Starting a finance company can be a fruitful venture in the current state of affairs. Why? Well, the answer is straightforward. The demand for credit in India across diverse industries and societies is hitting new benchmarks. People and businesses are consistently looking for loans to fuel their financial goals. Although traditional banks can cater to this growing demand, they might struggle to grant loans to a massive audience due to strict RBI rules.
That’s where a private finance company comes into play. Just like conventional lenders, they can grant loans, but only up to a limit decided by the Reserve Banks. Yet, they have a lot of potential to grow. If you want to know how to start a finance company in India, now is the right time. But how would you suppose to do that? Well, the roadmap to start a Finance company in India is right here to ease the blow. So, let’s get started!
Choosing the Right Business Model
Before you approach the regulators, you must decide which “vehicle” suits your business goals. In 2026, the primary models for a finance company in India include:
A. Non-Banking Financial Company (NBFC)
This is the most popular choice for professional lenders. NBFCs provide banking-like services such as loans and credit facilities, but cannot accept demand deposits (savings/current accounts) or issue checks.
B. Microfinance Institution (MFI)
MFIs focus on financial inclusion, providing small-ticket loans to low-income households. The RBI has recently updated the “qualifying assets” criteria, making this a specialized but rewarding niche.
C. Nidhi Company
If you want to create a mutual-benefit society where members lend and borrow amongst themselves, a Nidhi Company is the way to go. It is regulated by the Ministry of Corporate Affairs (MCA) and is easier to start than an NBFC, though its scope is limited to its members.
D. Section 8 (Micro-Lending)
Previously popular among non-profits, the MCA has significantly restricted Section 8 companies’ ability to engage in commercial microfinance. In 2026, this model is strictly reserved for charitable lending and social impact projects.
The 2026 Regulatory Landscape: Scale-Based Regulation (SBR)
The RBI now regulates finance companies under a Scale-Based Regulation (SBR) framework. This tiered system ensures that the level of scrutiny matches the systemic risk of the company:
- Base Layer (NBFC-BL): Most new finance companies start here. It includes non-deposit-taking NBFCs with assets below ₹1,000 crore.
- Middle Layer (NBFC-ML): For larger entities and all deposit-taking NBFCs.
- Upper Layer (NBFC-UL): Reserved for the top 10-15 systemic NBFCs in India.
A: New Exemption (Type I NBFCs): As of 2026, the RBI has introduced a “light-touch” category for entities that have no public funds and no customer interface. If you are running a private investment vehicle with your own capital, you may be exempt from mandatory registration, provided your assets are under ₹1,000 crore.
Financial Requirements: The “Net Owned Fund” (NOF)
The biggest hurdle for most entrepreneurs is the capital requirement. The RBI has increased the entry barrier to ensure only serious players enter the market.
- Standard NBFC: For a new Certificate of Registration (CoR), you generally need a minimum Net Owned Fund (NOF) of ₹10 crore.
- NBFC-MFI: The requirement is also ₹10 crore (though certain regions like the North-East may have lower thresholds).
- Nidhi Company: Requires a minimum capital of ₹10 lakh (increased from previous years) and must reach 200 members within a year.
Crucial Tip: The NOF must be “clean” capital. The RBI conducts a rigorous check on the source of funds to prevent money laundering.
Step-by-Step Registration Process
Step 1: Company Incorporation
You must first register a company under the Companies Act, 2013. It can be a Private Limited or Public Limited company. Ensure your Memorandum of Association (MOA) explicitly states that the “Principal Business” is financial services.
Step 2: Assemble a “Fit and Proper” Management
The RBI[1] is very selective about who runs a finance company. At least one-third of your directors must have relevant experience in banking or finance. All directors must pass the “Fit and Proper” criteria, meaning they must have:
- A clean criminal record.
- A strong CIBIL/Credit score.
- No history of involvement with defaulted financial institutions.
Step 3: Deposit the NOF
Open a bank account in the company’s name and deposit the required ₹10 crore (or applicable amount). You will need a “No Lien” certificate from the bank, proving that the money is free from any encumbrances and ready for business use.
Step 4: Online Application (COSMOS & PRAVAAH)
In 2026, applications are filed through the RBI’s digital portals (COSMOS or the new PRAVAAH portal). You will need to upload:
- Certified copies of the Certificate of Incorporation.
- The MOA and AOA.
- A Detailed Business Plan for the next 3-5 years.
- The Statutory Auditor’s Certificate regarding the NOF.
Step 5: Hard Copy Submission
After the online filing, a physical copy of the application must be submitted to the Regional Office of the RBI.
Ongoing Compliance: Post-License Duties
Getting the license is just the beginning. To keep it, you must adhere to:
- Fair Practices Code: A board-approved policy on how you treat customers.
- KYC/AML Norms: Strict adherence to “Know Your Customer” and Anti-Money Laundering laws.
- Statutory Returns: Periodic reporting of your financial health to the RBI.
- Capital Adequacy: Maintaining a specific ratio of capital against your risk-weighted assets (usually around 15%).
Conclusion
Starting a finance company in India is a high-stakes, high-reward venture. While the ₹10 crore capital requirement and the 6–9 month approval timeline are significant barriers, the opportunity to serve India’s “unbanked” or “underbanked” population is immense.
Whether you are launching a specialized NBFC for gold loans or a high-tech digital lender, success depends on one thing: Regulatory Discipline. By following the 2026 roadmap and ensuring your compliance is bulletproof, you can build a financial institution that stands the test of time. And if you are unable to do so, contact Advisou without thinking twice.
Advisou is a trusted platform for license-seekers in India. Whether you are seeking RBI approval or want to build a business from scratch without the hassle of legal paperwork, Advisou won’t disappoint. Contact us now for a seamless business setup.
Also Read: How to Start a Lending Business in India?
FAQs
1. Can a foreign entity or NRI start a finance company in India?
Yes, 100% FDI is generally allowed under the automatic route, provided you comply with FEMA regulations and the RBI’s strict “Fit and Proper” checks for international promoters.
2. What is the difference between a Fintech startup and a licensed NBFC?
A Fintech is a technology platform that facilitates loans, while an NBFC is the regulated legal entity that holds the license to actually lend money from its own balance sheet.
3. Is it possible to buy an existing NBFC license instead of applying for a new one?
Yes, you can acquire an existing NBFC through a “takeover,” though this requires prior RBI approval if more than 26% of the shareholding or 30% of the management changes.
4. Can my finance company accept loan repayments in cash?
While small cash payments are allowed, Income Tax laws cap single-day receipts at ₹2 lakh, and the 2026 digital lending rules mandate direct bank-to-bank transfers for most transactions.
5. What happens if my capital falls below the ₹10 crore NOF requirement?
Maintaining the minimum NOF is a continuous mandate; if losses erode your capital, you must immediately inject funds or risk the RBI canceling your Certificate of Registration.
