How to Get NBFC License from RBI in India?

Ashish M. Shaji

12 Oct, 2020

Non-Banking Financial Companies (NBFCs) play an important role in financial inclusion and nation-building by joining hands with the banking sector for providing credit to the unbanked segment of the society, especially the Micro, Small and Medium Enterprises (MSMEs) which form the training ground for innovation and entrepreneurship.

NBFCs ability to innovate and customize products as per the needs of the customers gives them an edge over the banking systems. Get details about how to obtain NBFC license by best NBFC Consultants in India.

Significance of NBFCs in India

The government is focusing on promoting entrepreneurship to transform the status of the country from a pool of job seekers to a pool of job creators. This can help NBFCs to exploit their full potential and work with greater efficiency. On the other hand, the banking system is facing many constraints in terms of expansion which further paves the way for NBFCs to play a pivotal role in the Indian Financial System.

NBFCs have turned out to be the growth engines for small-scale and retail sectors, in the areas which are still outside the reach of the banking system. The regulatory framework of NBFCs have undergone a wide array of changes ranging from simplified regulations to extensive regulations and finally towards rationalization as part of the recently revised NBFC regulatory framework in 2014.

Pre-requisites for obtaining license

Generally, NBFCs are required to be registered under Section 45 IA of the RBI Act, 1934, but before applying for the license with the RBI, the following conditions shall be satisfied to start operations as an NBFC:

• The desirous entity should be a company duly registered under the Companies Act, 2013^[1] or earlier Companies Act, 1956.
• It should have minimum disposable net owned funds of INR 2 crores.

Obtain NBFC License

After complying with the above basic requirements, an online application available on the RBI website www.rbi.org.in should be submitted along with the necessary documents. After the successful filing of the online application, a Company Application Reference Number (CARN) will be generated, which can be used to inquire about the status of applied registration. In the meantime, the hard copy of the application along with the required documents shall be submitted to the regional office of RBI.

The application, whether online or offline, should be complete in every aspect. The license is granted after proper scrutiny of the application and attached documents and on being satisfied that the desirous entity has complied with all the rules and regulations applicable.

NBFC registration can be obtained only after following the prescribed procedures and arranging all the required documents for NBFC registration.

Documents required for obtaining NBFC License

• The documents needed for NBFC License are as follows:
• Certified copies of Certificate of Incorporation
• Certified copies of Memorandum of Association and Articles of Association of the company;
• CIBIL score of Director;
• Copy of PAN/CIN allotted to the company;
• Board resolution specifying that the company hasn’t accepted any public deposit and that it would not accept the same in future;
• Board resolution providing that the company is not carrying any NBFC activity and will not carry until it obtains registration from the Reserve Bank;
• Certified copy of board resolution for fair practices code;
• Audited balance sheet of last three years.

Simplified NBFC regulatory framework

In order to promote NBFCs as a crucial section of the Indian Financial Market, the government has simplified its regulatory framework. Accordingly, NBFCs with no public funds and no customer interface are not subject to any prudential norms and are free to carry out their business activities.

Earlier, all NBFCs were subject to governance requirements, such as the Fair Practices Code (FPC), anti-money laundering, etc., thereby increasing the compliance burden. Under the new framework, only NBFCs having a customer interface are required to comply with such governance requirements. However, in order to ensure that these leverages do not spoil the true motives for which the NBFCs have been established, they are required to maintain a leverage ratio of 7 which means the total outside liabilities is not to exceed seven times their owned funds.

To make the registration process of new NBFCs smoother and hassle-free, former RBI Governor, Dr. Raghuram Rajan, announced in the policy for 2015–16, that the process for registration of new NBFCs will be simplified and rationalized. The new application forms are to be made simpler and the number of documents required to be attached along with the application will also be reduced to a minimum.

RBI is continuously working in the area of NBFCs by setting up of the various committees to seek recommendations on the role of NBFCs in the growth of the financial sector. NBFCs have evolved as the catalyst for meeting the financial needs of various sectors emerging as better alternatives to the banking system.

Conclusion

The forthcoming changes in the sector will encourage robustness and also allow the NBFCs to operate in an enabling regulatory environment. As per the report, NBFCs have been the largest receiver of funds from the rest of the financial system.

Do you wish to obtain NBFC License? Or are you looking for an NBFC Takeover advisory? Would you wish to know about the NBFC/ Fintech Consulting or know more about peer to peer lending? Please feel free to contact Enterslice, India’s leading NBFC Consultants, legal and tax advisory firm.

Read our article:Applicability and Effects of GST on NBFCs in India