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How to register a Non-Banking Finance Company (NBFC) with RBI?

Overview of Non-Banking Financial Company:

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956/2013 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

How NBFC are different from Bank?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

  1. NBFC cannot accept demand deposits;

  2. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;

  3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Regulated Authority for NBFC:

The Reserve Bank of India (RBI) formulates rules & regulations for NBFCs, therefore license from RBI is required for starting NBFC in India as per Section 45-IA of the RBI Act, 1934. The RBI is authorized to regulate NBFCs by ensuring that they are complying with the prescribed rules & regulations.

Financial activity as “principal business”:

Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria will be registered as NBFC by RBI.

Different types/categories of NBFCs:

NBFCs are categorized:

  1. in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs,

  2. non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and

  3. by the kind of activity they conduct.

Within this broad categorization the different types of NBFCs are as follows:

  1. Asset Finance Company

  2. Loan and Investment Company

  3. Infrastructure Finance Company

  4. Systemically Important Core Investment Company

  5. Infrastructure Debt Fund: Non- Banking Financial Company

  6. Non-Banking Financial Company - Micro Finance Institution

  7. Non-Banking Financial Company – Factors

  8. Mortgage Guarantee Companies

  9. NBFC- Non-Operative Financial Holding Company

Pre Requisites for NBFC Registration

For NBFC registration, below mentioned conditions must be fulfilled as per Section 45-IA of the RBI Act, 1934:

  • Director’s Experience:

    • Directors of the applicant company must possess requisite experience in NBFC/Banking areas in order to apply for NBFC license.

  • Five Year Business Plan:

    • An applicant company needs to draft detailed business plan for the next five years.  

  • Credit History:

    • The credit score of the company, directors & its shareholders must be fine and they must have not defaulted loan re-payment deliberately to banks or to NBFCs.

  • FEMA Compliances:

    • In case of involvement of foreign investment, an applicant company must have complied with the FEMA Act. 100% FDI is allowed from FATF member countries.

NBFC Registration Procedure:

Following steps to be taken for NBFC Registration:

  • Register a Private Limited or Public company

  • The proposed name of the company must include Finance, FinServ, Fin, Investment, Capital, Fintech, and Leasing etc.

  • Minimum NOF (Net Owned Fund) Requirement: The applicant company must possess minimum NOF of Rs. 2 Cr.

  • Deposit Net Owned Funds in bank account opened for company

  • Applicant Company has to file an online application with the RBI on its official website.

  • Documents required to be submitted (Illustrative list):

    • Fully filled application form

    • Certified copy of COI (Certificate of Incorporation) / MOA / AOA

    • Latest audited annual accounts

    • Statutory auditor certificate

    • Net Worth Certificate of Directors, Shareholders & Company

    • Educational qualification documents of the proposed directors

    • Highest Experience certificates

    • Directors & Shareholders business profile

    • Credit report (CIBIL) of directors & shareholders

    • KYC details, PAN of the company, address proof of the company

    • Bank account details of the company [Rs. 2 Cr must have deposited as NOF]

    • Audited balance sheet of last 3 years or from the date of incorporation

    • Income tax Returns

    • Banker’s Report confirming no lien on fixed deposit

    • Format of board resolution regarding NBFC registration

    • Business Structure

    • Business Plan for the next 5 years consisting

    • After this, an applicant will get a reference number to facilitate inquiry in the future.

  • After this, it is required to submit the physical application copies to the concerned regional office of RBI.

  • The regional office shall check the accuracy of all submitted documents.

  • The regional office will send the application for NBFC registration to the central office.

  • The central office of RBI grants NBFC registration only when applicant company fulfills prescribed requirements under section 45-IA.

  • RBI may seeks clarification / further information as deemed fit.

RBI Conditions for Granting NBFC License:

  • After filing application for NBFC registration, RBI will scrutinize the file and grant license only after satisfying the below mentioned conditions:

  • Ability of NBFC to repay its dues to investors and Business Plan of the company must fulfill the larger interest of the society

  • Capability to Infuse Sufficient capital

  • Earning capability of the Proposed Business

  • Activities shall be carried out in such a manner that it shall be in the public interest

  • Board shall act in the interest of public or depositors

  • Granting license will contribute to the economic growth of the country

  • Proposed NBFC shall comply with the RBI regulations

 

The licenses once granted by RBI is permanent unless surrender by applicant/cancelled by RBI.​

SecMark's role in NBFC Registration with RBI:

SecMark can provide assistance in obtaining registration/license of NBFC from RBI covering the activities mentioned hereunder:

  1. Formation of Company.

  2. Online and physical application.

  3. Completing the detail application forms in co-ordination with Client’s management team.

  4. Assistance in various format of resolutions, banker certificates, undertakings required including assistance & suggestion in business plan, regulatory/compliance matters in connection with application.

  5. Advising on experience in management team, net-worth requirement and other related matters.

  6. Co-ordination with RBI officials and resolving their queries till the receipt of certificate of registration

For more information, you can reach out to Mr. Sunil Bang on +91 98204 63889 or write to sunil@secmark.in