Complete Story Behind Non Banking Financial Institutions Registration across India

Narendra Kumar

31 May, 2023

For the rapidly growing Indian economy, Non-Banking Financial Institutions (NBFC) is playing a vital role in the economic development of the country. NBFC helps in the mobilization of resources which as a result converts the savings into investment. NBFCs provide long term and specialized credit facility and attracts foreign grants. NBFCs facilitate all the banking related financial facility. To keep the services of the client updated and to meet the needs of specific client NBFC keep their services flexible.

What are the Eligibility Criteria of Non-Banking Financial Institutions Registration?

Any company registered under the Companies Act 2013 and desirous of commencing the business of Non-Banking Financial Institutions should comply with the following conditions-

• A company should be registered /incorporated as per the Companies Act 2013 of the Companies Act 1956.
• Minimum Net Owned Fund of Rs 200 Lakh.
• Classification of NBFC – NBFCs are classified into 2 categories:
  1. (NBFC-D)-Deposit-taking Non-Banking Financial Company.
  2. (NBFC-ND)-Non-Deposit taking Non-Banking Financial Company.

What are the Functions Performed by the NBFCs?

NBFCs as specified performs the following functions-

1. NBFC helps in the development of sectors like transport and infrastructure.
2. Employment generation.
3. Creation of wealth and economic development.
4. Strengthening the weaker section of the society.
5. Attracting foreign grants and financial markets for funding.
6. Providing Specialized credit facility.

NBFCs are playing a crucial role in the development of the infrastructure, employment generation, in the creation of wealth, economic development and especially the weaker sections of the society.

Note* A Non-banking Financial Company cannot commence or carry on the business of a non-banking financial institution without obtaining a COR (Certificate of Registration) from the Reserve Bank of India and without having a Net Owned Funds of Rs 200 lakh.

What are the types of Non-Banking Financial Institutions in India?

In India, there are 8 types of NBFC registration:

• Investment & Credit Company (NBFC-ICC)
• Infrastructure Finance Company
• Systemically Important Core Investment Company (CIC-ND-SI)
• Infrastructure Debt Fund (Non- Banking Financial Company)
• Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)
• Non-Banking Financial Company – Factors (NBFC-Factors)
• Mortgage Guarantee Companies
• NBFC- Non-Operative Financial Holding Company

What is the Non-Banking Financial Institutions Registration Process?

The Applicant company has to comply with the following conditions for getting the COR (Certificate of registration).

1. Incorporation of the company under the Companies Act 2013.
2. After incorporation, an applicant needs to apply for online registration and submit a physical copy of the application to the Regional Office of the Reserve Bank of India along with the necessary documents. The application can be submitted on RBI’s official COSMOS website^[1].
3. Once the physical copy is arranged the next step is to log in the COSMOS and to fill the details of the application online and upload after filling up all the required details.
4. Allocation of CARN Number – Once the application is submitted, the applicant receives a Company Application Reference Number for the COR (Certificate of Recognition).
5. Once the applicant received CARN, the applicant needs to submit the physical application form along with the supporting documents to the regional office. The regional off ice of the RBI will scrutinize the form and documents and will then send it to the head office.
6. The Head Office of RBI will then issue the COR – Certificate of Registration (NBFC license) once the application along with the supporting documents is approved by the regional office and everything is found correct.

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What are the Post COR Compliances?

Once the registration process gets completed, the applicant company needs to follow the NBFC compliances and instruction issued by the RBI-

• Membership from all four Credit rating agencies (CIBIL, Equifax, Experian and CRIF Highmark), if the company is willing to have credit scoring from API, use Equifax.
• Apply for E-KYC Registration & Regular reporting of the borrowers.
• FIU-IND Registration.
• Income tax Returns.
• ROC Returns.
• Secretarial compliances.
• Statutory Audit and Tax Audit.
• File NBS-9 using Online Platform of RBI.

What are Systemically Important NBFCs?

As per last audited balance sheet, NBFCs having an asset size of ₹ 500 crores or more are considered as systemically important NBFCs. The systematic classification is that the activities of such NBFCs will have a bearing on the financial stability of the overall economy.

Conclusion

The NBFC sector has grown well in the last few years and playing the critical role in a country which as a result will boost the economy in the right direction.

Non-Banking Financial Institutions are engaged in the business of accepting deposits, delivering credit and play a vital role in channelizing the scarce financial resources to capital formation. The working of the NBFC is as similar as the banking sector in meeting the increasing financial needs of the corporate sector as well as the weaker section of the society and further delivering credit to the unorganized sector and to small local borrowers. In India, despite being different from banks and their activities, NBFC is bound by the Indian banking industry rules and regulations.

Exception NBFC does not include services related to –

• Agriculture activity,
• Industrial activity,

Sale, purchase or construction of the immovable property.

For more information, please download e-book on NBFC:

1. NBFC Part 1
2. NBFC Part II

Read our article:What are the Regulatory Requirements of Non-Banking Financial Company in India?