What is NBFC?
An NBFC, or Non-Banking Financial Company, is a company engaged in specified financial activities such as lending and investment and regulated by the Reserve Bank of India under the applicable NBFC framework. NBFCs provide credit to individuals, businesses, and specialised borrower segments, but they are not banks and do not have all the functions or permissions of banks.
The Role of Non-Banking Financial Companies
NBFCs play an important role in India's formal credit ecosystem by providing financing across different customer and asset segments. Depending on their business model, NBFCs may finance vehicles, equipment, businesses, infrastructure, or specific borrower groups.
An NBFC can therefore serve a different financing need from a bank without being a substitute for a bank in every respect. Its permitted activities, customer segments and regulatory requirements depend on its classification and applicable RBI framework.
How Do NBFCs Work?
NBFCs raise funds through permitted sources and deploy them into regulated financial activities, including lending and investment, according to their authorisation and business model. When a customer applies for an nbfc loan, the lender assesses the application using its applicable credit, risk, eligibility, and documentation requirements.
A typical lending process involves:
- selecting a suitable loan product
- submitting an application and required information
- completing applicable KYC and verification
- assessment of creditworthiness and repayment capacity
- sanction and documentation, where approved
- disbursement after applicable conditions are fulfilled
- repayment according to the agreed loan terms
The exact process varies between NBFCs and loan products. Approval is not automatic simply because an applicant meets a general eligibility condition.
Types of NBFCs in India
The RBI's regulatory classification of NBFCs has evolved over time. Under the current scale-based framework, NBFC-ICC is an important broad category, while specialised categories continue for particular activities. The older AFC, LC and IC terminology therefore needs to be understood in its regulatory context rather than treated as the complete current classification system.
1. Asset Finance Company (AFC)
Asset Finance Company (AFC) is a classification used in the earlier NBFC regulatory structure for companies principally financing physical assets used for productive or economic activity.
Under the current framework, the earlier AFC, Loan Company, and Investment Company classifications were consolidated into the broader Investment and Credit Company framework. Therefore, AFC should not be presented as a standalone primary classification without explaining this regulatory evolution.
2. Loan Company (LC)
A Loan Company (LC) was an earlier NBFC classification associated primarily with providing finance through loans and advances. It is important to distinguish this historical classification from the current RBI structure.
The present framework uses broader and specialised NBFC categories, including NBFC-ICC, rather than treating LC as the complete standalone taxonomy for today's NBFC sector.
3. Investment Company (IC)
An Investment Company (IC) was another classification under the earlier NBFC structure, associated primarily with the acquisition of securities.
It should not be confused with a mutual fund, stockbroker or investment adviser. Under the current regulatory framework, the earlier IC classification has been incorporated into the broader Investment and Credit Company structure where applicable.
4. Infrastructure Finance Company (IFC)
An Infrastructure Finance Company (IFC) is a specialised NBFC category focused on infrastructure financing and remains distinct within the RBI's regulatory framework.
Because IFCs are subject to category-specific regulatory requirements, their classification and permitted activities should be understood from the applicable RBI directions rather than from generic descriptions of NBFCs. RBI's regulatory material continues to identify NBFC-IFC as a specialised category.
5. NBFC-MFI and Other Categories
NBFC-MFI refers to a specialised category serving the microfinance segment under the applicable RBI framework. Other specialised categories include entities such as factoring companies, infrastructure debt funds, account aggregators, peer-to-peer lending platforms and core investment companies, each subject to its relevant regulatory framework.
Fast, Simple, Minimal Documentation
5 Benefits Of Getting A Loan From NBFC
The benefits of an nbfc loan depend on the lender, product, and borrower profile. Unlike a one-size-fits-all claim that NBFCs are easier or faster than banks, the practical advantages can include specialised financing, product-specific lending and alternative access to formal credit.
- Product-specific financing: Many NBFCs focus on particular segments such as vehicles, equipment, MSMEs or microfinance.
- Specialised lending models: An NBFC may develop products around the requirements of a particular borrower segment or asset class.
- Multiple financing options: Depending on the institution, customers may find products covering personal, vehicle, business or specialised financing needs.
- Digital and physical access: Some NBFCs provide online application channels alongside branches or authorised channels.
- Alternative formal credit channel: NBFCs provide another regulated source of credit alongside banks, subject to their applicable lending and risk policies.
These benefits do not mean every NBFC offers easier approval, lower interest rates or faster disbursal than every bank. Those outcomes depend on the individual lender, product, and applicant.
Difference Between NBFC, Private and Government Banks
NBFCs, private-sector banks and public-sector banks all participate in India's formal financial system, but they operate under different regulatory and business frameworks.
| Feature | NBFC | Private Sector Bank | Public Sector Bank |
| Institution | Non-bank financial company | Banking company | Banking company with public-sector ownership |
| Regulation | RBI's applicable NBFC framework | RBI's banking framework | RBI's banking framework |
| Lending | Permitted lending activities | Lending and banking services | Lending and banking services |
| Demand deposits | Cannot accept demand deposits like banks | Can accept deposits under a banking licence | Can accept deposits under banking licence |
| Deposit insurance | Depends on the applicable deposit framework; NBFC deposits are not equivalent to bank deposits | Eligible bank deposits covered under applicable DICGC framework | Eligible bank deposits covered under applicable DICGC framework |
| Business focus | Varies by NBFC category and activity | Broad banking services | Broad banking services |
The distinction matters because NBFC does not simply mean a smaller or less-regulated bank. NBFCs are regulated by RBI under the applicable NBFC framework, while banks operate under banking regulations.
RBI Guidelines for NBFCs
RBI regulates NBFCs through a framework covering areas such as registration, prudential requirements, governance, customer protection, and applicable conduct requirements. The current regulatory structure follows a scale-based approach, with different requirements applying according to the relevant NBFC category and regulatory layer.
Depending on the nature of the NBFC and its activities, applicable requirements can cover capital adequacy, risk management, KYC and anti-money-laundering obligations, fair practices, disclosures, credit information reporting and grievance redressal.
RBI regulation does not mean that every NBFC has identical products, pricing or eligibility criteria. Customers should therefore review the specific lender's terms before borrowing.
Eligibility Criteria for NBFC Loans
There is no single eligibility formula applicable to every nbfc loan. Requirements vary according to the lender, loan product, applicant profile, and the nature of the financing.
An NBFC may assess factors such as:
- identity and KYC information
- income or business details
- repayment capacity
- credit history
- existing financial obligations
- loan purpose
- security or collateral, where applicable
- product-specific documentation
For example, SK Finance's published loan terms require applicant information and documents for credit assessment, with the specific requirements depending on the facility. Its terms also state that sanction is subject to the company's assessment and discretion.
How To Apply For An NBFC Loan?
Applying for an nbfc loan generally involves submitting an application, completing KYC, and providing the information needed for credit assessment. The exact process, documents, and approval conditions vary by the lender and loan product.
Steps to Apply Online
- Choose the loan product: Select the financing option relevant to your requirement, such as a vehicle, business, or mortgage-linked loan.
- Submit the application: Enter accurate personal, business, and loan-related information through the lender's authorised website or digital channel.
- Complete KYC: Submit the identity, address and other documents requested for customer verification.
- Credit assessment: The lender reviews factors such as income or business cash flow, existing obligations, credit history, repayment capacity and security, where applicable.
- Review the offer: Before accepting, check the sanctioned amount, interest rate, fees, repayment schedule, security requirements, and other applicable terms.
- Complete documentation: Execute the required loan and security documents after accepting the applicable terms.
Offline Application Process of NBFC Loan
Borrowers can also apply through an authorised branch or lending representative, depending on the lender. The applicant submits the required form and supporting documents, completes KYC and undergoes the lender's credit assessment. An acknowledgement and applicable processing timeline should be provided according to the lender's process.
Verification and Approval Process of NBFC Loan
Verification can include checking submitted documents, customer information, credit bureau records, income or business details, and the proposed use of the loan. Approval is not automatic merely because an application has been submitted. The final decision depends on the lender's credit policy, the applicant's profile, and fulfilment of applicable conditions.
Loan Disbursement Timeline of NBFC Loan
There is no universal disbursement timeline for every nbfc loan. Funds are released only after the applicable pre-disbursement conditions and documentation are completed. Depending on the product, disbursement may be made through banking channels or another permitted method specified in the loan documents.
Why SK Finance is Your Ideal NBFC Choice?
The more useful question is whether a lender's products, eligibility requirements, service channels, and terms match the borrower's requirements. SK Finance offers financing products including commercial vehicle loans, car loans, tractor loans, construction equipment loans, two-wheeler loans, secured business loans and home-renovation mortgage loans.
For borrowers evaluating an NBFC, the relevant checks include the specific product available, applicable interest rate and charges, repayment structure, security requirements, documentation, and grievance-redressal mechanism. These details should be reviewed before accepting a facility.
Disclaimer
The information provided in this blog is for general awareness and informational purposes only. For complete details regarding our products and services, please visit the nearest branch.
SK Finance never asks customers to share OTPs, Pins, passwords or provide screen-sharing access through any communication channel.
