Starting an NBFC business in India requires understanding who is eligible for NBFC registration with the Reserve Bank of India. Many entrepreneurs want to know who can apply for an NBFC license and what disqualifies them. The NBFC registration process involves strict eligibility criteria set by RBI to ensure financial stability and public protection.
Whether you are an existing financial company or a new business venture, you must meet specific legal and financial requirements. In this guide, we explain everything about NBFC registration eligibility and who cannot apply.
Understanding NBFC and the Principal Business Test
An NBFC is a company engaged in financial business and is treated as an NBFC by RBI when it meets RBI’s definition and criteria. RBI uses the 50-50 test (principal business criteria) to assess whether a company’s main business is financial. Under the 50-50 test, a company’s financial assets must be more than half of its total assets, and the income it earns from those financial assets must be more than half of its total income.
Key points to remember:
- If a company does not meet both these conditions, RBI usually does not treat it as an NBFC for licensing purposes.
- RBI expects the company’s documents and business intent to align with the financial activity it wants to conduct.
Who Can Apply for NBFC Registration?
Companies Eligible for NBFC Registration
Only companies incorporated under the Companies Act 2013 or the Companies Act 1956 can apply for NBFC registration. Both private limited and public limited companies can apply.
Basic eligibility criteria include:
- Legal entity is a company incorporated under the Companies Act.
- Principal business is financial activity such as lending, leasing, or investment.
- Financial strength meets the minimum Net Owned Fund (NOF) required by RBI.
- Governance structure includes a board with relevant finance experience.
- Business plan is ready, including a 5-year financial and operational plan.
- Promoters and directors have a clean background with no criminal history or financial fraud records.
Different NBFC Categories and Their Eligibility
RBI[1] recognises different types of NBFCs based on activities and size, and each category has specific requirements. Examples from the draft include:
- NBFC-ICC: ₹10 crore NOF.
- NBFC-MFI: 75% of assets in microfinance and ₹10 crore NOF.
- NBFC-Factors: 50% of assets in factoring and ₹10 crore NOF.
- NBFC-IFC: 75% of assets in infrastructure lending and ₹300 crore NOF.
- HFC: At least 60% of assets in housing finance and ₹20 crore NOF.
- NBFC-P2P: ₹2 crore NOF.
- NBFC-AA: ₹2 crore NOF.
Net Owned Fund (NOF) Requirements
NOF represents the company’s core capital strength and RBI expects a minimum NOF before an NBFC starts business. The draft lists these minimum NOF figures:
- NBFC-ICC, MFI, Factor: ₹10 crore
- NBFC-P2P, Account Aggregator: ₹2 crore
- NBFC-IFC, IDF-NBFC: ₹300 crore
- Housing Finance Company: ₹20 crore
NOF is calculated as paid-up equity capital plus free reserves, minus accumulated losses, intangible assets, and investments in group companies beyond 10%. RBI examines audited financial statements and bank certificates to verify NOF is genuine and not borrowed
Director Qualifications and Fit-and-Proper Criteria
RBI checks whether directors meet the fit and proper standard because governance quality affects approval. The draft lists these director expectations:
- Minimum number: At least two directors for private limited companies.
- Financial experience: One-third of directors must have finance-related experience of at least 10 years.
- Clean record: No criminal convictions, fraud charges, or financial defaults.
- Disclosure: Full disclosure of past regulatory action or legal proceedings.
- Independence: Independent directors cann’t serve on more than three NBFCs simultaneously.
Who Cannot Apply for NBFC Registration?
Companies with Non-Financial Principal Business
If the main activity is agriculture, industrial manufacturing, buying and selling goods (except securities), providing services, or buying and selling property, the company cannot be classified as an NBFC.
A company is classified as a financial institution (like an NBFC) only if its principal business is financial, which is determined by the 50-50 test. This means both its financial assets and the income from those assets must constitute more than 50% of its total assets and gross income, otherwise its lending activity is considered secondary.
Entities Already Regulated by Other Authorities
Some entities do not need NBFC registration because they are regulated by other authorities, as listed in the draft.
- SEBI-regulated entities such as stock brokers and merchant bankers.
- IRDAI-regulated insurance companies.
- Ministry of Corporate Affairs-related entities, like chit fund companies.
- State-regulated cooperatives and credit societies.
Companies with Inadequate Net Owned Funds
If the applicant cannot prove the minimum NOF for its NBFC type, RBI can reject the application. RBI verifies that capital is genuine and rejects temporary capital used only to meet NOF.
Unfit Promoters and Directors
RBI can reject applications when promoters or directors have criminal convictions for fraud or financial crimes, adverse credit history or defaults, or involvement in money laundering or terrorist financing. It also lists disqualification orders and a history of mismanagement or breach of trust as risk points.
Companies with Unclear Fund Sources
RBI requires clear proof of legitimate sources of funds for capital and NOF. It also states that weak AML and KYC compliance can lead to rejection under PMLA expectations.
Companies with Improper Memorandum of Association (MoA)
MoA main object clause must clearly mention financial activities like lending, leasing, or investment as the primary purpose. If the MoA does not align with the intended NBFC activity, RBI can reject the application.
Companies Lacking Governance and Risk Management
RBI expects systems for compliance, risk management, and internal controls before granting registration. It also lists examples of gaps that can lead to rejection.
- No audit and governance framework.
- No internal audit and risk management policies.
- No compliance officer with authority.
- No fair practices code for customer dealings.
- No IT security policies and weak documentation systems.
NBFC DSA (Direct Selling Agent) Registration vs. NBFC Company Registration
NBFC company registration means the company gets a Certificate of Registration (CoR) from RBI to conduct financial business itself. NBFC DSA registration online refers to working as a partner or agent for an existing NBFC to source customers and submit applications, usually for commission. It also states DSA requirements are simpler, such as being 18+ with identity and address proof and a background verification, and it does not require minimum capital.
Common Reasons for NBFC Registration Rejection
Applications commonly fail when the company does not satisfy RBI’s principal business criteria for being treated as an NBFC. RBI can also raise issues where governance and compliance readiness does not align with expectations under the RBI directions. RBI’s review is also influenced by whether the applicant’s structure, plans, and records support safe and compliant operations.
Common issues RBI flags:
- Principal business criteria not met.
- Weak governance and compliance readiness for a regulated finance business.
- Gaps in documentation and internal control preparedness are relevant to RBI’s supervisory expectations.
Application Process and Documentation
RBI requires applicants to submit information and documents to allow a proper assessment of eligibility and readiness. RBI’s evaluation focuses on whether the applicant is fit to operate a regulated financial business under the relevant directions.
Typical document groups include:
- Incorporation records and constitutional documents.
- Board approvals and a clear business plan aligned to the intended NBFC activity.
- Financial records and ownership and funding information are needed for regulatory comfort.
- KYC and background details for promoters and directors as part of suitability review.
- Compliance and governance policies aligned to RBI expectations under the NBFC framework.
Conclusion
NBFC registration is achievable when the company structure, NOF, governance, and promoter profile match RBI expectations described in the draft. The best way to reduce rejection risk is to confirm the 50-50 test position, keep NOF evidence ready, align the MoA with the intended activity, and prepare core policies before filing.
If your plan is only customer sourcing, NBFC DSA registration online can be a separate path because it is an agent model, not RBI licensing. If you need help on any business compliance-related query, you can trust Advisou for reliable guidance. Get in touch with Advisou for an eligibility check, a document gap review, and complete support for filing and follow-ups.
Also Read: NBFC License Canceled by RBI: What to Do?
