Tata Capital, a non-banking financial services company (NBFC) under the Tata Group, is gearing up for one of the biggest IPOs in India’s financial sector. In September 2022, the RBI designated Tata Capital Financial Services as an “upper-layer systemically important NBFC,” requiring it to list on the stock market within three years. Upper layer NBFCs are large entities that are significant in terms of size and risk. They are also systemically important — meaning their failure could impact the wider financial system — which is why they have to follow stricter rules with enhanced governance standards, including mandatory listing.
Tata Capital was launched in 2007 as a subsidiary of Tata Sons and over the years and has grown to over 1000 branches across India. They offer a range of financial services, from consumer lending and commercial finance to wealth management and credit card distribution. This diversified portfolio, combined with Tata’s brand trust, makes Tata Capital IPO an anticipated public debut. The company has submitted updated draft documents to SEBI for a public offering, which will take place towards the end of September 2025.
While there’s much buzz around the IPO, it’s also important to note the humble beginnings of NBFCs.
NBFCs: Bringing financial services to everyone
NBFCs are Non-Banking Financial Companies. The origins of NBFCs in India go back to the pre-independence era, when they functioned largely as moneylenders and chit funds. Over time, especially after independence, these entities evolved into more structured financial institutions. A major milestone came in the 1960s, when amendments to the RBI Act, 1934, brought NBFCs under the central bank’s regulation, leading to the rise of leasing, hire-purchase, and investment companies. NBFCs expanded financial inclusion and helped widen the range of financial services available.
The Companies Act of 1956 provided the legal foundation for NBFCs, but it was the economic reforms of the 1990s — along with rapid advances in technology — that truly transformed the sector. Since then, NBFCs have expanded rapidly, becoming vital in extending credit to underserved regions and supporting India’s economic growth.
NBFCs don’t have a banking license, so they cannot accept demand deposits (like your savings account where you can withdraw anytime). But they can do almost everything else banks do, like:
- Lend money in the form of personal loans, business loans, vehicle loans, housing loans, etc,
- Finance significant purchases such as cars, consumer goods, tractors, equipment/machinery,
- Provide credit to small businesses and self-employed people,
- Offer investment & wealth management services, and,
- Provide microfinance or very small ticket loans in rural areas.
The power of small
NBFCs grew around the communities they served, catering to individuals, small businesses and small towns that didn’t have access to the kind of financial products available in urban India. While bigger players like Bajaj Finance and Tata Capital have the muscle to cater to a wider net of customers across India, one can’t ignore smaller NBFCs who cater to specific geographies and lending niches, and do them well. Here’s a sample list of smallcap NBFCs.
Sakthi Finance – pre-owned experts: Incorporated in 1955, Sakthi Finance is a middle-layer NBFC with a presence in southern India, across Tamil Nadu, Kerala, Andhra Pradesh and Karnataka. It specialises in the hire purchase financing of commercial vehicles, infrastructure equipment and machinery. Unlike broader-focus NBFCs, Sakthi Finance has carved a niche in financing pre-owned commercial vehicles and construction machinery, with a deep understanding of resale dynamics.
Northern Arc Capital – multi-channel model and pan-India presence: Launched in 2009, Northern Arc offers retail loans to underserved households and businesses, operating 316 branches across 671 districts in India. The company specialises in MSMEs, microfinance, consumer finance, vehicle finance, affordable housing, and agriculture. It reaches underserved areas via its own infrastructure (physical branches and its ‘phygital’ model which blends digital & physical channels) and through a network of Originator Partners such as microfinance institutions, NBFCs, fintechs, etc. (An Originator Partner is a local financial institution or company that helps a big NBFC reach small borrowers who would otherwise be too far or too costly to serve directly.)
PTC India Financial Services – financing the energy sector: PTC holds the status of Infrastructure Finance Company, providing equity/debt financing solutions to the energy value chain. This gives it specialised regulatory status to fund long-term infrastructure, especially in the energy sector. PTC works on a location-light, project-led footprint. The company offers financing solutions through both equity investments and debt funding. Its portfolio spans road infrastructure as well as power projects covering generation, transmission, distribution, fuel resources, and related infrastructure.
Paisalo Digital – financing small businesses and entrepreneurs: Paisalo has a versatile portfolio that caters particularly to lower-income borrowers and underserved segments. They offer small-ticket “income generation” loans under brands like Umeed, Pragati, Vikas for MSMEs, self-employed, and informal sector workers. The company also has mobility financing loans for two-wheelers, auto or electric rickshaws, EVs, etc, Including asset-based funding for used cars and batteries, especially in rural / semi-urban zones. Paisalo also offers higher ticket business/entrepreneur loans and even corporate loans up to ₹5 crores. They operate in 22 states with their headquarter and operations hubs in Delhi & Agra; along with a presence in Rajasthan, Uttar Pradesh, Haryana.
Small-cap NBFCs may not match the size of industry giants like Tata Capital, but they play a vital role in India’s financial ecosystem. By reaching underserved markets, offering flexible loan products, and supporting small businesses and households, they help drive financial inclusion and local economic growth. Their agility, niche focus, and ability to innovate often make them early adopters of new lending models, making them an important growth engine within the broader NBFC sector.
Sources
RBI: All you wanted to know about NBFCs
Omnicard: India’s NBFC Ecosystem: A Deep Dive
Northern Arc: Investor Presentation Q1FY26