NBFC Registration in India
Want to start your NBFC Registration under the Companies Act, engaged in the business of providing credit facilities like loans, accepting deposits, leasing, hire purchase, retirement planning, facilitating security.
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Get Support AnytimeAn Overview of NBFC Registration in India
Non-banking financial companies (NBFCs) in India are a vital part of the Indian financial service system. NBFCs have multiplied in large numbers and are serving the public at large to support the financial inclusion program with affordable credit at home. NBFCs are playing a key role in meeting the credit demands unmet by traditional banks, specifically focusing on peer-to-peer lending. Corpseed is the leading firm in India for NBFC registration.
It is a Company registered under the Companies Act engaged in the business (es) of providing financial services including loans & advances, leasing, hire purchase etc. They provide loans and advances and other credit facilities to business people or budding entrepreneurs where banks/Financial Institutions are not comfortable or say it is an alternative source of finance to businessmen. Thus, they have widened the spectrum and array of products and services offered by the financial sector. Progressively, NBFCs are gaining increasing recognition due to their customer-oriented services; flexible products, abridged procedures; flexibility and timeliness in meeting the credit needs of the seekers of credit; etc.
NBFCs in India 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. It is prima facie that the NBFC can be Companies registered under the Companies Act, 1956/2013 with the object clause of financial activity and the same need to take approval from the Regulator Reserve Bank of India RBI) before commencing the business of finance. Upon approval of the RBI, the Company can start the financial business and the entity should maintain the Principal Business Criteria (PBC) regularly.
Financial Activity as āPrincipal Businessā implies that financial assets of the Company shall constitute more than 50% of the total assets of the Company and income from such financial assets shall constitute more than 50% of the gross revenue of the Company, is termed as āPBCā.
Types of Non-Banking Financial Companies (NBFC) in India
Non-Banking Financial Companies (NBFCs) in India play a crucial role in India's financial ecosystem. These institutions, which are not traditional banks but provide financial services similar to banks, have witnessed significant growth in recent years. NBFCs cater to a wide range of sectors and segments, each with its unique set of requirements and challenges. In this blog post, we will delve into the different types of NBFCs and explore their diverse landscape.
NBFC is also categorized into two ways, based on liabilities as well as activities.
NBFC Based on Activities
- Asset-finance company
An asset finance company plays a significant role in providing finances for the purchase of the assets, such as machinery, equipment & vehicle. They primarily raise funds via deposits, investments, debentures. For instance, the asset finance companies contribute to making investments in the infrastructure sectors.
- Investment company
As the name itself suggests, investment companies primarily invest in shares, stocks & debentures. With this, it raises funds from the public and then invests them in quite a few investment partners. They provide assistance to those who aim towards the expansion of their financial portfolios & earning via dividends.
- Loan Company (LC)
Loan Companies are those NBFCs in India, which raise funds from the public and lend the same to the borrowers in the form of personal loans with other types of credits.
- Infrastructure Finance Company
It is a form of NBFC company registration aiming towards financing the infrastructure, such as roads, bridges, power plants, etc. As a result, it aims towards raising funds from the public & provides loans to the concerned authorities, like infrastructure developers.
- Micro-Finance institution
The Micro-Finance institution refers to a one-such kind of NBFC, Which aim towards providing financial services to the small business or low-income individuals. In addition, it provides you with savings accounts, small loans along with other financial resources, which aim at empowering economically weaker sections of society. In total, it promotes financial inclusion by reducing the poverty gap and giving access to financial services to the selective population.
- Mortgage Guarantee Company (MGC)
Mortgage Guarantee Company being a part of the NBFC Company registration gives mortgage services to the lenders, including finance companies & banks. If the borrower defaults, these companies ensure repayment, reducing lenders' credit risk. It also plays a defining role in promoting housing finance & regulating access to affordable housing for individuals.
- NBFC (factor)
It entails acquiring receivables from an assignor to extend loans at a discount against the security of receivables.
- Non-Operative Financial Holding Company
It is an altogether different type of NBFC, responsible for setting up or holding any financial service with the RBIās approval under the regulatory.
- Infrastructure Debt Fund
Infrastructure Debt Fund aims at raising the resources via bonds, especially for the infrastructural projects. In addition, these bonds are then issued in various currencies, in order to ensure that investors have a five-year maturity period.
- Systematically investment core investment company
It is one of the non-banking finance company, which deals with the following factors, which include the following factors-
- That deploys 90% of its total assets in the form of investment in shares, stocks, and debt or loan group companies.
- Out of 90%, 60% should be invested in equity shares or those which compulsorily converted later in equity shares.
In conclusion, NBFCs are classified into various types based on their liabilities, each serving a specific purpose in the financial ecosystem. Whether it is providing loans for asset acquisition, investing in securities, offering credit facilities, financing infrastructure projects, empowering the underprivileged, or mitigating credit risks, NBFCs play a crucial role in supporting economic growth and development in India.
What are the Requirements for NBFC License in India?
If you are planning to start a Non-Banking Financial Company (NBFC) in India, there are requirements during the registration process. These documents play a crucial role in determining the eligibility and credibility of your NBFC. It is as follows-
An NBFC should-
- Be a Company registered under the Companies Act.
- Should have a minimum net owned fund of INR 2 Crores.
How NBFCs are Different from Banks?
When we talk about financial institutions, it consists of NBFCs and banks, where the terms can be used interchangeably. However, it carries significant differences as well. Let us have a look at it-
How are NBFCs Different from Banks?
When we talk about financial institutions, it consists of NBFCs and banks, where the terms can be used interchangeably. However, it carries significant differences as well. Let us have a look at it-
- Regulatory Framework
One of the main differences between Non-banking financial institutions and banks is the regulatory framework. Here, Banks are regulated by the Reserve Bank of India (RBI), Whereas NBFCs fall under the Companies Act of 2013. Compared to banks, the latter carries flexibility in guiding the operations along with the stated regulations.
- Acceptance of Deposits
Banks are designed to accept deposits from the public, which is a part of their business structure. On the flip side, NBFCs do not accept these deposits, unlike Banks do. They are accustomed to accepting specific types of deposits, like recurring, fixed, or non-convertible debentures. For instance, the distinction makes banks viable for individuals who want to keep their savings safe.
- Lending Activities
There exist differences in the way Banks and NBFCs approach lending activities. The Former lends money to businesses & individuals, whereas the NBFCs shift their gaze to niche markets. As a result, they cater to the disadvantaged segments of the population by providing loans to small businesses, self-employed individuals, and people with limited credit histories. Such a specialization guides NBFCs to encourage lending solutions or facilities not provided by traditional banks.
In conclusion, while banks and NBFCs play crucial roles in the financial sector, they have distinct differences. NBFCs offer flexibility in their operations, cater to underserved segments, and leverage technology for innovation. Understanding these differences can help individuals and businesses make informed decisions when choosing between them for their financial needs.
What are the Documents Required for NBFC Registration?
If you are planning to establish a Non-Banking Financial Company (NBFC) in India, there are certain documents that you need to submit during the registration process. These documents play a crucial role in determining the eligibility and credibility of your NBFC.
- Certified copies of the Certificate of Incorporation of the Company.
- Certified copies of the main object clause of the Memorandum of Association of the Company and Articles of Association.
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 company has not accepted any public deposit, in the past/does not hold any public deposit as of this date and will not accept the same in future without prior approval of the Reserve Bank of India
- The unincorporated bodies in the group where the director holds a substantial interest or otherwise have not accepted any public deposits in the past; and does not hold any public deposit as of the date and will not accept any public deposits in the future
- The āFair Practices Codeā as per RBI Guidelines has been formulated by the Company
- Copy of Fixed Deposit receipt & bankers certificate indicating Net Owned Fund.
- Experience Certificate, if any, in the financial services sector (including Banking Sector) in respect of all Directors
- Banker Report on Fixed Deposit and Current Account of Company
- CIBIL Report of Director and Shareholder
- Profile of Board of Directors
- Business plan of the company
- Audited balance sheet along with annexures or provisional/unaudited, as the case may be.
Bankerās report regarding:
- Directors of the applicant company have a substantial interest in any other companies.
- Applicant Company along with the directors of its group, subsidiary, associate, holding company and related parties.
- The Bankerās 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 of the date of application and the conduct of the accounting.
What is the Procedure for Applying for NBFC Registration in India?
Are you planning to apply for a Non-Banking Financial Company (NBFC) Registration in India?
Congratulations! This can be an exciting venture, but before you can begin operations, you need to go through the process of NBFC registration. In this section, we will guide you through the step-by-step procedure for applying for NBFC registration in India.
Step 1:- Every company registered under the Companies Act, 1956/2013 with the object clause of financial activity needs to obtain a certificate of Registration (CoR) from the Reserve Bank of India (RBI) to commence business as NBFC.
Step 2:- For registration of an NBFC, an application is to be submitted in the prescribed form along with the necessary attachments with the RBI for its scrutiny.
Step 3:- On being satisfied that the provisions of the RBI Act have been complied with then a CERTIFICATE OF REGISTRATION is issued to the entity. It is imperative to fulfil the following prerequisites for obtaining a certificate of registration of NBFC from RBI:-
- The applicant must be a Company registered under the Companies Act for the time being in force
- The Company shall have a minimum NOF (Net Owned Funds) of INR 2 Crores who wish to set up an NBFC in India.
- At least one of the directors shall have experience in a similar field of business or should be an experienced banker.
- The CIBIL records of the Director and Shareholder should be free from any irregularities.
- The Board of Directors should foster the intention of serving the public at large with the financial inclusion policy adopted by the entity.
- Every director of the company should pass the āfit and properā criteria set by RBI.
Step 4:- On satisfaction of the aforementioned essentials, the Company should go for its registration as an NBFC in the form prescribed by the RBI along with all the mandatory documents and attachments. This application (COSMOS) can be filled out on the website of RBI.
Step 5:- On Successful submission of the application, an application reference number (ARN) is issued by the RBI to the applicant for the tracking status of the application. Once, the ARN has obtained a physical copy of the application along with all the attachments should also be submitted with RBI.
Step 6:- Once the application is received by the RBI, on scrutiny of the Company Profile, Promoter/Director and Shareholder Profile then upon satisfaction the license of registration of NBFC is granted by the RBI.
How will Corpseed Help You with the Process?
At Corpseed, we understand the importance of acquiring NBFC Compliance. It is a crucial step towards expanding your business and reaching new heights of success. Our team of experts has years of experience and Extensive knowledge of the procedures involved in obtaining NBFC. We are well-versed in the legalities and regulations of the process, ensuring that your registration is completed seamlessly and efficiently. With our expertise, you can rest assured that your registration process will be handled with the utmost care and professionalism. So, if you are looking for a reliable and experienced team to handle your NBFC Compliance, look only as far as Corpseed.
Connect With Corpseed
Connect with the Corpseed team to discuss your requirements at IVR: 7558640644 or hello@corpseed.com. It takes 20ā25 minutes to discuss the requirement.
Dedicated Manager
Once you discuss the requirement, we will align a dedicated Account Manager to understand your business needs and assist throughout the process.
Real Time Update
Track the progress of your application and always know whatās in progress and whatās done.
Job Completed
Once the job is completed, you will receive registrations & certifications directly to your email ID and at your doorstep.
Frequently Asked Questions
Quick answers to common questions about this service.
Is it mandatory to hire an NBFC consultant?
It is not necessary to hire any such professional. However, the process is complicated and you may end up losing more than 3.5 Lac paid for net own fund stamp duties ROC fee and other miscellaneous expense. In addition, the end-to-end process takes about 4 to 6 months for this you should have some domain experience.
I already run Finance business; can I apply for NBFC?
Yes. You can apply for NBFC Registration. However, you are require to surrender the local lending business license as it may occur a conflict of interest.
What is Deposit and Non Deposit Taking NBFCs?
A Non-deposit taking NBFCs are permitted only to offer loans and not take any public deposits. However, a deposit taking NBFC can accept the deposit from public like every bank does.
How much time it takes to register an NBFC in India?
There are many activities involved while registering NBFC
- - Company registered under the Companies Act (25 to 35 Business Days)
- - Application Drafting as per RBI Guideline & Business Plan Preparation (10 to 15 Days)
- - RBI Review process (60 to 90)
Overall, it takes 90 to 180 Business days to get NBFC License
Should we Form a fresh NBFC or Takeover Existing?
It is advisable to go for fresh NBFC instead of NBFC Takeover. However acquiring a existing NBFC is a little time consuming process, but under fresh NBFC you can structure your business from the scratch.
What is Net Owned Funds (NOF) of NBFC?
The sum of share capital paid up equity and free reserves as per the latest balance sheet of the company.
Can we take a loan to meet 2 Crore capital requirement?
No. The main source of funds shall be owned & tax paid. However, the gift from Spouse or relatives comes under own capital, you can take funds from Spouse or relatives in form of gift.
Is Foreign Direct Investment (FDI) allowed in NBFC?
Yes you can take foreign direct investment in newly incorporated / existing NBFC, However, FDI shall be in the form of T1 Equity. In case of early stage, NBFC must comply with FEMA Provisions along with the RBI Act.
What is meant by finance as principal business in NBFC?
If revenue and financial assets is beyond 50% out of total revenue and total assets respectively, such comapny becomes eligible to apply for NBFC License to the RBI.
Is it mandatory to register a NBFC to carryout lending business?
Yes, it is. Incase an establishment wants to carry a lending/investment business, it becomes necessary to get it registered RBI for carryout such activities.
What are the NBFC registration requirements?
An NBFC must be a registered company under the Companies Act and must have a net owned fund of INR 2 crores.
How to get NBFC registration?
Refer to the article division āNBFC Registration with RBIā discussed above.
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