An NBFC, or Non-Banking Financial Company, is a financial company that provides services such as loans and asset financing. While NBFCs and banks both offer loans, they differ in how they operate, accept deposits, and provide banking services. Understanding these differences can help you make better financial decisions. But what exactly is an NBFC, and how does it work in India?
This article explains what is an NBFC is, how it works in India, and how it differs from a bank in terms of loans, deposits, payment services, and deposit insurance. It also covers the safety aspects readers should understand before borrowing from or depositing money with an NBFC.
What Is an NBFC?
NBFC stands for Non-Banking Financial Company. NBFC is a company that does some of a bank’s work but does not hold a banking licence.
NBFCs cannot accept demand deposits. A demand deposit is money you can withdraw whenever you want, as in a savings or current account.
In practice, an NBFC in India may offer:
- Loans, such as personal, vehicle, gold, and business loans
- Asset financing, where it funds the purchase of a vehicle or equipment
- Some investment-related services
NBFCs are regulated by the Reserve Bank of India (RBI). Not every NBFC offers every service, and the rules differ by type of company.
How Does an NBFC Work?
Suppose Rohan wants to buy a scooter and applies for an ₹80,000 loan from an NBFC. He submits his documents, including proof of identity, address, and income. The NBFC checks his credit score, income, and existing loan payments before deciding whether to approve the loan.
If approved, the NBFC offers him a loan amount, interest rate, and repayment period. Once Rohan accepts the terms, the loan amount may be paid directly to the dealer. He then repays the loan through monthly instalments, known as EMIs. Late payments may attract additional charges, depending on the loan terms.
NBFCs generally fund their lending through borrowings, bonds, and their own capital. Some are also authorised to accept public deposits, while many are not.
What Is the
Difference Between an NBFC and a Bank?
Banks and NBFCs both provide loans, but there are some key differences in the services they offer. Here’s how they compare.
| Feature | Bank | NBFC |
| Meaning and main role | Licensed to accept deposits and lend | Lends and offers financial services without a banking licence |
| Demand deposits | Can accept them | Cannot accept them |
| Savings and current accounts | Yes | No |
| Payment and cheque facilities | Provides payment services and can issue cheques | Not part of the payment and settlement system; cannot issue cheques drawn on itself. |
| Lending | Yes | Yes, often focused on specific segments |
| Deposit insurance (DICGC) | Eligible deposits insured | Not available |
| RBI regulation | Yes | Yes, under different rules |
In plain terms, a bank is where you keep your daily money and make payments. An NBFC mainly lends. Some NBFCs focus on areas such as gold loans or vehicle finance.
Can NBFCs Accept Deposits?
Not all NBFCs can accept deposits. Only those with specific RBI authorisation can do so, and certain restrictions apply.
- Only NBFCs with specific RBI authorisation can accept public deposits. Registration alone is not enough.
- DICGC insurance covers eligible bank deposits up to ₹5 lakh per depositor per bank, including principal and interest. It does not cover deposits placed with NBFCs. The ₹5 lakh limit is the current one, so check DICGC’s website for any changes.
The rules for authorised NBFCs:
- They can accept deposits only for fixed periods, from 12 to 60 months, and never deposits repayable on demand.
- RBI rules cap the interest rate that eligible NBFCs can offer on public deposits at 12.5% per annum. Check RBI’s latest directions for any changes.
- RBI publishes a list of NBFCs permitted to accept deposits on its website.
Are NBFCs Safe?
NBFCs are regulated by the RBI, but this does not make every company risk-free. The RBI does not guarantee repayment of deposits placed with NBFCs.
Before dealing with an NBFC, check:
- Registration: Is it registered with the RBI, and is it authorised for what you want? The Certificate of Registration should be displayed on its website and at its offices.
- Costs: The interest rate, processing fee, and any other charges.
- Terms: Prepayment and late-payment penalties.
- Credibility: How long it has operated, its credit rating if it offers deposits, and its financial position.
- Deposit authorisation: Whether it appears on RBI’s list of deposit-taking NBFCs.
Taking a loan and placing a deposit are very different things. As a borrower, your main risk is high costs or harsh terms. As a depositor, you are lending your own money to the company, with no DICGC cover. That calls for much more caution.
Examples of NBFCs in India
Three well-known names, with their RBI classification:
- Bajaj Finance is a deposit-taking NBFC. It is known for consumer loans such as EMI financing for products, personal loans, and business loans.
- Shriram Finance is also a deposit-taking NBFC. It is known mainly for commercial vehicle financing.
- Muthoot Finance is a non-deposit-taking NBFC. It is known mainly for gold loans.
RBI’s 2026-27 list of upper-layer NBFCs, its category for the largest ones, includes all three. That does not mean they offer the same services, and it is not a safety rating.
NBFC vs Bank: Which One Should You Choose?
It depends on what you need.
- Savings account, cheques, daily banking: a bank.
- Keeping money with insurance cover: eligible bank deposits are insured up to the limit. NBFC deposits are not.
- A loan: interest rates, eligibility criteria, and approval times vary between lenders. Compare offers from banks and NBFCs based on the total borrowing cost, processing fees, repayment terms, and your own eligibility before choosing.
Conclusion
NBFCs play an important role in India’s financial system by providing loans and other financial services, but they do not offer all the facilities available at banks. They cannot accept demand deposits or issue cheques drawn on themselves, and deposits accepted by eligible NBFCs are not covered by DICGC insurance. Before borrowing from an NBFC or investing in an NBFC deposit, check its terms, charges, and risks to make an informed financial decision.
FAQs
What is the full form of NBFC?
The full form is Non-Banking Financial Company.
Is an NBFC the same as a bank?
No. An NBFC does not hold a banking licence and cannot offer savings or current accounts.
Can an NBFC provide loans?
Yes. Lending is the main business of most NBFCs.
Can NBFCs accept deposits?
Only RBI-registered NBFCs with specific authorisation can, and only fixed-term deposits. They cannot accept demand deposits.
Are NBFC deposits insured by DICGC?
No. DICGC insurance covers eligible bank deposits, not NBFC deposits.
ARN Disclosure: Investik Future is an AMFI-registered Mutual Fund Distributor. ARN-341107 — Verify on AMFI ↗. Komal Thakur is the content author and digital marketer; the ARN registration belongs to Investik Future, not to the author personally.
