Background:
A Non Banking Financial Company (NBFC) is a company registered under the Companies Act, engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

50-50 Test:
A NBFC has to fulfill 50-50 test in order to be categorised as NBFC by RBI. Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income.

NBFCs Vs. Banks:
NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Requirements for NBFC Registration with RBI:
A company desirous of commencing business of NBFI should comply with the following:
i. It should be a company registered under the Companies Act.
ii. It should have a minimum net owned fund of ₹ 200 lakh for a normal company. Specialised NBFCs have separate net owned fund requirements.

Procedure:
1. Register a company. Please read the previous sections for more information on how to register a company.
2. Apply for NBFC license with the Reserve Bank of India.