How to Get NBFC Registration in India
We all come across various fund lending institutions such as Muthoot Finance, Shriram Transport Finance Company, Bajaj Finance, Mahindra & Mahindra Financial Services, Cholamandalam, Tata Capital Financial Services.
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How to get NBFC Registration in India?
We all come across various fund lending institutions such as Muthoot Finance, Shriram Transport Finance Company, Bajaj Finance, Mahindra & Mahindra Financial Services, Cholamandalam, Tata Capital Financial Services, and many more, are some popular Non-banking Financial institutions in India who have established their unique identity and customer loyalty over time due to their lower eligibility criteria and flexible approach towards financial services as compared to other traditional banking institutions.
But, what is an NBFC? As the name suggests, a Non-banking Financial Company (NBFC) is a financial institution, which has financial activity as its principal activity, and is incorporated as a company under the provisions of the Companies Act 2013 (or a previous one registered under the Act 1956), and needs to compulsorily obtain a certificate of registration from the Reserve bank of India under section 45-1A of the RBI Act 1934, to commence its business operations.
Primarily, NBFCs Are Engaged In The Business Of-
- Offering Loans & advances such as personal loans, and gold loans. Home loans, business loans, etc;
- Acquiring securities such as shares/stocks/bonds/debentures/securities issued by any Government or local authority or other marketable securities of a like nature, or
- Activities such as leasing or hire-purchase, or
- Insurance, or
- Chit-fund business or
- Receiving deposits in pursuance of any scheme or arrangement as a lump-sum amount or in installments through contributions or in any other manner;
But Are Not Involved In the Business-Related To-
- Any agriculture activity,
- Industrial activity,
- Sale/purchase of any goods/raw materials (except securities from the capital market) or
- Any services related to the sale/purchase/construction of the immovable property.
Although NBFCs are not subject to strict regulations as in the case of banks, the Reserve Bank has been conferred under the provisions of the RBI Act 1934, to register, frame policies and guidelines for their functioning, issue directions, undertake inspections, regulate, monitor, and supervise over NBFCs, including the powers to suspend or cancellation of registration over financial companies who satisfy 50-50 criteria of principal business.
In recent years, NBFCs have played a significant role in the development of the economy by catering needs to a large variety of populations, to whom banks generally find it difficult to lend funds due to their higher eligibility criteria. Thus, NBFCs have gained recognition in the market due to their flexible procedures, customer-oriented services, and quick & fast-approaching lending to needy customers.
How are NBFCs Different From A Bank?
Generally, banks and NBFCs are considered similar as both undertake somewhat similar financial activities, but there are a lot of fundamental differences between the two, which have been presented below-
Basis of Comparison Banks NBFCs
|
Basis of Comparison |
Banks |
NBFCs |
|
1. Significance |
A bank is an authorized financial intermediary which holds a banking license from the Reserve Bank of India with a primary objective to offer banking services to the public. |
An NBFC is a financial institution that offers banking services under the control and administration of RBI but doesn't possess a Banking License from RBI. |
|
2. Applicable Act |
Banking Regulation Act 1949 |
Companies Act 2013 |
|
3. Licence |
Holds Banking License from RBI |
Does not hold banking license, but’ Certificate of Registration from RBI |
|
4. Demand Deposits |
Can accept demand deposits from the public |
Cannot accept demand deposits |
|
5. Payment and Settlement system |
An integral part of the System |
Not a part of the System |
|
6. FDI Limit |
Only 74% allowed |
100% FDI allowed |
|
7. Credit Score Requirement from customers |
Higher |
Moderate to lower credit score applicants also considered |
|
8. Rules & regulations |
Strict adherence |
Flexible & customer-suited |
|
9. Deposit Insurance |
Allowed and Available |
Not Available |
What Are The Pre-Requisites To Start An NBFC?
For commencing business as an NBFC, the following pre-requisites must be fulfilled-
- The company must be a public or a private company under the provisions of the Companies Act 2013/1956;
- Minimum net owned funds of at least 2 Crores.
- Duly prepared detailed business plan for the next three years should be with the company
- 1/3rd of the directors of the company must come from work experience in finance background;
- The company must possess clear CIBIL records;
- Compliance with requirements under capital compliances and FEMA regulations should be met.
Types of NBFCs in India
Primarily, there are two types of NBFCs-
- Deposit Accepting NBFCs
- Non-deposit Accepting NBFCs
NBFCs could be further categorized into the following ten forms under which they function with different objectives such as-
- Investment & Credit Company – An Investment & Credit Company is a combined form of an Asset Finance Company, Loan Company (LC) & an Investment Company, which has the primary objectives of offering and lending funds to businesses for the purchase of business assets such as automobiles, tractors, lathe machines, generator sets, etc., and other purposes and to acquire securities.
- Infrastructure Finance Company (IFC)- An Infrastructure Finance Company means an NBFC company who
- Offers up to a minimum of 75% of its total assets on infrastructure loans;
- Holds at least Rs. 300 crore of Net Owned Funds;
- Holds a credit rating of at least A or equivalent;
- Has a Capital Adequacy ratio (CRAR) of 15%.
- Infrastructure Debt Fund- An Infrastructure Debt Fund is an NBFC that offers and lends primarily for infrastructure projects.
- Non-Banking Financial Company (IDF-NBFC) – They generally offer and lend funds to business entities functioning in infrastructure sectors.
- Systemically Important Core Investment Company (CIC-ND-SI)- It is involved in the acquisition of shares and securities mainly equity shares
- Non-Banking Financial Company-Micro Finance Institution (MFI)- It is a type of non-deposit accepting NBFC, in which above 85% of the assets of the company do exist in the nature of microfinance loans;
- Non-Banking Financial Company (Factors)- Generally, NBFCs who are involved in the business of factoring i.e. they sell their bills receivables to third parties as a factor on discount.
- Mortgage Guarantee Companies (MGC)- Such NBFC companies were-
- 90% of business turnover comes from mortgage guarantees; or
- 90% of the total business income comes from mortgage guarantees; and
- Net-owned funds are Rs. 100 crores or more;
- Non-Operative Financial Holding Company (NOFHC) - A NBFC is allowed to set up a bank in pursuance of meeting RBI eligibility criteria on this behalf.
How to Start an NBFC in India?
NBFC Registration Process in India
Provided below is the step-by-step process of registering an NBFC and commencing business operations.
- Go to the MCA portal and get the company incorporated under the provisions of the Companies Act 2013.
- Once the company gets incorporated, the company needs to fulfill the basic criteria.
- Minimum net-owned funds should be at least 2 Crores.
- 1/3rd of the directors of the company must come from work experience in finance background;
- The company must possess clear CIBIL records;
- Compliance with requirements under capital compliances and FEMA regulations should be met.
- Log on to the RBI’s official website and fill NBFC application for registration under section 45-1A of the RBI Act 1934.
- Fill in all the required details attach all necessary documents and submit the application form;
- On successful submission of the application, a reference CARN number will be generated for application tracking purposes.
- Next, print the application hard copy to the RBI authority and send the hardcopy to the RBI regional branch;
- On careful examination of the application, the RBI authority will assess the application and grant a "Certificate of Registration" to the application to company.
Documents to Be Attached With NBFC Registration Application
- Copy of Certificate of Incorporation.
- Details of the Board of Directors of the company along with a brochure providing company details;
- PAN number of the organization;
- Proof of the registered business address of the organization;
- Copy of the objectives & bye-rules of the company (i.e. MOA & AOA)
- CIBIL/Credit reports of all the directors of the company and that of the company;
- Copy of the board resolution containing a declaration that the company has not carried any NBFC activity in the past and shall not start NBFC activities until RBI registration is granted;
- Copy of a board resolution on ‘Fair Practices Code ’to be drafted and a certified copy of the same shall have to be submitted;
- A certificate issued by the statutory auditor to the effect that the company has not held public deposits in the past and shall not do so at any time in the future;
- A certificate prescribing details about the “Net Owned Funds” as on the date prepared and signed by Statutory Auditor;
- A list of information regarding bank accounts, balances, loans, credits, etc.
- Copy of the audited balance sheet and profit and loss statement for the previous three years along with a directors and auditor's report regarding the same;
- Self-certified copy of the bank statement and ITR returns of the company;
Benefits of NBFC Registration
A registered NBFC has a more flexible approach as compared to traditional banking institutions and offers multiple benefits such as.
Flexible Approach:
Unlike banks, NBFC companies have earned wide recognition and popularity among various sections of the Indian population, as the NBFCs adopt a flexible approach in understanding the needs of every customer and offering loan facilities. While banks do have limited availability, NBFCs have stretched their business possibilities with semi-rural and rural areas for financial support with a service-oriented approach.
Easy Processing of Loans
The requirement of documents is much lesser and more flexible in the case of an NBFC as compared to banks. Thus, it offers a more convenient option for consumers as compared to other financial institutions.
Moderate/Low Credit Score Requirement
As compared to banks, NBFCs have a much more flexible approach and even consider people with lesser credit scores to provide loans as the rules for NBFC lending by RBI are much lesser;
Serves Funds Requirements of all Businesses
As NBFCs adopt a more flexible customer-oriented approach in lending, they cater to the fund requirements of all small-scale industries and start-ups, to whom usually banks do not find lending comfortable;
Flexible Interest Rates
RBI does prescribe a limit between which the NBFC can adopt any rate of interest for lending to customers. Therefore, NBFCs can lend to customers based on their own decisions;
Customer-Oriented
NBFCs are customer-oriented in nature i.e. they offer a variety of services apart from lending such as investment advisory, trading in money market instruments, education financing support and retirement planning decisions, etc.
Business-Advisory & Investment:
Apart from lending facilities for customers, NBFCs also offer business advisories such as corporate mergers, acquisitions, preparation of feasibility reports, markets, and industry studies for businesses.
RBI Compliances for NBFC
The Applicable compliances to an NBFC could be categorized into Annual, monthly, and periodical compliances to be generally followed by an NBFC-
|
Name of Compliance |
Applicability |
Due date |
|
Unaudited March Monthly return/NBS7 |
Annually |
By 30th June |
|
Audited March Monthly return/NBS7 |
Annually |
Upon completion |
|
Statutory Auditors certificate on Income & Assets |
Annually |
By 30th June |
|
Information about Cos having FDI/Foreign Funds |
Annually |
By 30th June |
|
Resolution of Non-acceptance of Public Deposit |
Annually |
Before the start of the new Financial year |
|
File Audited Annual Balance Sheet and P&L Account |
Annually |
One month from the date of signoff |
|
Declaration of Auditors to Act as Auditors of the Company |
Annually |
Annually |
|
Monthly Return |
Monthly |
It must be done on the 7th of every month |
|
Director’s Appointment |
Periodical |
Within 30 days of the appointment |
|
Resignation of Director(DIR-12 + Challan Receipt) |
Periodical |
Within 30 days of resignation |
|
Adoption of any notification in the ensuing Board Meeting & filing the certified copy with RBI. |
Periodical |
|
Conclusion
Since, the main objective of an NBFC is to fulfill the credit needs of the needy section of society, whereas banks are those financial intermediaries by the government authorities to receive deposits and lend funds to society but are subject to strict regulations regarding their lending criteria and the applicable interest rates. Whereas, NBFCs come with a flexible approach, customer-oriented services, easier lending with faster processing, and other services such as investment planning support and business advisory. Get an NBFC License with the best NBFC Registration Consultants in India and start your journey today!
About the Author
Bhavana Bhandari
Legal Content WriterI am working in Corpseed ITES as "Legal Content Writer" and hold two years of experience in writing, proofreading, and reviewing all kinds of legal content including court rulings, IPR laws, business registration and compliances, tax, GST, and similar matters.
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