NBFC

Fintech is Hot: All about NBFC Registration

Non-banking financial companies (NBFCs) are fast emerging as an important segment of the rapidly growing Indian economy. NBFC offers almost every service that banks do including performing financial intermediation, offering loans, accepting deposits, giving cash advances, leasing, hiring purchase, etc.

NBFCs have advantages in terms of short-term lending; for instance, a high ROI and no cap on interests. So, if you are interested in NBFC registration, this post has the information you need.

NBFC as defined under RBI Amendment Act of 1997

The RBI Amendment Act 1997 defines NBFC as:

• A financial institution that is a company registered under Companies Act 1956/2013^[1].
• A non-banking institution that is a company and whose principal business includes receiving deposits under any scheme/arrangement/ in any other way or lending in any manner.
• Other non-banking institutions or class of institutions as the Reserve Bank may specify with the previous approval of the Central Government.
• The definition excludes financial institutions and institutions that do agricultural operations as their principal business.

Differences between NBFCs & a Bank:

The functions of the NBFCs look very similar to those of the bank as they lend money and make investments. However, there are many differences between NBFCs and bank. Some of them are as follows:

1. NBFC cannot accept demand deposits.
2. NBFC cannot issue checks drawn on itself.
3. Deposit Insurance Facility of DICGC (Subsidiary of RBI) is not available to depositors of NBFCs.

Types of NBFCs:

Based on liabilities-

• Deposit taking NBFC;
• Non-Deposit taking NBFC.

Additionally NBFC Non-Deposit is categorized into-

• Systematically important NBFC- Non-Deposit
• Others NBFC- Non-Deposit

Based on business activities-

Systematically Important Core Investment Company

It is a type of NBFC registration that carry on the business of share and securities takeover but-

• Assets should be more than 100 crores;
• It should hold at least 90% of its assets in investments in shares and securities like bonds, debenture or debts. With a condition that out of 90%, at least 60% of its net assets shall be invested in equity shares which includes instruments compulsorily converted into equity shares.

Investment and Credit Company:

RBI had released a notification on Harmonization of the NBFCs categories on 22^nd Feb, 2019. In the notice the Reserve Bank decided to merge three NBFCs i.e., Asset, Investment and Loan Company into one called as NBFC-Investment and Credit Company.

It is a company that does its principal business –asset finance by providing finance, whether by creating loans, advances or otherwise for any activity other than its own and acquisition of securities.

Infrastructure Finance Company (IFC):

•  Infrastructure Finance Company is an NBFC with the principal business of providing finance to infrastructure projects meeting the following criteria:
• It should deploy at least 75 per cent of total assets in infrastructure loans.
• Should have a minimum net owned fund of ₹ 300 Crore. –     Should have a credit rating of ‘A’ and a CRAR of 15%.

If you are interested in financing infrastructure-related projects like construction of roads, bridges, new buildings, etc., you can proceed with IFC NBFC Registration.

Infrastructure Debt Fund (IDF): 

Infrastructure Debt Fund is an NBFC which facilitate the flow of long-term debt into infrastructure projects. It can raise resources through currency bonds for a minimum of five years. If you are interested in raising funds and financing infrastructure projects like construction of roads, bridges and other infrastructure projects, etc., this type of NBFC is recommended.

Microfinance Company:

Microfinance businesses in NBFC Registration are corporations that function in a similar manner to that of banks. Loans are provided by these to various small businesses that don’t have the access to formal banking channels and are not eligible to get loans.

A Microfinance Institution is required to fulfil the following conditions:

• 85% of qualifying possessions should be maintained at all time.
• The loan provided by the Micro Finance Company to a borrower having annual income:

1. In the rural area not exceeding 1,25,000 rupees;
2. Or urban and semi-urban not exceeding 2,00,000 rupees.

• The loan amount should not exceed 75000 rupees in the first cycle and 1,25,000 in subsequent cycles. However, the loan tenure should not be less than 24 months.
• The total obligation of borrower doesn’t exceed 1,25,000 rupees.
• The loan to be provided without collateral.
• The loan repayments will be at the discretion of the borrower.

Non-Banking Financial Company – Factors (NBFC-Factors): 

This type of NBFC has the principal business of factoring. Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. The financial assets in the NBFC factor must aggregate at least 50% of its total assets and also its income derived from factoring business should not be less than 50% of its gross income.

NBFC- Non-operative Financial Holding Company

Through this, any promoter or group of sponsors shall be authorized to set up new bank. It is a type of NBFC that would hold bank and all other financial companies regulated by RBI or other financial sector regulators, to the extent allowed under applicable regulatory prescriptions.

Mortgage Guarantee Company

This company includes:

• At least 90% of turnover of Micro Finance Company is Mortgage guarantee business or;
• At least 90% of the taxable income of Micro Finance Company is from Mortgage guarantee business and;
• The net owned deposit of the Micro Finance Company should be 100 crore rupees.

NBFC Account Aggregator

It is a new notion. It provides data of numerous users and modifies their financial needs to various commercial organizations. It offers reliable information.

NBFC Peer to Peer Lending platforms

It delivers a platform to bring lenders as well as borrowers together by using a digital platform. It provides an opportunity for investors to diversify their portfolio.

Housing Finance Company

It is a kind of NBFC with the principal business of financing of acquisition or construction of houses. These are controlled by the RBI. A Housing Finance Company can’t commence activity until its gets a Certificate of Registration from the RBI.

Conclusion

Despite the fact that the NBFC is fast emerging as an important segment of the Indian economy, RBI is making very strict rules for giving to register NBFC Online. This is largely thanks to past scams and problems with NBFCs in the past. Founders should have a strong and credible finance background, they should have visions for the business model, and their visions should be well documented to obtain NBFC license.

Read our article:How are emerging technologies helping NBFC’s?