The Reserve Bank of India maintains a public FAQ titled "All you wanted to know about NBFCs" — fifty-two questions and answers that cover everything from what an NBFC is to what happens when one steals your money. Updated through February 2026, it is the RBI's most direct communication to the public about non-banking financial companies. Compliance officers use it as a reference. Depositors use it — too often — after they have already lost money.
The FAQ is not a regulatory direction. It does not create new rules. But it reveals how the RBI wants the existing rules understood — and its answers contain verbatim references to the statutes and directions that govern 9,500-odd registered NBFCs. The questions that matter most are the ones where the answer is not what the public expects.
See also: NBFC Regulation: The Complete Timeline | Is Your Money Safe in an NBFC? | Why NBFCs Aren't Banks | Core Investment Companies
What IS an NBFC — and how is it different from a bank?
The FAQ opens with the definition, and the definition is the first thing most people get wrong. An NBFC is not simply "a company that lends money." The RBI's FAQ Answer to Question 1 states:
"A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 or Companies Act, 2013, and 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, etc., as their principal 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."
The exclusions matter as much as the inclusions. A company that lends money but earns most of its income from manufacturing is not an NBFC — it is a manufacturing company with a sideline in finance. The classification is determined by the "50-50 test": financial assets must constitute more than 50% of total assets, and income from financial assets must constitute more than 50% of gross income. A company that fails this test falls under the Ministry of Corporate Affairs, not the RBI.
Question 3 of the FAQ addresses the distinction that matters most to every depositor:
"(1) NBFCs cannot accept demand deposits; (2) NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself; (3) Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to depositors of deposit taking NBFCs."
These three sentences describe the fundamental regulatory divide. Banks can take demand deposits (savings and current accounts) that customers can withdraw at will. NBFCs cannot. Banks participate in the payment system — they clear cheques, process RTGS transfers, settle through the RBI's systems. NBFCs do not. And when a bank fails, depositors recover up to Rs 5 lakh through DICGC insurance. When an NBFC fails, depositors are unsecured creditors with no insurance backstop.
The Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 now governs the regulatory architecture — a four-layer structure (Base, Middle, Upper, Top) that calibrates regulatory intensity to systemic risk. But the three structural prohibitions have not changed since the RBI first drew the line between banks and NBFCs. For the full analysis, see Why NBFCs Aren't Banks.
Which NBFCs can accept deposits — and why has the RBI frozen new authorisations since 1997?
The answer to this question is one of the most consequential regulatory decisions in Indian financial history. The FAQ states that only NBFCs holding "a deposit accepting Certificate of Registration" with "a minimum investment grade credit rating of 'BBB-' from any of the SEBI-registered credit rating agencies" are permitted to accept public deposits. The ceiling is 1.5 times Net Owned Funds.
What the FAQ does not say — but what every compliance officer must know — is that the RBI has not issued a single new deposit-acceptance authorisation since 1997. The mid-1990s saw a series of NBFC deposit crises. CRB Capital Markets collapsed in 1997, taking depositor money with it. The Peerless group's deposit schemes were the subject of prolonged litigation. The regulatory response was decisive: no new authorisations, and progressively tighter conditions for existing ones.
The NBFC Acceptance of Public Deposits Directions 2025 (Reserve Bank of India (Non-Banking Financial Compa) consolidated the current framework. The amendment chain — from the 1998 Notification DNBS.129 RBI/2011-12/17 (since withdrawn) through the 2016 Master Direction on NBFC Deposit Acceptance (Master Direction - Non-Banking Financial Companies) (since withdrawn) to the current 2025 Directions — traces a regulatory philosophy of managed decline. The number of deposit-accepting NBFCs shrinks every year. The RBI's direction is clear: NBFC deposit-taking is a legacy feature, not an expanding franchise.
The FAQ adds a critical detail about the interest rate ceiling: NBFCs cannot offer more than 12.5% per annum on deposits. The maturity period must be between twelve and sixty months — no demand deposits, no short-term deposits. These constraints exist because the RBI has learned that high interest rates on NBFC deposits are the primary lure for unsophisticated depositors who do not understand that their money is uninsured.
What recourse does a depositor have if an NBFC defaults?
The FAQ's answer to this question is where the gap between perception and reality is widest. Most depositors assume the RBI will recover their money. It will not. The RBI regulates NBFCs; it does not guarantee their deposits.
The FAQ Answer to Question 24 states:
"If an NBFC defaults in repayment of deposit, the depositor can approach the Company Law Board (now National Company Law Tribunal) or Consumer Forum or file a civil suit in a Court of Law to recover the deposits."
Three channels, all of which require the depositor to initiate legal proceedings at their own expense. The National Company Law Tribunal (NCLT) can direct the NBFC to repay, but only if the NBFC has assets to repay from. The Consumer Forum can award compensation, but enforcing the award against a defaulting NBFC is a separate challenge. A civil suit can take years.
The FAQ also references the role of the NCLT in protecting depositor interests: when an NBFC fails to repay deposits, "the CLB/NCLT either on its own motion or on an application from the depositor, direct by order, the NBFC to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order."
For NBFCs with deposit acceptance authorisation or assets of Rs 100 crore or more, the Reserve Bank Integrated Ombudsman Scheme, 2021 provides a grievance redress mechanism. But this applies to complaints about service quality and unfair practices — not to deposit recovery from an insolvent entity. See How the Ombudsman Changed Complaints.
At the state level, the FAQ cites a separate legal framework: the Protection of Interest of Depositors in Financial Establishments Acts enacted by various state governments. These laws allow state authorities to "attach and sell assets of the defaulting companies, entities and their officials." The central government's Banning of Unregulated Deposit Schemes Act, 2019 provides a "comprehensive mechanism to ban the unregulated deposit schemes" with designated courts and enhanced enforcement powers. The Act makes unauthorised deposit acceptance a cognizable offence — meaning police can arrest without a warrant.
How does the RBI handle unregistered NBFCs and illegal deposit collectors?
The FAQ devotes nearly a third of its questions to entities that are not regulated by the RBI — because the public routinely confuses every financial entity with an RBI-regulated one. The RBI's market intelligence function and the Sachet portal are the primary tools for tracking unauthorised deposit collection.
The FAQ Answer to Question 9 is blunt about the consequences:
"contravention of the provisions of the RBI Act, 1934 and would invite penal action viz., penalty or fine or even prosecution in a Court of Law."
But the FAQ also acknowledges a jurisdictional reality: multi-level marketing companies, direct selling companies, chit funds, and unincorporated bodies each fall under different regulatory authorities. MLM schemes and Ponzi schemes are banned under the Prize Chit and Money Circulation (Banning) Act, 1978, enforced by state police, not the RBI. The FAQ directs complaints about such schemes to "police / Economic Offence Wing (EOW) of the concerned State Government or the Ministry of Corporate Affairs."
The State Level Coordination Committees (SLCCs) — comprising representatives from the RBI, SEBI, IRDAI, state police, and other agencies — facilitate information sharing on illegal deposit collection. The FAQ mentions these committees as the mechanism for coordinated action when an entity crosses multiple regulatory boundaries.
For compliance officers, the practical takeaway is that the RBI uses "market intelligence, complaints received from affected parties, industry sources, and exception reports submitted by statutory auditors" to identify unregistered entities. Statutory auditors have a specific obligation: if they encounter a company conducting NBFC business without registration, they must report it. The FAQ makes clear that the RBI expects auditors to be the first line of detection.
What about Nidhi companies and chit funds?
These two categories generate persistent confusion — and the FAQ addresses both with a clarity that the general public rarely encounters.
Nidhi companies are mutual benefit societies incorporated under the Companies Act. They accept deposits from and lend to their members. The FAQ Answer to Question 32 explains that chit funds operate "under the Chit Fund Act, 1982, which is a Central Act, and is implemented by the State Governments." To avoid dual regulation, chit funds are "exempted from the provisions of Section 45-IA, 45-IB and 45-IC of the RBI Act, 1934." However, chit funds have been "prohibited" from accepting public deposits since 2009 — their activity of collecting subscriptions from members and distributing chit amounts by rotation is "specifically excluded from the definition of deposits."
The distinction matters because depositors often conflate chit funds with NBFCs. A chit fund cannot legally accept deposits beyond the subscription model. If it does, it is breaking the law — but the enforcement authority is the state government, not the RBI. The FAQ's answer is simultaneously a clarification and a jurisdictional disclaimer: the RBI does not regulate chit funds, and complaints about chit fund misconduct should go to state authorities.
Nidhi companies present a similar boundary. They are regulated by the Ministry of Corporate Affairs under the Companies Act, not by the RBI under the RBI Act. A Nidhi company can accept deposits from its members but is not an NBFC, does not hold an RBI Certificate of Registration, and is not supervised by the RBI. The regulatory confusion arises because Nidhi companies look like deposit-taking financial institutions — which they are — but they operate under an entirely different legal framework.
What should a depositor verify before placing money with an NBFC?
The FAQ provides a verification checklist that is more rigorous than most depositors realise — because the RBI has learned that depositors typically verify nothing. The FAQ Answer to Question 23 lists the steps:
First, verify that the NBFC is registered with the RBI and is specifically authorised to accept deposits. The list of registered NBFCs is available on the RBI website under "Regulation > Non-Banking." Second, examine the Certificate of Registration — it should explicitly state whether the NBFC is authorised to accept deposits. Third, confirm that the interest rate being offered does not exceed the current ceiling of 12.5% per annum. Any NBFC offering a higher rate is either violating the direction or is not an RBI-regulated entity at all. Fourth, obtain a proper receipt for every deposit. Fifth, verify that the broker or agent soliciting the deposit is authorised by the NBFC.
The FAQ then adds a warning that the RBI rarely states so directly in formal directions:
"deposits with NBFCs are unsecured and without insurance cover from DICGC. RBI does not accept any responsibility for the present financial soundness of the company or for the correctness of any of the statements or the representations made or opinions expressed by the company."
This is the RBI distancing itself from any expectation that regulation equals guarantee. Registration means the entity is subject to regulatory oversight. It does not mean the deposit is safe. The NBFC could comply with every prudential norm today and fail tomorrow. The depositor bears the risk — and the FAQ says so explicitly.
For the full framework of NBFC prudential norms including capital adequacy, NPA recognition, and governance requirements, see NBFC Capital, NPA, Deposits, Governance and How the RBI Tiered 10,000 NBFCs by Risk.
What is the NBFC registration requirement — and why Rs 10 crore?
Every company conducting NBFC business must register with the RBI. Section 45-IA of the RBI Act, 1934 provides the statutory basis. The FAQ cites the minimum Net Owned Funds (NOF) requirement:
"no company can commence or carry on business of a non-banking financial institution without obtaining a certificate of registration from the Reserve Bank and without having a Net Owned Funds (NOF) of ₹10 crore with effect from October 01, 2022."
The Rs 10 crore threshold was raised from Rs 2 crore — a fivefold increase — effective October 2022, as part of the Scale Based Regulation framework RBI/2021-22/112 (since withdrawn — superseded by the SBR Directions 2025 (Reserve Bank of India (Non-Banking Financial Compa)). The increase served two purposes: filtering out small, poorly-capitalised entities that posed supervisory costs disproportionate to their systemic importance, and ensuring that every registered NBFC had sufficient capital to absorb initial operating losses.
The FAQ also addresses the types of NBFCs that the RBI recognises. The Scale Based Regulation framework created a four-layer structure, and within it, the activity-based categories include Investment and Credit Company (ICC), Housing Finance Company (HFC), Infrastructure Finance Company (IFC), Infrastructure Debt Fund (IDF-NBFC), Core Investment Company (CIC), Micro Finance Institution (NBFC-MFI), NBFC-Factors, Mortgage Guarantee Companies, Standalone Primary Dealers, Non-Operative Financial Holding Companies, NBFC-Account Aggregators, and NBFC-Peer to Peer Lending Platforms.
Each category has its own regulatory requirements layered on top of the common SBR framework. A CIC, for instance, must invest 90% within its group — a requirement that generates its own set of compliance questions. An NBFC-MFI must comply with the microfinance lending directions including household income assessment and the prohibition on collateral. The FAQ addresses several of these specialised questions in its later sections — including whether all members of a household must become borrowers of a microfinance loan (they need not) and how credit facilities without an EMI feature should be treated for household repayment obligations.
What about interest rates — can NBFCs charge borrowers anything they want?
The FAQ draws a sharp distinction between deposit rates (capped) and lending rates (deregulated). On the deposit side, the 12.5% ceiling is a hard cap. On the lending side, the FAQ states plainly:
"Reserve Bank of India has deregulated interest rates to be charged to borrowers by NBFCs."
There is no regulatory ceiling on what an NBFC can charge a borrower. The market determines the price. But the absence of a rate cap does not mean the absence of regulation. NBFCs must disclose their interest rates transparently — in application forms, sanction letters, and on their websites — so that borrowers can make informed decisions. The Fair Practice Code Directions 2025 require that the rate of interest and the method of application be communicated to the borrower at the time of sanction.
The deregulation is philosophically consistent. The RBI caps deposit rates because depositors are the vulnerable party — they are entrusting money to the NBFC and need protection from unsustainable rates that signal financial distress. Borrowers, by contrast, have a choice: if one NBFC charges too much, they can borrow from another. The market discipline operates differently on each side of the balance sheet.
But the penal charges direction that the RBI issued in August 2023, applicable to both banks and NBFCs, shows that deregulation has limits. Penal charges cannot be compounded, cannot be used as a revenue source, and must be transparent. The direction was prompted by complaints that lenders were imposing penal charges disguised as interest rate increases — exactly the kind of opacity that erodes borrower trust.
What the fifty-two questions tell us about the NBFC ecosystem
Read together, the RBI's fifty-two answers paint a picture of an ecosystem that the regulator is simultaneously trying to develop and constrain. NBFCs serve a purpose that banks cannot — they reach borrowers and markets that banks find uneconomic or operationally impractical. The microfinance NBFC in rural Bihar, the vehicle finance company in semi-urban Tamil Nadu, the gold loan NBFC on every South Indian high street — these entities exist because the banking system left gaps.
But the same flexibility that makes NBFCs useful also makes them dangerous. Without deposit insurance, without access to the payment system, without the RBI's lender-of-last-resort facility, an NBFC in trouble has no safety net — and its depositors discover this only when it is too late. The IL&FS collapse of September 2018 demonstrated that a sufficiently large NBFC failure can destabilise the entire financial system. The FAQ's warnings about deposit safety, its insistence on verification, and its careful delineation of jurisdictional boundaries all reflect the regulator's awareness that the NBFC sector's greatest strength — its ability to operate outside the banking framework — is also its greatest vulnerability.
The Scale Based Regulation framework that came into effect in October 2022 was the RBI's attempt to resolve this tension by calibrating regulation to systemic risk. The FAQ's fifty-two questions remain the most accessible guide to the framework that existed before SBR — and the principles that survive it.
Governing Direction(s): Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (Reserve Bank of India (Non-Banking Financial Compa) | NBFC Acceptance of Public Deposits Directions, 2025 (Reserve Bank of India (Non-Banking Financial Compa)
Last updated: April 2026