Top Compliance Challenges Faced by NBFCs in India Today

India’s financial ecosystem is evolving rapidly, and Non-Banking Financial Companies (NBFCs) have become one of its key pillars. They provide credit and financial services to sectors often left out by traditional banks—like small businesses, rural households, and new-age startups. However, with growing influence comes greater responsibility. Today, NBFCs in India face multiple compliance challenges, from regulatory complexities to tech-driven monitoring.

In this blog, Corpbiz highlights the top compliance hurdles NBFCs are struggling with in 2024 and how they can be tackled. Whether you are applying for an Online NBFC License with the RBI or running a P2P lending platform, understanding these compliance barriers is crucial.

1. Frequent Regulatory Updates and Uncertainty

The Reserve Bank of India (RBI) regularly revises guidelines to strengthen the NBFC sector. While this is good for the system’s health, it creates challenges for NBFCs to stay updated and adapt quickly.

• Example: The introduction of the Scale-Based Regulation (SBR) Framework has added new layers of compliance based on the size and risk profile of NBFCs.
  
  

• Impact: Smaller NBFCs, especially those with fewer resources, find it tough to interpret and implement these frequent changes on time.
  
  

2. Complex Licensing Procedures

Obtaining an Online NBFC License with the RBI is not a simple task. The application involves:

• Submitting a detailed business plan.
  
  

• Ensuring minimum net owned funds (₹2 crore for most NBFCs).
  
  

• Meeting fit and proper criteria for directors.
  
  

• Providing KYC, risk management, and cybersecurity policies.
  
  

NBFC registration process in India by RBI - Complete Overview

Similarly, other specific licenses like the NBFC Account Aggregator License Online, PPI License Apply Online, or P2P Lending License Online come with distinct and demanding compliance requirements.

Many applicants struggle due to:

• Lack of clarity in documentation.
  
  

• Delays in RBI communication.
  
  

• Changes in regulatory focus areas (e.g., cybersecurity, data privacy).
  
  

3. Data Privacy and Cybersecurity Compliance

As NBFCs go digital, data protection has become a top priority. NBFCs handling sensitive financial data—like those operating under the NBFC Account Aggregator License Online — are expected to implement robust IT security frameworks.

• Challenges:
  
  

• Setting up secure IT infrastructure.
  
  

• Regular audits and penetration testing.
  
  

• Data localization and encryption requirements.
  
  

Failure to comply with these standards can result in heavy penalties and cancellation of licenses.

4. Compliance with KYC & AML Norms

NBFCs are required to follow strict Know Your Customer (KYC) and Anti-Money Laundering (AML) guidelines just like banks.

• Problems faced:
  
  

• Frequent updates to KYC norms.
  
  

• Integration of digital KYC systems.
  
  

• Training employees to identify red flags.
  
  

NBFCs operating in high-risk areas or offering quick digital loans often face greater scrutiny from regulators.

5. Capital Adequacy & Risk Management

RBI’s SBR framework classifies NBFCs into different layers (Base, Middle, Upper) based on their risk profile. Each layer has different norms for:

• Capital adequacy.
  
  

• Risk-weighted assets.
  
  

• Exposure limits.
  
  

This creates complexity for NBFCs to monitor and comply with:

• Capital to Risk-weighted Assets Ratio (CRAR).
  
  

• Exposure to single/group borrowers.
  
  

• Investment in subsidiaries and real estate.
  
  

6. High Cost of Compliance

Compliance is expensive. NBFCs must invest in legal experts, auditors, IT systems, and consultants like Corpbiz to ensure they meet RBI norms. For startups or small NBFCs (like P2P lending platforms), these costs can be burdensome.

• Solutions:
  
  

• Outsourcing compliance to experts like Corpbiz.
  
  

• Using cloud-based compliance tools.
  
  

• Regular employee training programs.
  
  

7. Cross-Border Compliance (for Fintech NBFCs)

With NBFCs now offering cross-border services—like remittances, prepaid wallets, and investment tools—they must comply with FEMA, FATF, and international data privacy laws.

For example:

• NBFCs with PPI licenses must follow RBI’s Master Directions on PPIs, which require strict audit trails, payment limits, and full KYC compliance for certain wallets.
  
  

• P2P NBFCs must maintain escrow mechanisms and report data to credit bureaus.
  
  

8. Audit and Reporting Requirements

RBI mandates that NBFCs submit regular returns like:

• NBS-1, NBS-2, NBS-9 for financials.
  
  

• Structured Digital Reporting System (SDRS) for larger NBFCs.
  
  

• STRs (Suspicious Transaction Reports) for AML compliance.
  
  

This reporting is complex and time-bound. Errors or delays can attract penalties and trigger inspections.

9. Integration with Digital Ecosystems

NBFCs applying for Account Aggregator Licenses must align with the digital public infrastructure being developed under the India Stack. This involves:

• Integration with the AA framework.
  
  

• Adhering to data fiduciary norms.
  
  

• Real-time API-based compliance checks.
  
  

10. Lack of Internal Compliance Expertise

Many NBFCs, especially newly licensed ones, lack dedicated compliance officers or trained staff to handle legal and regulatory issues. This results in:

• Non-compliance with evolving RBI circulars.
  
  

• Risk of facing penalties or license cancellation.
  
  

• Dependency on external consultants without in-house understanding.
  
  

How Corpbiz Helps NBFCs Navigate Compliance

At Corpbiz, we assist NBFCs at every stage—right from applying for an Online NBFC License with RBI to securing P2P Lending Licenses Online, PPI License, and NBFC Account Aggregator Licenses. Our services include:

• Preparing business plans and policy documents.
  
  

• RBI application assistance.
  
  

• End-to-end compliance management.
  
  

• Audit support and RBI inspection preparedness.
  
  

FAQ: NBFC Compliance Challenges

Q1. Is RBI compliance mandatory for all NBFCs?
Yes, all NBFCs must comply with RBI’s master directions and guidelines, irrespective of their size.

Q2. How can I apply for an Online NBFC License with RBI?
You can apply online through the RBI portal. It requires preparing a detailed business plan, fulfilling capital norms, and submitting necessary documents.

Q3. What is the Account Aggregator License?
It allows NBFCs to act as intermediaries that collect and share financial data with user consent. It’s regulated by RBI and requires strict data compliance.

Q4. What is a P2P Lending License?
This license allows NBFCs to run peer-to-peer lending platforms. The license is issued by RBI after checking business models, escrow mechanisms, and tech compliance.

Q5. Can Corpbiz help in getting these licenses?
Yes. Corpbiz offers complete support—from document preparation to application filing and post-license compliance.

Conclusion

NBFCs in India are growing at a fast pace, but so are their compliance challenges. From obtaining licenses like NBFC Account Aggregator, P2P Lending, and PPI, to staying on top of frequent regulatory updates—compliance is not optional, it’s a necessity.

At Corpbiz, we believe in empowering financial businesses by simplifying the legal and compliance process. Whether you're starting your NBFC journey or looking to scale securely, we’re here to support you.

Author Profile: Atul Shukla

Atul Shukla is a seasoned financial compliance expert and a lead content strategist at Corpbiz. With over 10 years of experience in NBFC regulations, fintech licensing, and RBI compliance, Atul helps startups, financial institutions, and entrepreneurs navigate complex regulatory frameworks with ease. His writing simplifies legal jargon, offering actionable insights to help businesses grow while staying fully compliant. When not decoding RBI circulars, Atul enjoys mentoring young professionals and contributing to India’s digital finance evolution.