A Non-Banking Financial Company (NBFC) is a company registered in India under the Companies Act, 1956, that is engaged in the business of loans and advances, the acquisition of shares, stock, bonds, the hire-purchase insurance business, or the chit-fund business, but does not include any institution whose primary business is agriculture, industrial activity, the purchase or sale of any goods (other than securities).

The Reserve Bank of India (RBI) regulates the workings and activities of NBFCs through the Reserve Bank of India Act, 1934 (Chapter III-B) and the directives given by it. On November 9, 2017, the Reserve Bank of India (RBI) published a notice detailing the rules for non-bank financial institutions to outsource functions/services (NBFCs).

According to the new rules, NBFCs cannot outsource essential management services like as internal audit, investment portfolio management, strategy and compliance functions for know your customer (KYC) requirements and loan approval.

Employees of service providers should only have access to client information to the degree necessary to fulfil the outsourced function. NBFC boards should adopt a code of conduct for direct sales and recovery agents.

NBFCs and their outsourced debt collection agents shall not use any kind of intimidation or harassment in debt collection. All NBFCs have been required to establish a grievance redressal mechanism, which would also handle concerns pertaining to services supplied by the outsourced agency.


NBFCs provide duties comparable to banks, but with a few exceptions-

  • NBFCs offer banking services to persons who do not have a bank license
  • NBFCs provide banking services to customers without having a bank license.
  • An NBFC cannot take Demand Deposits; and an NBFC is not a member of the payment and settlement system.
  • An NBFC cannot issue cheques drawn on itself.
  • Unlike banks, NBFC depositors do not have access to the Deposit Insurance and Credit Guarantee Corporation's deposit insurance program.
  • Reserve Ratios are not necessary for an NBFC (CRR, SLR etc.)
  • An NBFC may not engage principally in agricultural or industrial operations, or in the sale or acquisition of real estate, or in the development of immovable property
  • Foreign investment is permitted up to a maximum of 100 percent.
  • An NBFC is a company that works in the financial sector and handles money