NBFC

Business Plan for the NBFC Registration

Buisnesss plan for the nbfc registration

The summary from the executive body of the NBFC information about the company in a prescribed format document is called the NBFC business plan. The NBFC business plan consists of the following key data: i.e. the purpose of the company, the vision of the company, structure, the document of the promoter, the potential for development, market flexibility for the suggested business, also human resource capacity, and other analyses. Every NBFC has to try to create an environment for the NBFC business plan to work, which will always serve as the blueprint for achieving the NBFC’s long-term and short-term goals and aims to create positivity about the company among the investors and also to get a loan as for the working capital.

Nature of the NBFC business

The nature of the NBFC business is bifurcated through its roles in facilitating financial services, which are very similar to the traditional banking system but do not comply with the legal requirements of traditional banks. These non-banking financial institutions have been playing a crucial role in the financial sector by serving the specific financial needs of the market, which may not be fully satisfied by traditional banking institutions.

These are the following key nature of the NBFC businesses:

  • Pick the customer’s interest

The NBFC specializes in offering various financial services to customers who are interested in facilitating the services of the NBFC, such as microfinance, infrastructure financing, housing fiancé, etc. They can also serve small and medium enterprises or corporate clients.

  • Financial Services

The NBFC offers ample financial services like investing, lending, asset financing, wealth management, and also other financial services. At the same time, traditional banks only accept deposits, whereas the NBFC does not have a bank-like license, so it cannot accept demand deposits.

  • Framework for regulation

The regulatory framework of the NBFC differs from that of the traditional banks. The NBFC has been regulated by the Reserve Bank of India, but the traditional banks are not subject to the same regulations passed for the NBFC.

  • Reciprocating to the banks

While the NBFC can be operated independently without the help of traditional banks, they can be reciprocated in the banking sector by satisfying the financial market that banks may find difficult to face.

  • Risk-taking capacity

The NBFC may have more risk-taking capacity when compared with traditional banks. NBFCs are always excited to take more risks for their clients, ventures, and other financial products in the market.

Convenience to set-up the NBFC business plan

The NBFC business plan offers an outline of the whole of the NBFC operation and also clarifies the vision, strategy, and objectives of the NBFC as a whole. It also makes a competitive market for the NBFC to make NBFC business plans in India.

There are the following advantages of the NBFC business plan-

  • Backing in prioritization

It can be a notion for an excellent NBFC business plan to assist in establishing its aims and objectives in the given timeframe for finishing the key business-related activities. For any NBFC business plan to excel in the financial market, it always tries to be more productive in this operation and become efficient in attaining its objective in the prescribed time.

  • Effectively in liquidity management
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It is to be noted that the NBFC aligns with the banking institutions in the business of facilitating loans, stocks, and other financial assistance to individuals, particularly those who come from economically backward groups in society. This will make an effective observation about the cash ingression, and this outflow will be very crucial for the favourable outcome for the NBFC sector.

  • Analyzing the progress report

The signpost that the NBFC must reach within the time limit prescribed is to excel in the NBFC business plan. In that case, NBFC may analyze and compare the targets they have achieved so far. It can also measure the company’s success and ultimately boost the economic growth of the country.

  • Precise the whole business

For the time being, the business model for the NBFC business plan has been drafted, so it can be very easy to grasp the ideologies, strategies, vision, and mission of the whole of the business.

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Components that might have an impact on the Business Plan for the NBFC Registration Strategy

There are the following components that might impact on the NBFC business plan:

  • Evolution of the new technologies

The evolution of new technologies makes banking operations much easier on a day-to-day basis and also more effective. The financial sector as a whole is going through a transformation. A significant drift can be seen in the banking sector through the introduction of new technologies and technical advancements like cloud banking, neo-banking, and blockchain. It will have a significant impact on the NBFC registration strategy as well. So, it can be said that new technological advancements will provide a better solution for the NBFC business plan.

  • Rapid digitalization of the NBFC operations

The rapid process of the digitalization of the NBFC operation will cause many of the daily tasks of the banking operation to become easier for the bankers to perform. It has been already mentioned that the banking sector is transforming. Nowadays, digital banking systems are expanding very quickly in other countries while the numbers of traditional banking are also reducing. So, it can be deciphered that an efficient NBFC business plan should be well drafted in a way that makes it helpful for the future digitization of banking operations.

  • Customer’s habits and tastes might be changed with time.

Technological advancements lowered the demand for the customer to go for conventional, time-consuming procedures, and now the preferences are changing. Customers nowadays want smooth, reliable, quick, and real-time financial transactions. Most customers are inclined towards the digital account opening process, crypto banking, etc. As an effect, the best NBFC business plans are those that are constantly ready to accept the diversification in the transformation or upcoming new technologies.

The following steps for creating the business plan for the NBFC registration strategy:

There are the following processes are involved in creating the business plan for the NBFC registration strategy:

  • Offering of the services

The management governing the NBFC ought to be very specific about the services that will be offered to the clients for the creation of the business plan for the NBFC registration strategy. The management team has to be very careful about the market demands while picking the types of services. The market that has to be targeted and also the size of that market should be included in the NBFC registration strategy.

  • Summary report of the executive body
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The aim and objective of the NBFC have been mentioned in the Executive summary. The investor or creditors will obtain the summary of the NBFC business plan. At the time of writing the executive summary, it has to be taken into consideration that the summary should be factual, accurate, clear, and easy for a reasonable person to grasp.

  • Visionary and mission-oriented statement

For the appropriate understanding of the investors and creditors, any ideal NBFC business plan should state the aims and objectives very precisely.

  • Generating a straightforward business plan

The idea requires the business plan through a thorough investigation and research on the various NBFC business models that are currently serving the financial market.

The NBFC businesses have to be chosen to match the requirements of the business trend, and only then does a decision have to be made.

  • Sketching your business

If the individual has cleared his thoughts on the industry on which he is focusing, he will come next after the aim and objective of the NBFC business. The NBFC management has to identify the regions and legal aspects in which the NBFC will deal. The purpose of this act is to be kind to prospective creditors and investors so that they can make the right decisions about the products and market reachability that the NBFC would be concentrated upon.

  • Organization and business model of the NBFC registration strategy

These are the very must criteria for the NFC to get registered under the Companies Act. It is paramount to briefly discuss the business model and legal structure, which is useful to construct the NBFC, including the essential legal requirements.

  • Financial estimation

It is for every firm in its early stages must have an estimated budget to start the NBFC business plan. This budgeting is also required for the long-term financial planning of the NBFCs.

  • Historical background of the promoters

A general summary of each of the promoter’s professional and educational background. The financial history is also inclusive of the directors and shareholders of the NBFC. It has to be discussed in the NBFC business plan. The RBI, as a regulatory body, takes into consideration the grant of the license.

  • The design of the organization

The main component of any NBFC business plan is the structure of the organization, which will include information about the duties of the directors, owners, and the body governing the NBFC.

  • Sustainability of the NBFC business plan

A properly drafted NBFC business plan dealing with the current market conditions is valid only for a specific period. That does not mean that it has an indefinite validity for the same.

Documents prepared for the Business Plan for the NBFC Registration

Documents always play a very significant role in establishing an organization from one end to another end. There is the following list of documents required for the NBFC registration strategy and business plan:

1. Executive summary report of the NBFC business.

2. In the detailed business description of the NBFC of the financial services.

3. Detailed organizational structure in MOA and AOA of the company.

4. Detailed description of the financial products and services

5. SWOT Analysis Report (Strengths, Weaknesses, Opportunities, Threats)

6. Risk management for unforeseen challenges

7. Detailed information about the potential exit strategies of the investors or the promoters.

8. The appendix of all the necessary legal documents and market research data is attached.

Challenges faced by the NBFC business plan

Setting up the NBFC business plan and its efficient operation is not an easy task. Even after facilitating many opportunities for them, they face a lot of challenges in their way.

There are the following challenges below faced by the NBFC business plan-

  • NBFC registration strategy

The big challenge is procuring the license for the NBFC registration process. This process is not an easy task to perform and even requires a lot of approvals from the regulatory bodies and other prerequisites. The process of obtaining the NBFC license requires a lot of compliance from the regulatory bodies. The RBI, as an apex authority, has put a lot of restrictions before obtaining the license of the NBFC. Another very important factor is the amount and quality of the capital. Also, the NBFC faces challenges in structuring.

  • Non-flexibility in the categorization of loans
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Compared with the traditional banks’ flexibility with the NBFC for the non-profiting assets norms, irregular cash flow poses a risk in regards to delay in payments. The NPA shall be classified based on the asses that have been financed, and a uniform system of categorization of the assets must be present in this system.

  • Statutory tools

Another challenge for the NBFC is that there are no specific statutory tools for statutory recovery. This may cause disturbance in their smooth working conditions.

  • Tax deduction

As per the current status, the NBFC is not permitted to use the non-performing assets for the NBFC. There is another challenge in the inequality in the tax deduction structure for the NBFCs as compared to the banks.

  • Status for the private sector

There are other major challenges that the private sector status given to banks’ lending to the NBFCs have been removed. It amounts to less flow of credit to the unprevailed party of the financial market.

  • Ratings based on the credits

NBFC cannot take public deposits if the rating of the NBFC is not up to the minimum investment deposit. Right now, the NBFC is reporting to the Reserve Bank of India about its position.

Conclusion

It can be rightly said that if somebody is aiming for a business, it has to be well planned first for the execution of the plan. Every business plan must ensure that the aims and objectives have been achieved through the execution of the NBFC business plan. There are a few factors that affect the business plan: technological changes, market forces, changes in the taste of the customers, and digitalization. The business model always offers a mechanism for comparison of the standards that have to be maintained to achieve the actual standards of the business. Every NBFC must have a business plan to succeed in the market. Finally, it can be said that the business plan reflects a better understanding of the market situation. To adhere to the industry norms and standards, the NBFC has to win the trust of the customers, investors, and regulatory bodies.

FAQs

  1. What is the NBFC business model?

    An NBFC business model is a document that defines the nature of businesses performed by the NBFC and the marketing techniques involved. It is necessary for every company incorporation.

  2. Which body regulates the NBFC business model in India?

    The operations and working of the NBFC have been regulated by the RBI within the structure provided under the RBI Act.

  3. Who can incorporate the NBFC registration strategy?

    Any company that has been registered under the Companies Act 2013, with the newly owned capital of 2 Crores INR for the NBFC registration.

  4. What is the main objective of the NBFC as an organization?

    The main objective is to provide credit facilities to borrowers who are unable to obtain loans from traditional banks because of various reasons, such as lack of collateral, credit history, and other documents.

  5. Who are the clients of the NBFC?

    The customers include both individuals and businesses, especially those who have difficulties getting loans from traditional banks.

  6. What can be the validity period for the NBFC business plan in India?

    The NBFC business plan that deals with the current market trends will remain valid for the specified period.

  7. Is there any possibility that the NBFC business plan act as the basis of comparison?

    Yes, the NBFC business plan could act as the basis of comparison with the other NBFCs and also with traditional banks.

  8. How are the NBFCs structured as an organization?

    The NBFC has been categorized into four main categories according to the size of layers, i.e., the Base layer, the Upper layer, the Middle layer, and the top layer.

  9. How much money is needed to start the NBFC business plan?

    According to the terms of Section-45 1a of the RBI Act, 1934, the NBFC cannot commerce or trade without obtaining the certificate of registration from the RBI and without having net-owned funds of 2 Crores of INR since April 1999.

  10. How can a NBFC business plan can earn profit?

    Yes, it is possible for the NBFC to earn profits by accepting borrowing from other financial institutions and also from non-chequable deposits.

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