IIBF NBFC key terms

A non-deposit-taking NBFC whose asset size crosses the threshold set by the RBI, attracting stricter capital, disclosure and governance norms because its failure could disrupt the wider financial system.

The RBI's four-layer framework classifying NBFCs as Base, Middle, Upper and Top Layer according to size, activity and interconnectedness, with progressively tighter regulation applied to higher layers.

An NBFC identified by the RBI for enhanced regulation under the scale based framework, subject to stricter capital adequacy, governance, disclosure and listing-related requirements than Middle Layer peers.

Owned funds comprising paid-up equity capital, free reserves and certain preference capital, reduced by accumulated losses, intangible assets and investments in group entities, used as the entry and ongoing capital benchmark for NBFCs.

A capital adequacy measure comparing regulatory capital to risk-weighted assets, showing how much loss-absorbing capital an NBFC holds against credit and other risks on its book.

The test requiring an NBFC's financial assets to be at least half of total assets and income from financial assets to be at least half of gross income for it to be treated as a financial company.

The licence granted by the RBI under the Reserve Bank of India Act permitting a company to carry on non-banking financial activity, which can be cancelled for non-compliance.

Money received from the public by way of deposit or loan, other than from specified exempt sources such as banks or relatives, which most NBFCs are barred from accepting.

An NBFC permitted by the RBI to accept public deposits within prescribed limits, carrying higher minimum net owned funds, statutory liquidity and interest rate restrictions than non-deposit-taking peers.

The process of grading loan exposures as standard, sub-standard, doubtful or loss based on how long the borrower has been in default, which drives provisioning and income recognition.

A loan or advance where interest or principal has remained overdue for more than ninety days, or where the account otherwise meets the regulatory definition of a non-performing exposure.

An early warning classification applied to a borrower account showing overdue instalments for short periods below the NPA threshold, used to trigger corrective action before default deepens.

Rules stating that interest on non-performing assets must not be recognised as income until actually received, and that fees and charges follow cash-basis treatment once an account turns non-performing.

Prescribed percentages of exposure that an NBFC must set aside from profits for standard, sub-standard, doubtful and loss assets, reflecting expected credit loss on the portfolio.

A forward-looking impairment method estimating losses on financial assets from probability of default, exposure at default and loss given default, rather than waiting for default to occur.

The ratio of loan amount to the appraised value of the asset financed, capping how much an NBFC may lend against collateral such as gold, property or vehicles.

A non-banking finance company whose principal business is lending against gold jewellery, subject to specific loan-to-value caps, valuation and auction procedures and short-tenor repayment norms.

The documented process of appraising and periodically revaluing security offered by a borrower, including gold purity testing or property inspection, to support lending and provisioning decisions.

A board-approved code governing an NBFC's dealings with borrowers, covering loan application disclosure, interest rates, grievance redressal, repossession and recovery conduct.

A designated official at each NBFC who receives and resolves customer complaints within prescribed timelines, with escalation to the RBI Ombudsman if the customer remains dissatisfied.

A unified complaint-handling mechanism allowing customers to escalate unresolved grievances against regulated entities to the RBI ombudsman for free, binding, time-bound adjudication.

Rules limiting recovery agents to permitted contact hours and civil behaviour, requiring borrower consent for third-party recovery and prohibiting intimidation, which an NBFC must monitor.

The mandatory process of identifying customers, verifying identity and address through prescribed documents, and understanding the purpose of the relationship before and during onboarding.

Ongoing risk-based scrutiny of a customer's identity, transactions and source of funds, with enhanced measures for high-risk cases and simplified measures permitted in limited low-risk situations.

A person entrusted with prominent public functions, or a close relative or associate of such a person, who requires enhanced due diligence and senior management approval before onboarding.

Additional verification and monitoring applied to high-risk customers, such as non-resident borrowers, cash-intensive businesses or politically exposed persons, including source-of-wealth checks.

A confidential report filed with the Financial Intelligence Unit when an NBFC suspects funds derive from crime or terrorism, without tipping off the customer involved.

The national agency receiving cash, suspicious and cross-border transaction reports from reporting entities and analysing them for money laundering or terrorist financing investigations.

The statute imposing obligations on financial institutions to verify customer identity, maintain records, report suspicious transactions and appoint a designated principal officer.

The practice of matching the maturity and interest rate profiles of assets and liabilities so that the NBFC can meet obligations as they fall due without forced borrowing or distress sales.

The difference between rate-sensitive assets and rate-sensitive liabilities repricing within a given time bucket, showing exposure of net interest income to rate movements.

A requirement for large NBFCs to hold high-quality liquid assets sufficient to cover net cash outflows over a thirty-day stress period, reducing run risk.

The danger of excessive exposure to a single borrower, group, sector or funding source, which can amplify losses and liquidity strain if that counterparty or market deteriorates.

Caps on lending to one borrower or borrower group as a share of owned funds, preventing credit risk from becoming dangerously concentrated in a few large exposures.

The risk that third-party service providers, such as collection agencies or technology vendors, fail to perform or breach customer data, leaving the NBFC accountable to regulators and customers.

Documented procedures enabling an NBFC to keep critical operations and customer access running during disruptions such as system failure, cyber-attack, natural disaster or staff unavailability.

The policies, approvals, segregation of duties and monitoring mechanisms set by an NBFC's board to safeguard assets, ensure accurate records and prevent fraud or regulatory breach.

An independent function reporting to the audit committee that examines processes and transactions for compliance, control gaps and fraud indicators, and tracks rectification of findings.

The external chartered accountant appointed by shareholders to audit the NBFC's financial statements and report on compliance with RBI directions, including capital adequacy and NPA classification.

A board-level committee overseeing credit, market, liquidity and operational risk policies, risk appetite, and the adequacy of mitigation measures at a larger NBFC.