RBI approved NBFCs do not just provide speed, they design solutions specific to a business’s needs like revenue-based financing, working capital loans and equipment financing. Non Banking Financial Companies (NBFCs) are like a cousin to traditional banks. They help with money matters but follow different rules. However, there is a big brother watching. The RBI regulates NBFCs in several ways, including registration. credit rating. risk management, loan disbursement and more.
What are NBFCs?
Non bank financial companies (NBFCs) in India are entities that offer certain bank-like financial services but do not hold a banking license. NBFCs have grown in number and type, playing a key role in meeting the credit demand unmet by traditional banks. Moreover, NBFCs are registered under the Companies Act, 1956 and are regulated by the Reserve Bank of India (RBI). Examples of NBFCs include investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds, etc.
Types of NBFCs
There are many types of NBFC. Some of the most familiar are:
- Asset Finance Companies (AFCs): Finance assets like machinery, equipment, and vehicles
- Loan companies: Provide loans and advances to businesses and individuals.
- Infrastructure Finance Companies (IFCs): Fund infrastructure projects in sectors like transportation, telecommunications, roads, and power.
- Microfinance Institutions (MFIs): Provide small loans to low-income individuals and self-help groups
- Systemically Important Core Investment Company NBFC: These NBFCs have an asset size of at least Rs. 100 crore and accept public funds.
- Infrastructure Debt Fund NBFC: These NBFCs use bonds to raise money for long infrastructure projects.
- Non-banking financial company factor: These NBFCs have at least 50% of their income and assets directed towards the factoring business.
- Mortgage guarantee companies: These companies have 90% of their gross income invested in mortgage guarantee business.
- Non-operative financial holding company: A company that allows an individual or group to establish a new bank or other financial companies under the RBI.
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How are NBFCs different from banks
Well, they cannot accept demand deposits nor can they issue checks drawn on themselves. Moreover, NBFCs are not part of the payment and settlement system nor do they have to maintain Reserve Ratios (CRR, SLR, etc.). Additionally, they are not required to lend loans to the priority sector.
Importance of NBFCs in Financial Sector
In the world of finance, providing financing and credit is important to keep the money supply liquid and the economy working well. Not only do NBFCs provide alternate sources of loans, proponents say, they also offer more efficient ones. NBFCs cut out the middleman—the role banks often play—to let customers deal with them directly, lowering costs, fees, and rates, in a process called disintermediation. NBFCs ensure the Indian financial system is resilient, competitive and promotes investment in the country.
RBI Role in regulating NBFCs
The Reserve Bank has been given the powers under the RBI Act 1934 to register, lay down policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs that meet the 50-50 criteria of principal business.
What is the NBFC Approval Criteria?
For RBI licensing, there are several guidelines for NBFCs, including:
- Net-owned funds: The company must have a minimum of Rs. 10 crores in net-owned funds. The applicant must deposit this amount as a fixed deposit with a nationalized bank.
- Director experience: At least one-third of the company’s directors must have relevant work experience in the finance sector.
- Financial Activity: The company’s financial assets must make up more than 50% of its total assets, and its income from financial assets must make up more than 50% of its gross income.
- Compliance: The company must comply with the Foreign Exchange Management if it plans to have foreign investment.
- Reserve fund: The company must create a reserve fund and transfer at least 20% of its net profit to it each year.
Other guidelines for NBFC registration include:
- Acquiring a DSC and DIN for the directors
- Applying for name approval
- Obtaining an affidavit from directors to meet RBI provisions
- Drafting MOA and AOA
- Filing incorporation forms with the necessary documents
- Obtaining a Certificate of Registration from the Registrar of Companies (RoC)
Once all these checks are completed, the RBI issues an application reference number (ARN), which can be used to check the status of the application. If satisfied, the RBI will then issue an NBFC license to the company. The NBFC must then submit regular financial and prudential reports to the RBI for monitoring and supervision.
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Benefits of RBI Approved NBFCs
We outline a few reasons why being RBI approved can bring benefits beyond compliance, including enhanced credibility, market access, investor confidence, and long-term sustainability.
- Credibility and Trust: Gain a mark of trust in the financial industry, signaling to clients, investors, and counterparties that your firm meets rigorous regulatory standards and is committed to ethical conduct. This can attract institutional investors, wealth managers, and other stakeholders who have to invest with authorised entities.
- Legal Requirement: Getting RBI authorised is often a legal requirement for engaging in many financial activities in India. Conducting a regulated activity by way of business without proper approvals can result in significant penalties and legal repercussions, making compliance an essential prerequisite for businesses.
- Market Access and Business Opportunities: Open doors to wider market access as many institutions and investors dictate that they will only work with independently authorised entities. This can lead to increased business opportunities, partnerships, and client acquisition, enhancing your firm’s growth potential.
- M&A Advantage: Independently owned, operated, and regulated firms are strong targets in the M&A landscape. Their autonomy and compliance showcase stability, making them attractive to potential mergers or acquisitions. This strategic edge enhances the firm’s value proposition, appealing to growth-focused investors and acquirers.
- Risk Mitigation: Reduce regulatory and operational risks that emerge as your business grows by ensuring your firm operates within a regulated framework that creates a structure you can trust.
List of RBI registered NBFCs
Here is a list of the top 10 licensed NBFCs:
- LoanTap
- Aditya Birla Finance Limited
- Mahindra & Mahindra Financial Services Ltd
- Bajaj Finance Limited
- Tata Capital Finance Service Limited
- Shriram Finance Limited
- Muthoot Fincorp
- HDB Financial Services Limited
- IIFL Finance
- Finnable
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How to check if an NBFC is approved by RBI?
Online verification process
The RBI regularly updates its list of approved NBFCs. To check if a NBFC is approved by RBI, you can:
- Visit the RBI website
- Go to Sitemap
- Select NBFC List
Offline verification process
You can also verify whether an NBFC is RBI approved by visiting the RBI office and confirming the following details:
- Checking its registration number
- Verifying its company information
- Reviewing its company reputation.
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Compare Interest Rates of Different Bank and NBFCs for business Loan
| Bank/ NBFCs | Interest Rate | Tenure | Processing Fee | Apply Now |
| SBI Bank Business Loan | 14% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| IndusInd Bank Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| SMFG Business Loan | 17% – 21% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Bank of Baroda Business Loan | 17% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| HDFC Business Loan | 14% – 18% p.a. | 1-4 years | Up to 2% of loan amount | Apply Now |
| ICICI Bank Business Loan | 16% – 18% p.a. | 1-4 years | Up to 2% of loan amount | Apply Now |
| Axis Bank Business Loan | 15% – 18% p.a. | 1-4 years | Up to 2% of loan amount | Apply Now |
| Standard Chartered Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Deutsche Bank Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Kotak Mahindra Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| RBL Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| IDFC First Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Aditya Birla Finance Ltd Business Loan | 17%-18% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Yes Bank Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Tata Capital Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Hero Fincorp Ltd Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Bajaj Finserv Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| NeoGrowth Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| U Gro Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
Latest Updates on NBFCs
The RBI is tightening regulations for private equity and venture capital funds invested in NBFCs. The RBI is pushing for ‘observers’ appointed by these funds to become directors, holding them accountable for governance and preventing potential liabilities from frauds or misconduct.
The total number of NBFCs registered with the RBI stood at 9,443 as of March 31, 2023. Of the total, non-deposit-taking NBFCs (NBFC – ND) number 8,966, systemically important non-deposit-taking NBFCs number 413, and deposit-taking NBFCs are just 39, RBI data shows.
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Conclusion
RBI approved NBFCs in India are becoming a popular choice for quick, flexible, and accessible loan solutions. NBFCs provide a wide range of financial services, including personal loans, business loans, vehicle loans, home loans, education loan, microfinance and more. come in and offer fast and efficient financial services that meet the immediate needs of consumers.
According to a report by the State Bank of India (SBI), India’s NBFC sector is now the third largest in the world, after the United States and the United Kingdom. Undoubtedly, the future of NBFCs in India is promising, driven by their adaptability and market-centric approach.
FAQs
Q.1 Which 4 NBFCs are banned by the RBI?
The Reserve Bank of India (RBI) has banned four NBFCs from issuing new loans due to excessive interest rates and non-compliance with regulatory norms: Asirvad Micro Finance, Arohan Financial Services, DMI Finance and Navi Finserv.
Q.2 What is an RBI approved NBFC?
According to the RBI, a NBFC is approved when:
- It is registered under the Companies Act, 1956 or 2013
- Provides banking services without meeting the legal definition of a bank
- Offers financial products like loans, credit facilities and investment services
Q.3 Which loan companies are approved by the RBI?
Top loan companies that are approved by RBI are:
- Bajaj Finserv
- Kotak Mahindra
- IDFC First Bank
- Dhani
- MoneyView
Q.4 Are the RBI-registered NBFC apps secure for sharing personal and financial information?
Yes, RBI-registered NBFCs must follow data protection guidelines, making these apps secure for sharing sensitive information.
