Non-Banking Financial Companies (NBFCs) have become a vital part of India’s financial landscape. For entrepreneurs and investors exploring NBFC registration, one of the key decisions is whether to choose a Deposit-Taking (NBFC-D) or a Non-Deposit Taking (NBFC-ND) structure.
Both types of NBFCs offer distinct advantages, operate under separate compliance frameworks, and suit different kinds of business models. This guide will help you understand how each model works, the benefits and challenges they bring, and which option fits your goals—whether you’re starting your first financial venture or scaling an existing one.
Understanding NBFCs and Their Role
An NBFC is a financial institution registered under the Companies Act, which provides services similar to banks such as loans, asset financing, leasing, and investment activities. However, NBFCs are not allowed to accept demand deposits or issue cheques, distinguishing them from traditional banks.
These companies fall under the regulatory scope of the Reserve Bank of India (RBI), and depending on their activities and funding methods, NBFCs are broadly classified into two categories:
- Deposit-Taking NBFCs (NBFC-D)
- Non-Deposit Taking NBFCs (NBFC-ND)
Choosing the right model during the NBFC registration process significantly affects your business structure, compliance obligations, and growth trajectory.
What Is a Deposit-Taking NBFC?
A Deposit-Taking NBFC is allowed to accept fixed and recurring deposits from the public. However, it cannot accept demand deposits, which remain the domain of banks. This model is suitable for companies with strong financial governance and risk management infrastructure.
These NBFCs are subject to stringent regulation by the RBI. They must obtain specific permission to accept public deposits and adhere to strict rules, such as maintaining a minimum capital adequacy ratio and complying with liquidity norms. Deposit-taking NBFCs are also required to submit regular reports, undergo inspections, and maintain high levels of transparency.
Who is it for?
This model suits larger financial institutions aiming to raise funds directly from the public, increase lending capacity, and establish themselves in markets where trust and accessibility are important—especially in semi-urban and rural areas.
What Is a Non-Deposit Taking NBFC?
A Non-Deposit Taking NBFC, as the name implies, cannot accept deposits from the general public. These companies typically raise funds through private equity, institutional debt, or promoter contributions. While they are still under RBI oversight, the regulatory compliance requirements are relatively lighter, particularly for smaller NBFCs that are not systemically important.
This model is especially favored by fintech startups, digital lending platforms, and niche lending businesses that operate online and require more agility in operations.
Who is it for?
Non-Deposit Taking NBFCs are ideal for entrepreneurs who want to test innovative financial products, scale faster, and maintain greater control over capital structure and funding without entering the complexities of deposit compliance.
Key Differences Between the Two Models
The primary distinction lies in the source of funding. Deposit-taking NBFCs rely on public deposits as a capital source, while non-deposit-taking NBFCs must raise funds privately. This makes NBFC-D models more heavily regulated, due to their responsibility toward public depositors.
Deposit-taking NBFCs are generally perceived as more trustworthy by the public, given the additional regulatory scrutiny and compliance. However, setting up and maintaining this model requires considerable time, effort, and resources.
On the other hand, Non-Deposit Taking NBFCs are quicker to establish, easier to operate, and more flexible—especially attractive to modern financial entrepreneurs and startups that are not reliant on deposit-based funding.
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NBFC Registration Process (Common for Both)
Whether you choose a deposit-taking or non-deposit-taking model, the NBFC registration process starts with incorporating a company under the Companies Act. After incorporation, the company must apply to the RBI for an NBFC license.
The general steps are:
- Company Formation: Register a private or public limited company with financial activity objectives.
- Capital Requirements: Ensure a minimum Net Owned Fund (NOF) of ₹2 crore (higher for specific NBFC types).
- Prepare Documentation: Business plan, KYC of directors, financial projections, board resolutions, etc.
- Online Application: Submit the NBFC registration online through the RBI's COSMOS portal.
- Physical Submission: Send hard copies of documents to the regional RBI office.
- Approval & License: After review, the RBI will issue a Certificate of Registration, making the company an RBI-registered NBFC.
Choosing the Right Model for Your Business
Your ideal NBFC model depends on your business strategy, compliance capability, capital resources, and risk appetite.
You may consider a Deposit-Taking NBFC if:
- You have the resources and systems to meet high regulatory standards
- You want to attract low-cost funding from the public
- You are operating in communities where deposits increase customer trust
- You plan to scale as a full-fledged financial institution
A Non-Deposit Taking NBFC may be more appropriate if:
- You are a startup or fintech with limited capital but high growth potential
- You prefer raising funds via private or institutional investors
- You want a lighter compliance burden and faster launch
- You are testing a new lending model or niche financial product
Both models can be successful, but the right choice depends on your ability to manage regulatory risk and financial complexity.
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Final Thoughts
Whether you aim to build a large financial institution or launch a nimble lending startup, the right NBFC model plays a central role in shaping your operations and growth potential. Deposit-taking NBFCs offer strong credibility and access to public funding but demand more robust compliance and longer setup timelines.
On the other hand, Non-Deposit Taking NBFCs are easier and faster to register, making them perfect for modern, tech-driven, and niche financial solutions. If you're just entering the sector or experimenting with a unique business model, starting with a non-deposit-taking structure may be the smarter and more strategic choice.
Whichever path you take, navigating the NBFC registration process requires precision, planning, and regulatory awareness. Consider seeking expert guidance to ensure a smooth, compliant, and future-ready setup.
FAQs
1. Can a Non-Deposit-Taking NBFC convert into a Deposit-Taking NBFC later?
Yes. However, you must apply for a fresh license and meet additional requirements, including RBI approval, governance policies, and minimum public deposit criteria.
2. What is the minimum capital requirement for NBFC registration?
The minimum Net Owned Fund (NOF) required is ₹2 crore. This may vary depending on the type of NBFC and the services offered.
3. How can I complete NBFC registration online?
You can start the process on the RBI’s COSMOS portal by submitting the necessary forms and documents digitally. Final steps require sending physical copies to RBI for verification.
4. Is RBI approval required for all NBFCs?