Did you know that some of the biggest lenders driving India’s economy are not traditional banks but NBFCs (Non-Banking Financial Companies)? These entities play a crucial role by providing loans, funding infrastructure projects, supporting startups with growth capital, and much more.

But what exactly is an NBFC, and why are they so important? Let’s break it down.

What is an NBFC?

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act whose principal business involves financial activities such as:

• Granting loans and advances
• Acquiring shares, debentures, and bonds
• Leasing or hire-purchase

However, NBFCs do not make activities like farming, manufacturing, goods trading, or buying/selling immovable property their core business.

If a non-banking company accepts deposits from the public in installments or lump sums through schemes, it can be considered a residuary NBFC.

NBFCs are categorized based on liabilities, regulatory layers (Base, Middle, Upper, Top), and activities. In this blog, we’ll focus on the activity-based classification in simple terms.

Major Categories of NBFCs in India

1. Investment and Credit Company (ICC)

These NBFCs primarily deal with asset financing, providing loans and advances, and acquiring securities. They don’t fall under any other specific NBFC category defined by the RBI.

2. Housing Finance Company (HFC)

HFCs are specialized NBFCs that focus on housing finance. At least 60% of their total assets must be deployed in housing finance, and 50% of these assets should be loans provided to individuals for home purchases.

3. Infrastructure Finance Company (IFC)

IFCs invest at least 75% of their total assets in infrastructure lending, such as financing projects related to roads, power, and ports — typically long-term, capital-intensive projects.

4. Infrastructure Debt Fund (IDF-NBFC)

IDFs are non-deposit-taking NBFCs that refinance infrastructure projects that have successfully operated for at least one year after their Commercial Operations Date (COD). They can also directly fund Toll-Operate-Transfer (TOT) projects.

5. Core Investment Company (CIC)

CICs primarily invest in group companies’ shares, preference shares, debt, or loans.

Over 90% of their net assets must be in group investments.

Combined equity sponsor units must account for 60% or more of net assets.

They don’t trade except for block sales.

Their asset size is ₹100 crore or more and they accept public funds.

6. NBFC–Micro Finance Institution (NBFC-MFI)

MFIs must deploy at least 75% of their total assets in microfinance loans. These are collateral-free loans provided to low-income households (annual income up to ₹3,00,000), with flexible repayment schedules defined by a board-approved policy.

7. NBFC–Factors

These NBFCs specialize in receivables financing or factoring.

At least 50% of their total assets must be in factoring.

At least 50% of their gross income must come from factoring activities.

8. Mortgage Guarantee Company (MGC)

MGCs provide mortgage guarantees — guaranteeing repayment of principal and interest on housing loans. Over 90% of their turnover or income must come from this business.

9. Standalone Primary Dealer (SPD)

SPDs operate as primary dealers in the Government Securities market, participating in primary auctions, ensuring market liquidity, maintaining government securities, and meeting secondary market turnover norms.

10. Non-Operative Financial Holding Company (NOFHC)

NOFHCs are holding companies under private sector bank licensing guidelines. They hold shares of the group’s banking and other financial services companies, but do not accept deposits or conduct financial services directly.

11. NBFC–Account Aggregator (NBFC-AA)

AAs, with the customer’s consent, collect, consolidate, and present their financial data from various institutions. The data remains the customer’s property, and the aggregator cannot use it otherwise. This data-sharing framework supports open finance.

12. NBFC–P2P Lending Platform (NBFC-P2P)

P2P platforms connect borrowers and lenders online and act as intermediaries. They do not lend from their own balance sheets but follow strict marketplace rules, disclosures, and escrow-based fund flows.

Key Concept: What is Commercial Operations Date (COD)?

The Commercial Operations Date (COD) is the date when an infrastructure project (such as a highway, airport, or power plant) becomes operational and starts generating revenue. After COD, the project’s performance track record is established — a crucial factor for refinancing and investment decisions.

Why Understanding NBFCs Matters

Whether you’re exploring a career in lending, housing finance, infrastructure funding, or fintech and data sharing, understanding NBFC categories is essential. With the right license, compliance framework, and product-market fit, growth becomes significantly easier in the financial services industry.

NBFCs are not just an alternative to banks — they are vital enablers of India’s economic growth. From supporting small borrowers to financing multi-billion-dollar infrastructure projects, they form the backbone of the country’s evolving financial ecosystem.