BharatNotes What is Fintech and NBFC?
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act that carries on a financial business—loans and advances, leasing, hire-purchase, or acquisition of shares and securities—as its principal business, but which is not a bank. Under Section 45-IA of the RBI Act, 1934, no NBFC can operate without a certificate of registration from the RBI. Crucially, NBFCs cannot accept demand deposits, do not form part of the payment-and-settlement system, and deposits with them are not insured by DICGC.
Fintech refers to technology-led delivery of financial services—digital payments, lending, insurtech, wealthtech and neo-banking. In India, fintech and NBFCs increasingly converge: many digital-lending platforms partner with, or are themselves, NBFCs.
How NBFCs differ from banks
| Feature | Banks | NBFCs |
|---|---|---|
| Accept demand deposits | Yes | No |
| Part of payment/settlement system | Yes | No |
| Deposit insurance (DICGC) | Yes | No |
| CRR / SLR maintenance | Yes | Not as banks do |
| Primary regulator | RBI | RBI (NBFCs) |
NBFCs are classified by activity (e.g., investment & credit companies, infrastructure finance companies, microfinance institutions or NBFC-MFIs, core investment companies) and by whether they are deposit-taking or non-deposit-taking.
Scale-Based Regulation (SBR)
After the IL&FS crisis exposed systemic risks, the RBI rolled out Scale-Based Regulation, effective 1 October 2022, layering NBFCs into four tiers by size and systemic importance:
- Base Layer (NBFC-BL)
- Middle Layer (NBFC-ML)
- Upper Layer (NBFC-UL) — identified by asset size and a scoring methodology
- Top Layer (NBFC-TL) — empty unless the RBI elevates a UL entity
Regulation tightens as an NBFC moves up the layers. The minimum Net Owned Fund (NOF) was raised to ₹10 crore (from ₹5 crore) with effect from 1 October 2022; existing NBFCs have until 31 March 2027 to comply (RBI SBR framework).
Fintech, digital lending and payments
India's digital-payments backbone is now world-leading. UPI processed over 18.39 billion transactions worth ₹24.03 lakh crore in June 2025 (NPCI/PIB), and the IMF (June 2025) found UPI accounts for nearly 49% of the world's real-time payment volume.
To curb mis-selling and data abuse in app-based lending, the RBI issued the Reserve Bank of India (Digital Lending) Directions, 2025 (8 May 2025), replacing the September 2022 guidelines. Key safeguards include: loan disbursals only into the borrower's bank account (never a third party or Lending Service Provider account), and a cap on Default Loss Guarantee (DLG/FLDG) cover at 5% of the loan portfolio.
UPSC angle
For Mains GS3, link NBFCs to financial inclusion, credit to MSMEs and shadow-banking risk; use SBR and the Digital Lending Directions as examples of evolving, risk-proportionate regulation. For Prelims, remember the non-bank distinctions and headline UPI/digital-payment facts.
