Funding in NBFC

You can obtain capital via equity funding, promoter capital, private equity investment, venture capital investment, strategic investors, public listing issues, debt funding, loans from banks, term credits, non-convertible debentures, bonds, commercial papers, co-lending arrangements, direct assignment transactions, and pass-through certificates.

Absolutely, as a newly registered entity, you can raise promoter capital, equity, bank funding, finance institution funding, VCs, and private equity investments.

Well, most NBFCs have an INR 10 crore NOF requirement as per the RBI- Section 45-IA of the RBI Act. Some specialized entities, like:

• Infrastructure Finance Companies (IFC) need INR 300 crore.
• Core Investment and Mortgage Guarantee Companies require at least INR 100 crore.
• HFC- INR 20 crore
• NBFC Account Aggregators and NBFC P2P platforms require INR 2 Crore NOF.

Not all NBFCs are eligible to accept public deposits. Only deposit taking NBFCs that are authorized by the RBI if they satisfy certain conditions, like:

• The company should have proper registration with the RBI.
• Only accept deposits between 12 and 60 months.
• Public deposits are permitted up to 1.5x NOF, subject to eligible deposit-taking CoR and minimum BBB- rating from a SEBI-registered CRA.

Absolutely, you can raise funds via VC and private equity, especially if you are in a fintech, microfinance, or underserved credit market with a lot of funds in recent years. Investors usually go for high-growth NBFCs, for example, asset finance, P2P, ICCs, IFCs, and HFCs.

Always make sure to put extra attention to factors that directly affect your funding options, like:

• Previous compliance documentation, filing records, and history.  
• Quality of your loan portfolio.
• Total non-performing assets.
• Capital adequacy ratio
• Profitability of your NBFC- must be positive at all times.
• Experience with your management staff.
• Internal governance standards and compliance.
• Credit rating and liquidity.

Key documents that you should present for a non-banking finance company’s funding include original registration certificate, incorporation registration as certified by the MCA/ROC, MOA, AOA, pattern of the shareholding, audited financial statements, a certificate of net worth as certified by a CA, details on loan portfolio, credit rating reports, a business plan with projections, and board resolution authorizing the funding request.

ECB means borrowings from recognized non-resident lenders under the ECB framework, through the automatic or approval route, as applicable. Loans are facilitated via international banks, global financial institutions, and foreign suppliers. ECB end-use depends on the ECB framework, negative list, borrower category, maturity period, and applicable RBI conditions.

A direct assignment is a transaction that will allow you to sell a pool or portion of your existing loans to buyers without having to form a new special purpose vehicle or any other tradable security.
This way, you get to enjoy immediate liquidity at a lower cost in a continuous flow, the asset base shrinks temporarily, and you won’t be liable in case the borrower defaults on the EMI.

NCDs are issued by NBFCs at higher interest rates to get long-term capital. So basically, when an investor invests in NCDs, they are basically lending money to that corporation. As an investor, you may get a fixed return or some cumulative amount at maturity. The company returns your investment at the end of the specified tenure.

Banks are the largest and most common source of funding for NBFCs in India because they provide term loans, seamless cash credit facilities, arrange portfolio purchases, help with assignment financing, and assist with working capital lines.

Non-banking financial entities can now get foreign investment in NBFCs for up to 100%. You will have to route your transactions through an Authorized Dealer Category I Bank, as licensed by the Reserve Bank of India under the FEMA.