Financial and regulatory terms, explained plainly
A growing glossary of the NBFC, lending, and compliance terms you'll encounter most often — currently 28 terms, with new ones added regularly.
A
ARC (Asset Reconstruction Company)
A company registered with the RBI under the SARFAESI Act, 2002 that acquires non-performing assets from banks and financial institutions and works to recover or restructure the underlying debt.
B
BC (Business Correspondent)
An agent appointed by a bank or NBFC to deliver banking and financial services — account opening, deposits, withdrawals, loan facilitation — at locations away from a traditional branch, extending last-mile financial access.
C
Co-lending
An arrangement under the RBI's co-lending model in which a bank and an NBFC jointly originate and fund loans, typically sharing exposure 80:20, combining the bank's lower cost of funds with the NBFC's reach and underwriting.
D
DPD (Days Past Due)
The number of days a borrower's payment remains overdue past its due date. It is the core metric lenders use to classify accounts as current, delinquent, or non-performing.
DRT (Debt Recovery Tribunal)
A specialized tribunal set up under the Recovery of Debts and Bankruptcy Act, 1993 for the expeditious adjudication and recovery of debts owed to banks and financial institutions.
DSA (Direct Selling Agent)
An individual or entity engaged by a bank or NBFC to source loan applications and refer prospective borrowers, earning a commission, without itself disbursing funds.
DSCR (Debt Service Coverage Ratio)
A ratio comparing a borrower's net operating income to its total debt obligations (principal plus interest). A DSCR above 1 indicates income sufficient to service existing debt.
Due Diligence
The structured process of verifying a person's or entity's financial, legal, and background information before onboarding, lending, or entering a transaction, so risks are identified before they materialize.
E
eKYC
Electronic Know Your Customer verification, using Aadhaar-based or other digital document authentication, that lets a customer's identity be verified remotely without physical paperwork.
F
Fair Practices Code
An RBI-mandated framework requiring lenders to follow transparent, fair, and non-coercive practices in loan disclosures, pricing, recovery, and grievance redressal.
FEMA (Foreign Exchange Management Act)
The 1999 law governing foreign exchange transactions in India, including cross-border investment, remittances, and external commercial borrowings.
Financial BPO
Outsourced back-office and operational support for financial institutions — loan processing, collections, customer service, and documentation — that lets lenders scale operations without expanding in-house headcount.
Fit and Proper Criteria
The RBI's standard for assessing the integrity, track record, and financial soundness of directors and key management personnel before they can hold such positions at an NBFC or bank.
FOIR (Fixed Obligation to Income Ratio)
The proportion of a borrower's monthly income already committed to fixed obligations — EMIs, rent, other loans — used by lenders to gauge how much additional repayment capacity remains.
G
GST (Goods and Services Tax)
India's unified indirect tax on the supply of goods and services, replacing multiple central and state taxes, applicable to most financial and BPO services at prescribed rates.
I
IBC (Insolvency and Bankruptcy Code)
The 2016 law consolidating India's insolvency framework, providing a time-bound process for resolving corporate insolvency or, where resolution fails, moving to liquidation.
K
KYC (Know Your Customer)
The mandatory process of verifying a customer's identity and address using approved documents before establishing a financial relationship, aimed at preventing fraud and money laundering.
L
LMS (Loan Management System)
Software that manages a loan's lifecycle after disbursement — repayment schedules, interest accrual, collections, and reporting — used by lenders to track and administer their loan book.
M
MOA & AOA (Memorandum & Articles of Association)
The foundational legal documents of a company: the MOA defines its objects and scope of business, while the AOA sets out its internal governance rules and procedures.
N
NBFC (Non-Banking Financial Company)
A company registered under the Companies Act that carries out lending, investment, or other financial activities but does not hold a banking license and cannot accept demand deposits.
Net Worth Certificate
A certificate, typically issued by a chartered accountant, certifying an individual's or entity's net worth (assets minus liabilities) as of a given date — often required in RBI and other regulatory filings.
NOF (Net Owned Fund)
An NBFC's paid-up capital and free reserves, minus accumulated losses and certain intangible or other deductions. The RBI mandates a minimum NOF as a precondition for registration and continued operation.
NPA (Non-Performing Asset)
A loan or advance on which interest or principal repayment has remained overdue for a specified period — generally 90 days — signaling a reduced likelihood of recovery in the normal course.
O
OTS (One-Time Settlement)
A negotiated arrangement in which a lender agrees to accept a lump-sum amount, usually less than the total outstanding, as full and final settlement of a defaulted loan.
R
RBI License (Certificate of Registration)
The Certificate of Registration issued by the Reserve Bank of India under Section 45-IA of the RBI Act, 1934, authorizing a company to commence and carry on business as an NBFC.
S
SARFAESI Act
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — a law letting banks and financial institutions enforce security interests and recover secured debts without court intervention, subject to prescribed procedure.
Scale Based Regulation (SBR)
The RBI's framework classifying NBFCs into Base, Middle, Upper, and Top layers based on size, activity, and perceived risk, applying progressively stricter norms as an NBFC moves up layers.
W
Working Capital
The funds a business needs to cover its short-term operational expenses and day-to-day obligations, typically calculated as current assets minus current liabilities.
Showing 28 of 28 terms.
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