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What Are Various Steps For Registering an NBFC in India

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INTRODUCTION TO NBFC’S IN INDIA

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:

Types of Non- Banking Financial Company (NBFC) in India

 

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,

  • NBFCS eligible to accept deposits
  • NBFCS not eligible to accept deposits.

 

REGISTRATION PROCESS of NBFC IN INDIA

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:

  • the company undertakes that it is not carrying on any NBFC activity or has not carried on and stopped any NBFC activities in the past activity and will not carry on or commence the same before getting registration from RBI
  • the unincorporated bodies in the group where the director holds substantial interest or otherwise

     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:

  • has not accepted public funds in the past and/or does not hold any public fund as on the date; and
  • the Company will not accept any deposits in the future without the prior approval of Reserve Bank of India
  • the company shall seek prior approval of RBI before creating any customer interface in the future

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:

  • Audited balance sheet along with annexures
  • Profit & Loss statement
  • Directors Report
  • Auditors report

7) Banker’s report regarding:

  • Directors of the applicant company having a substantial interest in any other companies
  • Applicant company along with the directors of its group, subsidiary, associate, holding the company and related parties.
  • The Banker’s report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing entity.

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.

POST REGISTRATION GUIDELINES 

On receipt of the Certificate of Registration the NBFC are subject to certain guidelines as modified by the RBI from time to time:

  • The public deposits should be for a minimum period of 12 months and for a maximum period of 60 months
  • Accepted by them Interest rates offered should not be higher than the ceiling rate prescribed by RBI from time to time.
  • No additional benefits should be offered to the depositors like gifts or incentives.
  • The NBFC’s have to get its credit rating done from a credit rating agency in every 6 months and shall ensure that it possesses at least an investment-grade rating.
  • RBI does not guarantee the repayment of amount/deposits taken by the NBFC’s
  • All material information including any changes in the composition of the Company has to be furnished to the RBI.
  • Deposits taken by the NBFC shall be unsecured.
  • Audited Balance sheet and annual financials of the Company shall be submitted with the RBI annually.
  • A return stating the deposits taken by the Company shall also be furnished with the RBI annually.
  • A return stating the liquid assets of the company has to be furnished with the RBI Quarterly.
  • A certificate stating that the company is in a position to pay back all the deposits or money taken from the Public shall be obtained from the auditors and submitted with the RBI.
  • A half-yearly return has to be furnished by the company having Public Deposits of INR 20 Crores or more or assets of Rs. 100 Crores or more.
  • The company shall maintain at least 15% of the public deposits as liquid assets.

 

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Author
Vinay Singh
Vinay Thakur is Managing Partner in Corpseed. He focused on payments, digital transformation, and financial technology for over 15 years and holds strong expertise on fintech startups, banking innovation, and investors with a keen understanding of the trends and activities of startups, banks, and investors in the space.