Non-banking financial companies (NBFCs) play an important part in the Indian financial echo system. NBFC’s playing a key role in meeting the credit demands unmet by the traditional banks, specifically focusing on peer to peer lending.
It is a Company registered under the Companies Act (other than commercial and co-operative banks), engaged in the business(es) of providing credit facilities like accepting deposits, loans & advances, leasing, hire purchase, facilitating securities trade and money market trade, retirement planning, facilitating securities trade and money market trade, underwriting facilities, merger activities, etc. Progressively, NBFC’s are gaining increasing recognition due to their customer-oriented services; abridged procedures; flexible products, better rates of return on deposits; flexibility and timeliness in meeting the credit needs of the seekers of credit; etc.
In India, NBFCs are regulated by the Reserve Bank of India(RBI) within the framework of the Chapter IIIB of the Reserve Bank of India Act, 1934 and any rules made thereunder or any directions issued by it under the Act. RBI Act defines an NBFC as:
1) INVESTMENT AND CREDIT COMPANY (NBFC-ICC): Any company with its principal business- asset finance, providing the finance for any activity other than its own and the acquisition of securities; also not in any other category of NBFC is called Investment and Credit Company. Learn More....
2) INFRASTRUCTURE FINANCE COMPANY (NBFC-IFC): The Infrastructure Finance Company is the kind of financial institution principally engaged in providing infrastructure loans. Such companies can issue the credit facility (term loans, project loans, etc.). A minimum of 75% total assets of the company should be invested in the infrastructure loans Learn More....
3) INFRASTRUCTURE DEBT FUND (IDF)-NBFC: IDFs NBFC channelize investment into the infrastructure sector, under this domestic/offshore institutional investors, especially insurance and pension funds can invest through units and bonds issued by the IDFs. Learn More....
4) MORTGAGE GUARANTEE COMPANY (MGC)-NBFC: NGC company' has a principle objective of providing mortgage guarantee. Such companies shall comply with at least 90% of the business turnover form mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business
5) NBFC-NON OPERATIVE FINANCIAL HOLDING COMPANY [NOFHC]: A NOFHC is financial business entity through which Entities/groups will be allowed to set up a new bank, which will hold the bank and all other financial services companies regulated by RBI or other financial sector regulators,
6) MICRO FINANCE NON-BANKING FINANCIAL COMPANY (NBFC - MFI): Micro Finance Institution (NBFC-MFI) are the non-deposit taking financial company with Minimum Net Owned Funds of Rs.5 crore and above (for North Eastern Region of india, it will be Rs. 2 crore). NBFC-MFI covers a wide range of services like credit, insurance, savings, remittance and also non-financial services like training, counseling etc. Learn More....
7) NON-BANKING FINANCIAL COMPANY – FACTORS (NBFC-FACTORS): NBFC-Factors to finance institution with minimum net worth of the Company Rs 5 Crores, having the principal business of acquisition of receivables on discount or financing against such receivables by way of loans or advances or by the creation of security interest over such receivables but excludes normal lending by a bank.
8) Systemically Important Core Investment Company (NBFC - CIC-ND-SI): CIC-ND-SI NBFC are engaged in the business of acquisition of securities and shares which its holds 90% of its total assets in the form of investment in shares and equity. Such NBFC’s shall compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue. Learn More....
NBFC companies are of two types on the basis of deposits,
Step 1. Register a Company with ROC
The initial step in applying for NBFC license is to register Company (Private Limited or Public Limited) under the Companies Act with the principal objective of financial activities. By the time of Company Registration, make sure the company bylaws are well drafted. To learn more about the company’s structure in India click here
Step 2. Arrange Net Owned Funds (NOF) of Rs.2 crore
After the arrangement of Net Owned Funds (NOF) should be, Rs. 2 crores fixed deposit the funds and obtain no lien certificate from the bank authority. In case of a microfinance company, the deposit amount should be Rs.5 crore,
Step 3. Prepare a detailed Business Plan
Post incorporation of a company under the companies act, prepare the detailed business plan. A business plan plays a very important role in obtaining a NBFC license. A business plan should include short- and long-term objectives of the company. It also should define the company’s mission, vision, and financial goals of the company. Generally, a business plan consists of a vision of the company, mission of the company, executive summary, business structure to be followed, promoter background, targeted market size, product & service, growth aspects, sales & marketing structure, etc.
Step 4. Arrange the required documents as per the RBI NBFC guidelines
In order to file the application online, it is advisable to go through the requirement list of the NBFC and collect all the required documents in place. Here are some of the documents which may be required:
1) Certified copies of the Certificate of Incorporation of the Company.
2) Certified copies of the main object clause of the Memorandum of Association of the Company.
3) Board resolution(s) stating the following:
i. which has not accepted any public deposits in the past; and
ii. does not hold any public deposit as on the date of application
iii. will not accept any public deposits in the future
iv. the “Fair Practices Code” as per RBI Guidelines has been formulated by the Company
4) the company:
5) Copy of Fixed Deposit receipt & bankers certificate indicating Net Operating Fund.
6) The companies which are already in existence the following documents are to be submitted for the last 3 years OR from the period of incorporation of the Company till the closure date of the previous financial year:
7) Banker’s report regarding:
Note: Bankers' report is to be obtained from all the bankers of each of these entities. This report should specifically mention the details of deposits and loan balances as on the date of application and the conduct of the account.
8) Copy of the certificate of the highest educational and professional qualification in respect of all the directors
Step 5. Apply for NBFC License via RBI Online Portal
Post arrangement of the documents, the immediate next step is to put an application online on RBI online portal for NBFC registration. The application process requires deep technical terms to be submitted and hence, it is advisable to take the help of professional, team corpseed can help you with end to end process.
Step 6. Submit a copy of application physically to the regional office of the RBI
Post application filing online, the next step is to arrange a hard copy of the file and physical submit the documents to the regional office of the Reserve bank of India (RBI) and obtain the acknowledgment receipt.
Step 7. Liaison with the RBI
After submission of the application online and hard copy, follow up with the RBI properly for the status of the NBFC application, and make the amendment in case suggested by RBI.
On receipt of the Certificate of Registration the NBFC are subject to certain guidelines as modified by the RBI from time to time:
Non-Banking Financial Company (NBFC) is that kind of financial institution which offers various financial and non-financial services to business enterprises, individuals, entrepreneurs, etc. NBFC License must be taken from RBI
Peer-to-peer lending platforms offers a simple key to borrow money for short-term necessities. This shall include buying consumer electronics, medical emergency, business loan, home renovation, repay credit card dues, travel loan, or any other such requirements.
The procedure for taking over an NBFC is being laid down by the RBI. Takeover of an NBFC refers to purchase of one NBFC by another company. Only registered NBFC under the Act shall undertake to acquire the control of another NBFC.
NBFCs do not have those prosperities, which means that the NBFCs need alternate sources of the money supply, which are higher than the deposits taken by banks, where the interest rate offered is between 4%-6%.
Collaboration means coming together for a shared goal. India has more than 9000 active NBFC but barely 954 the NBFCs have book size more than 40 crores. Rest 8460 NBFCs are only able to meet the regulatory cap of the loan book of INR twenty Million.
RBI and other related regulators set rules and regulations, which keep on altering because of changing needs and circumstances. It is important for the NBFC management to know about what to do and how to do it, and there is a strong need to keep abreast of the times.
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