, and collection services; or (2) consider acquiring an existing NBFC with a valid CoR — NBFC acquisitions require prior RBI approval for change in control, and the process takes 3-6 months, but it can be faster than a fresh application. At Virtual Auditor, we assist with both — NBFC registration from scratch and NBFC acquisition due diligence and regulatory approvals.

Common Reasons for NBFC Application Rejection

Based on publicly available RBI data and our experience at Virtual Auditor, the most frequent grounds for rejection include:

Insufficient NOF: Capital not actually available in the company’s accounts, or NOF computation includes inadmissible items.
Promoter antecedents: Directors or promoters with adverse credit history, ongoing litigations, or association with entities that have been penalised by regulators.
Inadequate business plan: No clear lending strategy, unrealistic projections, absence of risk management framework.
MOA deficiencies: Objects clause too broad, not specifically covering NBFC activities, or including prohibited activities.
Non-compliance with fit and proper criteria: Directors lacking relevant financial sector experience.
Source of funds concerns: Capital infused through multiple layers of entities, circular transactions, or funds from unverifiable sources.
IT infrastructure gaps: No credible plan for technology systems, data security, or disaster recovery.

NBFC Registration: Summary of Requirements

Parameter	NBFC-ICC	NBFC-MFI	NBFC-P2P
Minimum NOF	Rs 10 Cr	Rs 5 Cr	Rs 2 Cr
Company type	Pvt Ltd / Public Ltd	Pvt Ltd / Public Ltd	Pvt Ltd / Public Ltd
CRAR	15%	15%	N/A (no lending)
Deposit acceptance	Only with specific RBI approval	Not permitted	Not permitted
RBI processing time	6-12 months	6-12 months	4-8 months
Key regulation	SBR Master Direction	SBR + MFI Regulatory Framework	P2P Master Direction 2017

Virtual Auditor assists with company incorporation, NOF structuring, business plan preparation, RBI application filing, and ongoing compliance. Book a free consultation | View pricing.

Penalty for Operating Without NBFC Registration

Under Section 45-IA(6) of the RBI Act, if any company commences or carries on NBFC business without obtaining a Certificate of Registration, it shall be punishable with imprisonment for a term which shall not be less than 1 year but which may extend to 5 years, and with fine which shall not be less than Rs 1 lakh but which may extend to Rs 25 lakh. Additionally, RBI can issue directions under Section 45-MA prohibiting the company from accepting deposits or disbursing loans, and can petition for winding up under Section 45-MC.

Frequently Asked Questions

Can a Private Limited Company get NBFC registration?

Yes. Both Private Limited Companies and Public Limited Companies are eligible for NBFC registration with RBI. There is no requirement to be a public company. However, if the NBFC intends to accept public deposits, it must comply with the additional requirements under the NBFC-D (Deposit-taking) regulations, and in practice, RBI rarely grants deposit-taking permission to new NBFCs. Most new NBFCs are registered as non-deposit-taking (NBFC-ND).

Can a foreign company or NRI promoter set up an NBFC in India?

Yes, subject to FDI norms. Under the Consolidated FDI Policy, 100% FDI is permitted in NBFCs under the automatic route for 18 specified activities (merchant banking, underwriting, portfolio management, investment advisory, financial consultancy, stock broking, asset management, venture capital, custodial services, factoring, credit rating, leasing and finance, housing finance, forex broking, credit card business, money changing, micro credit, and rural credit). The Indian subsidiary or JV receiving FDI must meet the minimum capitalisation norms (currently Rs 10 Cr NOF) and FEMA compliance requirements. Press Note 3 of 2020 restrictions apply to investments from bordering countries.

What is the difference between NBFC registration and RBI licence?

RBI issues a Certificate of Registration (CoR) to NBFCs, not a “licence.” A licence is issued to banks under Section 22 of the Banking Regulation Act, 1949. The CoR allows the NBFC to carry on specific non-banking financial activities as specified in the registration. The CoR can be cancelled by RBI if the NBFC fails to comply with regulatory requirements, ceases to carry on NBFC business, or if it is in public interest to do so.

How long does the NBFC registration process take?

From company incorporation to CoR issuance, the process takes 8-18 months in total. Company incorporation: 2-3 weeks. Capital infusion and NOF build-up: 2-4 weeks. Business plan and application preparation: 4-6 weeks. RBI processing and scrutiny: 6-12 months. The RBI processing time depends on the quality of the application, the number of clarifications required, and the workload at the Regional Office. At Virtual Auditor, our applications typically clear in 6-9 months because we pre-empt common RBI queries through thorough documentation.

Can I lend through an app without NBFC registration?

No. Any entity carrying on the business of lending in India must either be an RBI-registered NBFC, a bank, or a cooperative society. Lending through a mobile app without NBFC registration is illegal and attracts criminal penalties under the RBI Act. However, a technology company can act as a Lending Service Provider (LSP) by partnering with a registered NBFC — the LSP handles technology, customer acquisition, and credit scoring, while the NBFC provides the regulatory licence, capital, and is the lender of record. This is the model adopted by most fintech lending apps in India post the Digital Lending Guidelines of September 2022.

Is NBFC registration required for a company lending only to its group entities?

It depends on whether the company meets the principal business criteria — financial assets exceeding 50% of total assets AND financial income exceeding 50% of gross income. If a company’s main business is manufacturing or trading, and it extends inter-corporate loans to group entities as an incidental activity (with financial assets below 50% of total assets), NBFC registration may not be required. However, RBI has the power to issue directions to any company it considers to be carrying on NBFC business. Consult a regulatory adviser before concluding that registration is not needed.

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