NBFC Registration with RBI: Category A vs B, Rs. 10 Crore NOF, and Annual Compliance Checklist

What is an NBFC and Why Registration Matters

A Non-Banking Financial Company (NBFC) is an entity engaged in lending, investment, or financial services but NOT a bank, insurance company, or securities firm. If you operate as an NBFC--whether you lend directly, invest in securities, or finance--you must register with the Reserve Bank of India (RBI). Failure to do so is a criminal offense under Section 45-IA of the RBI Act, 1934.

The RBI introduced the Scale-Based Regulation (SBR) framework effective October 1, 2024, replacing the old asset-based classification with a Net Owned Funds (NOF) threshold. This fundamentally changes how NBFCs are regulated.

Understanding Net Owned Funds (NOF)

Net Owned Funds = Paid-up capital + Free reserves (after statutory appropriations)

NOF does NOT include subordinated debt or funds borrowed at subsidized rates. It reflects the genuine equity capital your NBFC holds. The RBI measures NOF as of the last day of the financial year.

Why NOF matters: It determines which category your NBFC falls into, and category determines your regulatory burden. Higher NOF = stricter rules, but also greater operational freedom and market credibility.

Category A vs Category B: The Two Tiers

Category A NBFC

Threshold: NOF of Rs. 10 crore or more

Category A NBFCs operate under a lighter-touch regulatory framework:

• No limit on loan size or tenure
• No restriction on the number of borrowers
• Broader range of lending products permitted
• Lower reserve requirements
• Simplified reporting to RBI (quarterly, not monthly)
• Allowed to accept public deposits (if separately licensed)
• Greater operational autonomy in lending decisions

Example: A finance company with NOF of Rs. 15 crore qualifies as Category A.

Category B NBFC

Threshold: NOF of less than Rs. 10 crore

Category B NBFCs operate under stricter controls:

• Capped loan size (generally Rs. 50 lakh per borrower for secured loans, Rs. 25 lakh for unsecured)
• Borrower concentration limits
• Higher reserve requirements
• More frequent reporting to RBI (monthly submissions)
• Restricted on public deposits
• Limited range of products
• Greater RBI scrutiny on underwriting standards

Example: A new NBFC with NOF of Rs. 7 crore is Category B.

Registration Process and Compliance Framework

Step 1: Registration Application

You must apply on the RBI's Digital Platform (DEAR Portal) with:

• Form NBFC-REG (available on RBI website)
• Memorandum and Articles of Association
• Financial statements (last 2 years)
• Detailed business plan
• Information on directors, shareholders holding >5%
• Proof of NOF (audited balance sheet)

The RBI will assess fit-and-proper criteria, integrity, management quality, and financial sustainability.

Step 2: Category Assignment

Upon approval, the RBI assigns your NBFC to Category A or B based on your NOF submission. This assignment is not fixed--it changes if your NOF crosses the Rs. 10 crore threshold in future years.

Step 3: Obtain Certificate of Registration

Once approved, the RBI issues a Certificate of Registration (CoR). This is your legal permission to operate as an NBFC.

Annual Compliance Checklist for NBFCs

Financial and Audit Compliance

• Audited Balance Sheet and P&L statement (within 6 months of financial year-end)
• Standalone and consolidated financial statements (if applicable)
• Audit report highlighting compliance with RBI norms
• Updated NOF calculation and certification
• Certificate from your CA on compliance with prudential norms

RBI Returns and Filings

Category A:

• Quarterly returns: Balance Sheet, income statement, asset quality data (due 45 days after quarter-end)


• Annual returns: Detailed information on capital, assets, NPAs, deposits (if any)


• Concentration of lending and large exposure reports

Category B:

• Monthly return of assets and liabilities (due 20 days of next month)


• Quarterly NPAs and lending data


• Same annual filings as Category A, but with higher scrutiny

Governance and Risk Management

• Board of Directors meetings (minimum 4 per year)
• Board approval of annual business plan
• Audit committee meetings and minutes
• Risk management policy and implementation
• Asset-liability management framework
• Compliance officer appointment and reporting

Prudential Requirements

• Maintain minimum Capital-to-Risk-Weighted Assets Ratio (CRAR): 12% for Category A, 15% for Category B
• Provision for NPAs: follow RBI guidelines (standard assets 0.25-0.4%, sub-standard 15-25%, etc.)
• Related party transaction disclosures
• Exposure limits compliance

Deposit-Taking Compliance (if licensed)

• Deposit insurance coverage (if applicable)
• Deposit reserve requirements
• Maturity profile disclosures
• Deposits exceeding specified limits reported separately

Internal Audit and Secretarial Compliance

• Internal audit report on operational and financial controls
• Statutory compliance report (Company Secretarial)
• RBI inspection findings (if conducted) and remedial actions
• Implementation of RBI directives within prescribed timelines

Credit Risk and Asset Quality Reporting

• Gross NPAs and net NPAs (separately reported)
• Asset classification: Standard, Sub-standard, Doubtful, Loss
• Provision for each category
• Recovery data and write-offs

Technology and Information Security

• Cyber security audit (recommended for Category A)
• Business continuity and disaster recovery plan
• IT systems audit
• Data protection and RBI compliance on information security

Key Pitfalls to Avoid

• Misreporting NOF: Deliberately inflating free reserves to claim Category A status will trigger RBI action and penalties under Section 56 of the FEMA Act, 1999.
• Delayed filings: Missing quarterly returns deadlines invites RBI show-cause notices and potential cancellation of CoR.
• Inadequate provisioning: Under-provisioning for NPAs violates prudential norms and will be corrected by RBI audit, requiring adjustments.
• Operating without registration: Unregistered NBFC lending is criminal. Penalties under Section 45-IA include imprisonment up to 5 years and fines up to Rs. 1 crore.
• Exceeding lending limits (Category B): Lending beyond capped amounts per borrower violates your registration and can trigger regulatory action.

Calendar of Annual Compliance Deadlines

• April 30: Q4 return due (for Category A)
• June 30: Audited annual financial statements due
• July 31: Annual return to RBI due
• Ongoing: Monthly returns for Category B (20th of next month)
• Throughout year: Board meetings, statutory disclosures, related party approvals

Moving from Category B to Category A

If your NBFC's NOF grows to Rs. 10 crore, you can apply for automatic reclassification. You are NOT required to re-register; simply file a fresh declaration with the RBI. Reclassification brings lighter compliance but also requires you to transition your lending practices (remove per-borrower caps, restructure loan products) and revise your risk policies.

Bottom Line

NBFC registration is not a one-time paperwork exercise. Your RBI certificate demands annual vigilance: financial discipline, timely audits, precise reporting, and strict adherence to lending caps (if Category B). Many NBFCs fail compliance not from fraud, but from administrative lapses--missed filing deadlines, inadequate provisioning, or poor documentation.

Your CA must be deeply involved in NBFC compliance. Audit is not optional; it is mandated and must be conducted by an RBI-empaneled auditor. The scale-based framework now rewards growth: reach Rs. 10 crore NOF, move to Category A, and operate with far fewer restrictions.

I'm CA Harun Raaj, Visakhapatnam.

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