NBFCs & Development Financial Institutions: Revision and Practice

How the five lessons connect#

Finance outside normal retail banking
↓
NBFCs: specialised credit and financial-service business models
↓
DFIs: targeted financial-market and sector development
↓
NABARD: agriculture/rural · SIDBI: MSMEs · Exim Bank: exports · NHB: housing · NaBFID: infrastructure

The central distinction is between the legal nature of an institution, the activity it performs, and the sector it serves. These do not always coincide.

Important comparisons and common confusions#

Exam-focused revision: 50 key facts#

1. NBFC = Non-Banking Financial Company.
2. NBFCs perform financial business but are not ordinary retail commercial banks.
3. RBI's familiar principal-business criterion is described as a 50–50 test for financial assets and financial income.
4. A normal NBFC cannot accept demand deposits.
5. An NBFC cannot issue cheques drawn on itself like a bank.
6. DICGC insurance is not available to NBFC public deposits.
7. RBI CoR registration is generally governed by the RBI Act and applicable exemptions.
8. Registering a company with RoC is not the same as receiving an RBI NBFC CoR.
9. NBFC-D = deposit-taking NBFC; NBFC-ND = non-deposit-taking NBFC.
10. Public deposits and public funds are different terms.
11. NBFC-ICC = Investment and Credit Company.
12. NBFC-MFI = Microfinance Institution-type NBFC.
13. HFC = Housing Finance Company.
14. NBFC-Factor specialises in receivables finance.
15. NBFC-AA supports consent-based financial-information sharing.
16. NBFC-P2P is a peer-to-peer lending platform, not bank deposit insurance.
17. CIC can mean Core Investment Company in the NBFC context; Credit Information Company in a different context.
18. RBI's scale-based regulatory tiers are BL, ML, UL and TL.
19. The Top Layer is intended to be exceptional and ideally empty.
20. RBI's NBFC regulatory framework was reorganised into 2025 directions, with subsequent amendments.
21. AIFI = All India Financial Institution.
22. Five RBI-regulated AIFIs: NABARD, SIDBI, Exim Bank, NHB, NaBFID.
23. NABARD = National Bank for Agriculture and Rural Development.
24. NABARD established 12 July 1982 under its 1981 Act.
25. NABARD is presently wholly Government of India-owned.
26. NABARD supports rural lenders through refinance, development, credit planning and supervision.
27. RIDF = Rural Infrastructure Development Fund, associated with NABARD.
28. NABARD promoted the SHG–Bank Linkage Programme, begun in 1992.
29. PLP = Potential Linked Credit Plan in NABARD's district planning context.
30. SIDBI = Small Industries Development Bank of India.
31. SIDBI established 2 April 1990 under its 1989 Act.
32. SIDBI's principal sector is MSMEs.
33. SIDBI can support direct MSME credit and institutional refinance.
34. CGTMSE was jointly set up by Government of India and SIDBI.
35. Credit guarantee protects eligible lender exposure; it is not an automatic waiver.
36. Exim Bank = Export-Import Bank of India.
37. Exim Bank commenced operations in March 1982 under its 1981 Act.
38. Pre-shipment finance supports production/preparation before export.
39. Post-shipment finance supports receivables after goods are shipped.
40. Exim Bank supports project exports and overseas Lines of Credit.
41. ECGC supports export-credit risk insurance/guarantees and is not Exim Bank.
42. NHB = National Housing Bank.
43. NHB established 9 July 1988 under the NHB Act, 1987.
44. RBI regulates HFCs following the 2019 transfer of NHB's HFC regulatory powers.
45. NHB is now Government of India-owned; older RBI-ownership answers are outdated.
46. NHB provides eligible refinance to housing-finance primary lenders.
47. NHB RESIDEX concerns residential property-price indices.
48. NaBFID = National Bank for Financing Infrastructure and Development.
49. NaBFID was set up under its 2021 Act to finance infrastructure and develop long-term financing markets.
50. NaBFID is an RBI-regulated AIFI; do not confuse it with an NBFC-IFC.

Module glossary#

AIFI — All India Financial Institution: Statutory financial institution under RBI's AIFI framework for sectoral development and finance.

ALM — Asset–Liability Management: Managing differences in maturity, liquidity and interest-rate characteristics of assets and liabilities.

ARC — Asset Reconstruction Company: Specialised institution acquiring/resolving stressed financial assets; different from NABARD/Exim Bank.

Asset–Liability Mismatch: Funding longer-term assets using liabilities maturing earlier, creating liquidity/rollover risk.

Buyer's Credit: Financing an eligible purchaser, often an overseas buyer, for procurement of eligible exports.

CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises.

CIC — Core Investment Company: Company primarily investing in group entities under a specific RBI category; not the same as a Credit Information Company.

CoR — Certificate of Registration: RBI regulatory registration for specified financial institutions.

Credit Enhancement: Eligible support that improves the credit quality/payment protection of an instrument.

DFI — Development Financial Institution: Financial institution created to support long-term or sector-specific development finance needs.

ECGC: Export credit insurer/guarantor, separate from Exim Bank.

Exim Bank: Export-Import Bank of India.

Factoring: Purchase/financing of receivables under agreed legal terms.

FIP — Financial Information Provider: Data-source institution in the Account Aggregator ecosystem.

FIU — Financial Information User: Authorised data recipient in the Account Aggregator ecosystem.

HFC — Housing Finance Company: Company specialising in housing-related finance under the current RBI framework.

IDF-NBFC: Infrastructure Debt Fund structured as an NBFC under the applicable regulations.

IFC — Infrastructure Finance Company: Specialised NBFC category focused on infrastructure lending.

LOC — Line of Credit: Committed financing facility available subject to contractual and policy terms.

NABARD: National Bank for Agriculture and Rural Development.

NaBFID: National Bank for Financing Infrastructure and Development.

NBFC: Non-Banking Financial Company.

NBFC-AA: NBFC-Account Aggregator supporting consent-based data sharing.

NBFC-D / NBFC-ND: Deposit-taking / non-deposit-taking NBFC.

NBFC-ICC: NBFC-Investment and Credit Company.

NBFC-MFI: NBFC-Microfinance Institution.

NBFC-P2P: NBFC Peer-to-Peer Lending Platform.

NHB: National Housing Bank.

NHB RESIDEX: NHB initiative tracking residential property price changes.

NIDA: NABARD Infrastructure Development Assistance.

Non-Recourse Finance: Finance relying substantially on specific project cash flows/security under agreed non-/limited-recourse terms.

Packing Credit: Pre-shipment export production/preparation finance under the applicable facility.

PLP — Potential Linked Credit Plan: NABARD district-level credit potential assessment document.

Post-Shipment Credit: Finance against export payment due following shipment.

Pre-Shipment Credit: Finance before export shipment for producing/preparing goods or services.

Primary Lending Institution: Bank or other eligible lender delivering the ultimate retail/sector loan.

Public Deposit: Legally defined deposit accepted by an authorised NBFC under RBI's deposit rules.

Public Funds: Broader prudential term for outside funding, including certain borrowings and market instruments.

Refinance: Finance extended to an eligible lending institution to support its underlying loan portfolio.

RIDF: Rural Infrastructure Development Fund operated through NABARD.

SBR — Scale Based Regulation: RBI NBFC regulatory framework using tiered requirements based on scale and risk.

SIDBI: Small Industries Development Bank of India.

SPD — Standalone Primary Dealer: Specialised entity authorised to undertake permitted primary dealer activities in securities markets.

Supplier's Credit: Credit extended to a purchaser by the supplier/exporter, often supported by bank financing.

Upper Layer: RBI's higher regulatory tier for NBFCs satisfying prevailing criteria.

Practice MCQs — Module 10#

Choose the single best answer. The questions prioritise durable concepts rather than temporary interest rates, regulatory thresholds or officer appointments.

Questions#

1. NBFC stands for:#

A. National Banking Finance Corporation
B. Non-Banking Financial Company
C. New Banking Finance Commission
D. National Board for Financial Companies

2. RBI's traditional principal-business test for identifying an NBFC is popularly called:#

A. 10–20 test
B. 50–50 test
C. CRR test
D. PSL test

3. Which statement is correct about an ordinary NBFC?#

A. It can accept demand deposits just like a bank
B. It issues its own bank cheques
C. It cannot accept demand deposits
D. Its public deposits always have DICGC insurance

4. DICGC deposit insurance for public deposits with an NBFC is:#

A. Automatically available
B. Not available
C. Identical to bank deposit insurance
D. Available merely because the NBFC is registered

5. A company registered under the Companies Act may commence regulated NBFC business merely because of its corporate incorporation:#

A. True
B. False
C. True if it has a website
D. True if it lends once

6. Which of these is an NBFC activity category?#

A. NBFC-ICC
B. CRR
C. MPC
D. DICGC

7. NBFC-MFI mainly denotes:#

A. A central bank
B. A microfinance-focused NBFC
C. A mutual fund index
D. A stock exchange

8. The principal business of an NBFC-Factor is:#

A. Printing banknotes
B. Trade receivables factoring
C. Deposit insurance
D. Government budgeting

9. An Account Aggregator chiefly facilitates:#

A. Consent-based financial-information sharing
B. Guarantee of every loan
C. Printing credit scores itself as a universal bureau
D. Physical currency issuance

10. P2P lending through an NBFC-P2P platform should be understood as:#

A. An insured savings-bank product
B. A platform-mediated credit arrangement with borrower risk
C. Government grant
D. RBI deposit account

11. Which is NOT an SBR layer?#

A. Base
B. Middle
C. Upper
D. Platinum

12. Which NBFC layer is intended for exceptional systemic risk and is ideally empty?#

A. Base
B. Middle
C. Upper
D. Top

13. Deposit-taking permission and SBR layer are:#

A. Identical concepts
B. Different regulatory dimensions
C. Always irrelevant
D. Defined by bank cheque clearing

14. Which funding statement is correct?#

A. NBFC-ND can never raise funds
B. NBFC-ND cannot accept public deposits but may use permitted wholesale borrowing
C. NBFC-ND accepts demand deposits
D. NBFC-ND is the same as an HFC in every case

15. What does ALM stand for?#

A. Asset-Liability Management
B. All Lending Mechanism
C. Agricultural Loan Mandate
D. Annual Liquidity Money

16. NABARD stands for:#

A. National Bank for Agriculture and Rural Development
B. National Banking Authority for Retail Deposits
C. National Board for Asset Recovery
D. National Bank for Annual Revenue

17. NABARD was established in:#

A. 1949
B. 1969
C. 1982
D. 2002

18. NABARD's establishing Act is of:#

A. 1934
B. 1981
C. 1993
D. 2016

19. NABARD's current ownership is primarily:#

A. Government of India wholly owned
B. Individual shareholders
C. Foreign banks
D. All RRBs equally

20. Which is an appropriate description of NABARD refinance?#

A. Direct DICGC payout to farmers
B. Funding to eligible lenders to support rural lending
C. Buying ordinary retail groceries
D. Currency intervention

21. RIDF is strongly associated with:#

A. SEBI
B. NABARD
C. ECGC
D. NPCI

22. RIDF chiefly supports:#

A. Eligible rural infrastructure
B. Only retail gold loans
C. Government currency printing
D. Securities settlement

23. NABARD's district credit-potential document is called:#

A. PLP
B. LCR
C. IPO
D. GDP

24. NABARD's SHG–Bank Linkage Programme was launched on a pilot basis in:#

A. 1975
B. 1982
C. 1992
D. 2021

25. In rural banking, RBI and NABARD should be understood as:#

A. Exactly the same institution
B. RBI as regulator and NABARD with specified supervisory/developmental functions
C. Both ordinary retail branches
D. Both insurance companies

26. SIDBI stands for:#

A. Small Industries Development Bank of India
B. State Investment Deposit Bank of India
C. Securities Institution for Debt and Bonds
D. Small International Deposit Board of India

27. SIDBI was established in:#

A. 1982
B. 1988
C. 1990
D. 2016

28. The primary focus of SIDBI is:#

A. MSMEs
B. Currency issuance
C. Only crop insurance
D. Personal income tax

29. CGTMSE principally performs:#

A. MSE credit guarantee
B. Money printing
C. Foreign-exchange rate fixing
D. Deposit insurance

30. A CGTMSE guarantee normally means:#

A. Borrower never owes the loan
B. Eligible lender has specified risk protection under scheme terms
C. Loan automatically converts into Government grant
D. Borrower cannot default

31. SIDBI refinance recipients can include eligible:#

A. Banks, NBFCs and MFIs
B. Only stock exchanges
C. Only foreign Governments
D. Only DICGC offices

32. Exim Bank stands for:#

A. Export-Import Bank of India
B. External Insurance and Mortgage Bank
C. Export Information Board
D. Exchange Infrastructure Bank

33. Exim Bank commenced operations in:#

A. 1969
B. 1982
C. 1990
D. 2021

34. Pre-shipment credit is used mainly to:#

A. Finance export production before shipment
B. Pay interest on old bank deposits
C. Settle residential property tax
D. Provide pensions

35. Post-shipment credit is commonly linked to:#

A. Export receivable after shipment
B. Crop insurance before planting
C. DICGC deposits
D. Government tax receipts

36. Buyer's credit in export finance principally supports:#

A. Eligible foreign buyer's purchase of Indian goods/services
B. Loan to the exporter’s employee for vacation
C. Purchase of Government deposits
D. Mandatory RBI reserves

37. India Exim Bank's overseas Lines of Credit can support:#

A. Indian goods/services/project exports to eligible overseas buyers
B. Only domestic savings accounts
C. Deposit insurance to every foreign citizen
D. Monetary policy rate setting

38. Exim Bank and ECGC are different because:#

A. Exim Bank is trade finance; ECGC provides export-credit insurance/guarantees
B. Both are the same company
C. ECGC prints notes
D. Exim Bank regulates insurers

39. NHB stands for:#

A. National Housing Bank
B. National Health Board
C. National Highways Bank
D. Non-Banking Housing Bureau

40. NHB was established in:#

A. 1975
B. 1988
C. 2002
D. 2021

41. Who currently regulates Housing Finance Companies in India?#

A. NHB exclusively
B. RBI
C. SIDBI
D. Exim Bank

42. The main regulatory powers over HFCs shifted from NHB to RBI in:#

A. 1988
B. 2005
C. 2019
D. 2025

43. NHB is now wholly owned by:#

A. RBI
B. Government of India
C. A group of HFC customers
D. Exim Bank

44. NHB RESIDEX relates to:#

A. Residential property prices
B. Currency notes
C. Export orders
D. Capital adequacy only

45. NaBFID stands for:#

A. National Bank for Financing Infrastructure and Development
B. National Banking Fund for Insurance Deposits
C. National Board for Foreign Investment Derivatives
D. New Bank for Financial Inclusion Data

46. NaBFID was established under an Act passed in:#

A. 1981
B. 1989
C. 2002
D. 2021

47. NaBFID's core mandate is:#

A. Long-term infrastructure finance and market development
B. Retail savings accounts
C. Life insurance underwriting
D. Currency printing

48. Which is NOT one of the current five RBI-regulated AIFIs?#

A. NABARD
B. SIDBI
C. NaBFID
D. NPCI

49. A specialised NBFC-IFC and NaBFID are:#

A. Always the same statutory body
B. Different legal/regulatory institution types that may both finance infrastructure
C. Both retail deposit banks
D. Both credit bureaus

50. Which set best matches the five AIFI mandates?#

A. NABARD—rural; SIDBI—MSME; Exim—trade; NHB—housing; NaBFID—infrastructure
B. NABARD—trade; SIDBI—housing; Exim—rural; NHB—insurance; NaBFID—currency
C. All five perform exactly the same retail banking function
D. All five are insurance companies

MCQ answer key with explanations#

Final study recap#

The easiest way to remember Module 10 is through three questions.

What is the institution legally? A bank, an RBI-registered NBFC, a statutory AIFI or another regulated organisation?

What does it actually do? Retail lending, wholesale refinance, institutional development, export credit, data aggregation, housing refinance or infrastructure project finance?

Who supervises/regulates the activity now? RBI's appropriate NBFC/AIFI directions, or a different framework? Remember the 2019 HFC regulatory transfer from NHB to RBI and the 2025 NBFC rulebook reorganisation.

The institutional memory map is:

NABARD = rural · SIDBI = MSME · Exim Bank = international trade · NHB = housing · NaBFID = infrastructure.

Official sources and research notes#

Source policy: Facts on regulation, statutory mandate, ownership and licensing should come from RBI, India Code, the institutions themselves and official Government publications. Coaching websites may help with question trends but are not authoritative for current regulatory rules. Sources below are given as official canonical pages where available; some RBI source pages contain links to amended directions and subsequent versions.

Source 1 — RBI: NBFC Registration, Exemptions and Scale Based Regulation Directions, 2025#

https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12965

Verified edition: Updated as on 1 July 2026 during this research.

Used for:

• RBI's current NBFC SBR framework;
• registration/exemptions and category definitions;
• BL/ML/UL/TL;
• scale-based asset-size thresholds;
• revised Upper Layer identification criteria;
• special categories and their placement;
• references to the applicable, newly consolidated NBFC Directions.

Editorial warning: Do not replace this with old 2016 directions or the pre-amendment 2023 framework without explaining the date.

Source 2 — RBI: NBFC Acceptance of Public Deposits Directions, 2025#

Available via the current RBI SBR Direction, Source 1, under its link to “Non-Banking Financial Companies – Acceptance of Public Deposits”.

Used for:

• difference between public deposits and non-deposit funding;
• permissions and restrictions for NBFC-D;
• special treatment of deposit-taking HFCs.

Source 3 — RBI NBFC Frequently Asked Questions#

https://systemhealth.rbi.org.in/Scripts/FS_FAQs.aspx_Id%3D92%26fn%3D14.html

Used for durable explanatory points:

• the 50–50 principal-business test;
• bank vs NBFC distinctions;
• demand-deposit restriction;
• lack of DICGC insurance.

Limitation: This older FAQ may contain outdated minimum NOF thresholds and terminology. For live thresholds and current compliance, rely on Source 1 and other currently amended RBI directions.

Source 4 — RBI: AIFI scope and regulatory classification#

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=12783

Used for the official five-AIFI list:

• Exim Bank;
• NABARD;
• NaBFID;
• NHB;
• SIDBI.

Also see the current RBI Master Directions page for the All India Financial Institutions regulatory rulebook:

https://www.rbi.org.in/Scripts/BS_ViewMasterDirections.aspx

Source 5 — NABARD: Citizen's Charter#

https://www.nabard.org/contentsearch.aspx?AID=172&Key=super

Used for:

• establishment and mandate;
• Government ownership;
• finance, development, planning and inspection roles.

Source 6 — NABARD: Department of Refinance#

https://www.nabard.org/contentsearch.aspx?AID=91&Key=rural+marketing

Used for:

• historical ARDC transition;
• short-term and long-term refinance functions.

Source 7 — NABARD: institution overview and achievements#

https://www.nabard.org/contentsearch.aspx?AID=1399&Key=NBFC-MFIs

Used for:

• refinance;
• rural infrastructure;
• rural finance institutional development;
• credit planning and supervision.

Source 8 — SIDBI: About Us#

https://www.sidbi.in/en/about/

Used for:

• SIDBI Act / establishment;
• principal MSME financing and development mandate.

Source 9 — SIDBI: Institutional Finance#

https://www.sidbi.in/institutional-finance

Used for:

• refinance to eligible banks, NBFCs and MFIs;
• institutional MSME lending architecture.

Source 10 — India Exim Bank: About Us#

https://www.eximbankindia.in/about-us

Used for:

• establishment under 1981 Act and operations beginning 1982;
• long-term international trade/investment mandate.

Source 11 — India Exim Bank: Project Exports#

https://www.eximbankindia.in/project-exports

Used for:

• pre-shipment and post-shipment finance;
• overseas projects and turnkey exports.

Source 12 — India Exim Bank: Buyer's Credit and Lines of Credit#

https://www.eximbankindia.in/buyers-credit

https://www.eximbankindia.in/lines-of-credit

Used for:

• buyer's credit;
• eligible overseas buyers;
• project financing;
• commercial and Government-supported LOCs;
• IDEAS context.

Source 13 — NHB: About Us#

https://www.nhb.org.in/about-us/

Used for:

• NHB Act and establishment;
• NHB's housing-finance mandate;
• transfer of HFC regulatory powers to RBI in 2019.

Source 14 — NHB: Refinance Assistance#

https://www.nhb.org.in/financing/refinance-assistance-from-nhb/

Used for:

• refinance role;
• eligible primary housing lenders;
• wholesale rather than normal direct retail home-loan business.

Source 15 — Government/PIB: NHB ownership transfer#

https://www.pib.gov.in/PressReleasePage.aspx?PRID=1566743

Used for:

• Government acquisition of RBI's NHB stake in 2019;
• separation of NHB ownership and RBI regulatory role.

Important historical-source conflict: An older NHB FAQ still says “NHB is wholly owned by RBI.” That was historically true, but it is not current; the 2019 Government ownership transfer controls the present statement.

Source 16 — NaBFID: About Us and History#

https://www.nabfid.org/about-us

https://www.nabfid.org/history

Used for:

• NaBFID Act, 2021;
• long-term non-recourse infrastructure finance;
• capital-market development objective;
• RBI recognition/supervision as AIFI.

Source 17 — NaBFID: Annual Report / statutory documents#

https://nabfid.org/uploads/files/Annual-Report-English.pdf

https://nabfid.org/en/disclosures

Used for:

• history of operations;
• developmental and financial mandate;
• historical operations and statutory context.

Source 18 — Department of Financial Services: NaBFID#

https://financialservices.gov.in/nabfid

Used to cross-check NaBFID's statutory purpose as an infrastructure-focused DFI.

Additional verification policy#

Before refreshing the online chapter:

1. Check the current RBI master-direction version and all effective amendments.
2. Verify whether an old FAQ or annual report is describing historical or present ownership/regulatory status.
3. Verify AIFI institutional membership from an up-to-date RBI official list.
4. Keep institution heads, rates, current balance-sheet totals and new schemes outside permanent concept sections.
5. When using institutional examples, distinguish legally authorised categories from generic business or marketing terminology.