Non-Banking Financial Companies (NBFCs) are registered entities under the Companies Act and supervised by the Reserve Bank of India pursuant to Chapter III-B of the Reserve Bank of India Act, 1934. To qualify under Section 45-IA, an entity must satisfy the principal business criteria (50-50 test), wherein financial assets exceed 50 percent of total assets and income derived from financial assets exceeds 50 percent of gross revenue. Effective October 1, 2022, the RBI instituted the Scale Based Regulation (SBR) framework, categorizing the sector into four risk-weighted tiers: Base Layer (non-deposit entities below ₹1,000 crore assets, P2P platforms, and Account Aggregators), Middle Layer (deposit-taking NBFCs, Housing Finance Companies, and entities exceeding ₹1,000 crore assets), Upper Layer (top systemic entities subjected to bank-like common equity tier requirements), and Top Layer. NBFCs are statutorily prohibited from accepting demand deposits payable on call, do not form part of the automated interbank payment and settlement mechanism, cannot issue self-drawn payment cheques, and are excluded from deposit insurance protections administered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Regulatory guidelines mandate phased Net Owned Fund (NOF) enhancements reaching ₹10 crore by March 2027.
High-yield conceptual summaries for competitive exams and rapid revision.
A Non-Banking Financial Company is registered under the Companies Act and regulated by the RBI under Chapter III-B of the Reserve Bank of India Act, 1934.
Under the statutory 50-50 principal business test, an entity qualifies as an NBFC when financial assets exceed 50 percent of total assets and financial income exceeds 50 percent of gross revenue.
Section 45-IA of the RBI Act mandates every NBFC to obtain a Certificate of Registration and maintain minimum Net Owned Funds (NOF), slated to reach ₹10 crore by March 2027.
The Scale Based Regulation (SBR) framework, enforced on October 1, 2022, restructured NBFC supervision into a four-tiered regulatory hierarchy based on systemic risk.
The Base Layer (NBFC-BL) encompasses non-deposit-taking NBFCs with asset sizes below ₹1,000 crore, along with NBFC-P2P lending platforms and Account Aggregators.
The Middle Layer (NBFC-ML) incorporates all deposit-taking NBFCs (NBFC-D), non-deposit NBFCs with assets of ₹1,000 crore and above, and all Housing Finance Companies.
The Upper Layer (NBFC-UL) comprises the top NBFCs specifically identified by the RBI through a multi-factor quantitative scoring matrix evaluating size, interconnectedness, and complexity.
The Top Layer (NBFC-TL) remains an emergency supervisory tier, populated only when the RBI deems an Upper Layer entity to pose extraordinary systemic failure risks.
NBFCs are legally prohibited under Section 45-I(bb) from accepting demand deposits payable on call, such as standard savings and current accounts.
Unlike commercial banks, NBFCs do not participate in the clearing house operations of the payment and settlement system and cannot issue cheques drawn on themselves.
Deposits held with deposit-taking NBFCs are strictly not covered by the deposit insurance guarantees of the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Upper Layer NBFCs are mandated to maintain a Common Equity Tier 1 (CET1) capital ratio of at least 9 percent and implement Internal Capital Adequacy Assessment Processes.
Systemically Important Core Investment Companies (CICs) must hold at least 90 percent of their net assets in investments in equity shares, preference shares, or debt of group companies.
Under the Master Direction on Microfinance Loans (March 2022), NBFC-MFIs must ensure that microfinance loans constitute at least 75 percent of total assets for collateral-free household credit.
The RBI mandates prompt corrective action (PCA) frameworks for NBFCs failing to maintain prescribed Capital to Risk-Weighted Assets Ratios (CRAR) or exceeding Net NPA thresholds.
Under the RBI's Scale Based Regulation (SBR), how many top NBFCs by asset size are automatically placed in the 'Upper Layer' (NBFC-UL), subjecting them to bank-like prudential standards?
Verified Explanation
Under SBR guidelines, the Upper Layer (NBFC-UL) comprises the top 10 eligible NBFCs in terms of asset size, along with other entities identified by the RBI based on a parametric scoring methodology.
2ID: GK-BANK-00172
hardRBI Functions, Repo Rates & Monetary Policy
Under the RBI's Scale Based Regulation (SBR) framework for NBFCs, which tier includes deposit-taking NBFCs (NBFC-D) and non-deposit taking NBFCs with asset size of ₹1,000 crore and above?
Verified Explanation
Under SBR, the Middle Layer (NBFC-ML) comprises all deposit-taking NBFCs irrespective of asset size and non-deposit taking NBFCs with asset size of ₹1,000 crore and above.
3ID: GK-BANK-00222
mediumRBI Functions, Repo Rates & Monetary Policy
Under Section 45-IA of the Reserve Bank of India Act, 1934, what is mandatory for every Non-Banking Financial Company (NBFC) before commencing or carrying on financial business in India?
Verified Explanation
Section 45-IA of the RBI Act makes it mandatory for any NBFC to obtain a Certificate of Registration (CoR) from the RBI and maintain a minimum Net Owned Fund (NOF) before commencing financial operations.
4ID: GK-BANK-00227
hardHistory of Indian Banking & Nationalisation
Under the RBI's regulatory framework on factoring, what minimum percentage of its total assets and total income must a Non-Banking Financial Company - Factor (NBFC-Factor) derive from factoring business activities?
Verified Explanation
Under the revised Factoring Regulation framework, an NBFC-Factor must have financial assets in the factoring business constituting at least 50% of its total assets and earn at least 50% of its gross income from factoring business.
5ID: GK-BANK-00320
mediumRBI Functions, Repo Rates & Monetary Policy
Under the RBI Co-Lending Model (CLM) for priority sector lending, what minimum share of the loan must be retained by the NBFC on its own books?
Verified Explanation
Under the Co-Lending Model (CLM) guidelines issued by RBI in November 2020, the originating NBFC is mandatorily required to retain a minimum of 20% share of the individual loans on its books, with banks taking up to 80%.
In October 2021, which leading power sector non-banking financial company (NBFC) under the Ministry of Power became the 11th Maharatna CPSE in India?
Verified Explanation
In October 2021, Power Finance Corporation (PFC), the country's largest power sector non-banking financial institution under the Ministry of Power, was accorded 'Maharatna' status by the Government of India, becoming the 11th CPSE to receive this distinction.
7ID: GK-BANK-00090
hardHistory of Indian Banking & Nationalisation
Under the RBI's Scale Based Regulation (SBR) framework effective from October 2022, into how many regulatory layers are Non-Banking Financial Companies (NBFCs) classified?
Verified Explanation
Under the Scale Based Regulation (SBR) framework, NBFCs are categorized based on size, activity, and perceived risk into four layers: Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL).
8ID: GK-BANK-00513
hardRBI Functions, Repo Rates & Monetary Policy
Under the revised regulatory framework for NBFCs (Scale Based Regulation - SBR) introduced by RBI in 2022, which layer comprises NBFCs with top-tier systemic risk and potential for highest regulatory oversight?
Verified Explanation
The Scale Based Regulation (SBR) structure encompasses four layers: Base Layer, Middle Layer, Upper Layer, and Top Layer (NBFC-TL). The Top Layer is populated only if the RBI determines substantial increase in systemic risk among Upper Layer entities.
9ID: GK-BANK-00571
hardRBI Functions, Repo Rates & Monetary Policy
Under the RBI's Account Aggregator (AA) framework, which entity category acts as a consent-driven, data-blind intermediary enabling secure retrieval and sharing of a customer's financial data across institutions?
Verified Explanation
An NBFC-AA is a licensed entity that manages customer consent to share financial data between Financial Information Providers (FIPs like banks) and Financial Information Users (FIUs like lenders) without viewing, processing, or storing the actual financial data content (data-blind).
10ID: GK-BANK-00219
mediumHistory of Indian Banking & Nationalisation
Which specialized regulatory requirement defines a 'Core Investment Company' (CIC) under the Reserve Bank of India framework?
Verified Explanation
A Core Investment Company (CIC) is a non-banking financial company carrying on the business of acquisition of shares and securities which holds not less than 90% of its net assets in investments in group companies.