Non-Banking Financial Companies (NBFCs) in India are regulated by the RBI under a 'Scale-Based Regulation' framework introduced in 2022, which tiers NBFCs by size and risk into Base, Middle, Upper, and Top layers with correspondingly stricter governance and capital requirements. Fintech lending platforms that partner with NBFCs or banks are separately covered by RBI's Digital Lending Guidelines.
What counts as an NBFC and why it needs RBI registration
An NBFC is a company engaged principally in lending, investment, or other specified financial activities
but which does not hold a full banking license -- it cannot accept demand deposits the way a bank can.
NBFCs above certain asset thresholds must register with the RBI under Chapter III-B of the RBI Act, 1934,
and operating without required registration is itself an offence, with the RBI empowered to reject an
application, cancel an existing certificate, or direct the entity to cease its financial-business activities
entirely where the statutory conditions are not met.
The Scale-Based Regulation framework
Effective from October 2022, RBI's Scale-Based Regulation framework classifies NBFCs into four layers --
Base, Middle, Upper, and Top -- based on size, interconnectedness, and complexity, with governance, capital,
and disclosure requirements becoming progressively stricter at each layer. This was a deliberate move to
bring the largest, most systemically significant NBFCs closer to bank-like regulatory scrutiny following
several high-profile NBFC stress events, and NBFCs identified for the Upper Layer face additional
requirements including mandatory listing within a prescribed timeline and enhanced board-level risk
governance.
Fintech and digital lending -- the specific compliance layer
RBI's Digital Lending Guidelines (2022, with further clarifications since) require digital lending apps
to route loan disbursement and repayment directly between the borrower's bank account and the regulated
entity (bank or NBFC), without passing through the lending app's own account, and mandate clear disclosure
of the annual percentage rate and a cooling-off period for the borrower. Fintech platforms that merely
provide technology or marketing services to a regulated lender, without themselves holding or lending funds,
generally fall outside direct RBI registration but must still comply with these guidelines through their
lending partner, and the RBI has separately tightened scrutiny of data-collection practices and recovery-agent
conduct by digital lending apps following widespread consumer complaints in this space.
Can any company just start lending money in India without RBI registration?
Not if its business is principally financial in nature and it crosses the applicable asset thresholds --
such an entity generally needs NBFC registration under the RBI Act, and lending without required
registration is an offence.
Are all NBFCs regulated the same way?
No -- the Scale-Based Regulation framework tiers NBFCs into Base, Middle, Upper, and Top layers, with
materially different governance and capital requirements depending on the layer.
Can a digital lending app hold my loan repayment before passing it to the lender?
RBI's Digital Lending Guidelines generally require repayments to flow directly between the borrower and
the regulated lender's account, not through the lending app's own account, specifically to prevent
co-mingling and reduce fraud risk.
