All you need to know about NBFC Registration

Non-Banking Financial Company (NBFC) is a financial institution which does not possess any full fledged banking license but are involved into business of offering financial products, loans and services to customers. NBFC’s mostly deal with the business of loans and advances, finance leasing, acquisition of shares, hire-purchase, chit fund etc.

NBFC’s act as an alternate to the banks as they help in financial problems of the unorganized part of the society which remain unfulfilled by the traditional banking system.

Regulatory Authority of NBFC

NBFC’s can be a private or a public company which is registered under the Companies Act, 1956 or 2013 and are required to take license from the Reserve Bank of India as per Section 45-IA of the RBI Act, 1934 to carry on its business. Hence, NBFC’s are governed by the Ministry of Corporate Affairs and Reserve Bank of India.

Types of NBFC’s in India

NBFC’s are classified into following two types:

• On the Basis of Liabilities
• On the Basis of Activities

Now lets dig a little deeper to understand different types of NBFC’s

• On the Basis of Liabilities
  NBFC’s can be classified as
  • Deposit Accepting
  • Non-Deposit Accepting

• On the Basis of Activities
  • Systemically Important Core Investment Company (CIC-ND-SI)
  • Asset Finance Company
  • Loan Company
  • Core Investment Company
  • Infrastructure Finance Company
  • Micro Finance Company
  • Housing Finance Company
  • Mortgage Guarantee Company

Pre- Requirements for NBFC Registration

An NBFC willing to start a business of non-banking finance should comply with the following RBI guidelines:

1. It must be registered as a company under Companies Act, 1956/2013.
2. It should have a minimum of Rs. 2 crore of Net Owned Funds (except for MFC, NBFC Factors and Core Investment Company)

Note: Net Owned Funds can be calculated from the last audited balance sheet of the company.

• Out of all the directors, at least 1/3^rd of the directors must possess experience in finance sector.
• The proposed NBFC must keep ready a draft of detailed business plan for the next 5 years.
• The credit score of the company, directors and its shareholders must be clean and have not commit default in repaying any earlier loan to banks or NBFC’s
• The proposed NBFC must have complied with the provisions of FEMA Act in case any foreign investment is involved.

NBFC’s which do not require registration with the Reserve Bank of India

Following NBFC’s doesn’t require any approval or registration from the RBI to commence its business activities:

1. Merchant Banking Companies
2. Housing Finance Companies
3. Insurance companies holding a valid certificate of Registration issued by the IRDA
4. Core Investment Companies (whose assets are less than 100 crores or which have not taken any public fund)
5. Stock broking activities company
6. Venture Capital activities company
7. Chit Fund Companies
8. Nidhi Companies

Documents Requirement for NBFC Registration

Following documents are required for the NBFC Registration:

• Certificate of Incorporation of Company issued by the Ministry of Corporate Affairs.
• Detailed information about the management along with a brochure or business plan of the company.
• A copy of PAN/Corporate Identity Number (CIN) of the company.
• Documents related to registered office address
• Certified copies of the Memorandum of Association (MoA) and Articles of Association (AoA).
• Complete list of Directors’ with their profile which must be duly signed by each director
• Details regarding the bank account, balances, loans, credits, etc.
• Audited balance sheet and profit and loss statement along with the directors and auditors report of the preceding three years, if applicable
• Self-certified copy of the bank statement and Income Tax Returns
• CIBIL/credit reports of the Directors of the Company
• A copy of the board resolution certifying that the company has not commenced any activities related to the NBFC Business and will carry only when the registration from RBI is received.
• A certified copy of board resolution on ‘Fair Practices Code’
• Certificate issued by the statutory auditor stating that the company is not holding the public deposit and does not accept it as well.
• Certificate specifying owned funds as on the date of the application from the Statutory Auditor is required.
• Information detailing the company’s future plan, generally for the next 3 years, along with the projection of balance sheets, cash flow statement and income statement.

Registration Process of NBFC

Below is the step by step process of NBFC Registration:

• First of all, Register a Company as per Companies Act 2013 which may be a Public or a Private Limited Company
• Make sure that you Arrange Capital of an amount of Rs. 2 Crore. This is the Minimum capital requirement to get an NBFC License
• As soon as you arrange the amount, create a Fixed Deposit of Rs 2 Crore with any of the Nationalized Bank in India. In case of any foreign investment, provisions and rules of FDI as per the Foreign Exchange Management Act (FEMA) needs to be complied with.
• Arrange all the documents as mentioned and visit the site https://cosmos.rbi.org.in to submit the application form online.
• Once you have submitted the application form, you will receive a Company Application Reference Number (CARN) which will be automatically generated.
• Send a hardcopy of the NBFC Registration form (indicating the online CARN) to the regional branch of the RBI
• Once all the documents are verified and found to be true and correct, RBI will provide NBFC License to the company.

NBFC’s vs Banks

Following point of differences make NBFC differ from Banks

Conclusion

NBFC plays a very important role in the development of the infrastructure, wealth creation and further boosting economic development. Registering a NBFC is a little complex process but government always encourage to obtain NBFC Registration as it mobilizes the financial resources in the right direction.