Banks in India play a crucial role in providing finance to Non-Banking Financial Companies (NBFCs). The approach, however, differs depending on whether the NBFC is registered with RBI or belongs to a category that **does not require RBI registration**.
Bank Finance to RBI-Registered NBFCs
Banks can extend need-based working capital and term loans to NBFCs registered with the Reserve Bank of India (RBI), provided they are engaged in activities such as:
* Infrastructure financing
* Equipment leasing
* Hire purchase
* Loans and advances
* Factoring
* Investment activities
Key Features
* No NOF-linked ceiling: Earlier restrictions that tied bank credit to an NBFC’s Net Owned Fund (NOF) have been removed for statutorily registered NBFCs involved in principal business activities like asset financing, factoring, and loans.
*Lending against second-hand assets: Banks may finance assets already funded by these NBFCs.
* Exclusions: Certain activities are ineligible for bank finance, including:
* Bills discounted/rediscounted by NBFCs (with limited exceptions)
* Investments in shares/debentures
* Unsecured loans/inter-corporate deposits
* Advances to subsidiaries/group companies
* Finance for IPO subscriptions, bridge loans, and guarantees for fund placement with NBFCs
* Board-approved loan policy: Banks must frame credit policies, adhere to prudential exposure limits, and follow RBI guidelines.
* Co-lending opportunities: Scheduled commercial banks can co-lend with registered NBFCs under priority sector lending (PSL) schemes (e.g., agriculture, MSMEs), subject to defined caps and compliance.
Bank Finance to NBFCs Not Requiring RBI Registration
Certain NBFC-like entities are regulated by other statutes and hence do not require RBI registration. These include:
* **Insurance companies** (Insurance Act)
* **Housing finance companies** (regulated by NHB)
* **Nidhi companies**
* **Chit fund companies**
* **Stock broking and merchant banking companies** (registered under SEBI Act)
Key Features
* Usual banking norms: Banks assess these entities as they would any other corporate borrower—based on credit purpose, repayment capacity, asset quality, and risk profile.
* No RBI-imposed caps: Lending is not subject to RBI’s NOF-linked restrictions.
* Greater discretion: Banks exercise their own risk-based evaluations.
Special Case – RNBCs
* Residuary Non-Banking Companies (RNBCs) are registered with RBI.
* Banks can provide finance up to their Net Owned Funds (NOF).
Quick Comparison – Bank Finance to NBFCs
| Aspect | Registered NBFCs (RBI-regulated) | NBFCs Not Requiring RBI Registration |
| Eligibility | Registered under RBI Act | Insurance cos., NHB-HFCs, Nidhis, chit funds, SEBI-regulated entities |
| Type of Finance | Working capital, term loans, lending against assets | Standard corporate lending (purpose-based) |
| NOF Linkage | Ceiling removed (except RNBCs: capped at NOF) | No RBI-specific cap |
| Exclusions | No IPO finance, share investments, inter-corporate loans, bridge loans, etc. | Case-by-case, based on bank’s internal policy |
| Policy Requirement | Board-approved loan policy + RBI prudential norms | Board-approved loan policy + RBI prudential norms |
| Co-lending | Permitted under PSL guidelines | Not applicable |
✅ **In summary**:
* RBI-registered NBFCs enjoy structured, flexible bank financing under regulated guidelines, with prudential safeguards in place.
* NBFCs not requiring RBI registration are financed like regular corporates, with banks exercising credit discretion.
This dual framework ensures credit support to the NBFC sector while maintaining systemic prudence.
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Disclaimer:
The information provided herein is exclusively for educational purposes based on publicly available sources and subject to change. The author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/real estate decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
