Finance & Accounting

How To Create a Financial Company in India

It is indeed challenging to get a license and start a new financial company in India. To start a financial company in India, deep research and planning are required to understand the financial market. With the advancement of technology, the financial market is in huge monitoring due to the high risk involved with money laundering. When it comes to the word finance in the company, the public, as well as the government, sees it suspiciously as if involved in any fraud, fooling people around with misleading schemes. Hence, the government of India has made stringent regulations in granting licenses to financial companies in India.

To open a financial company in India, one has to go through various stages, starting from market research, a complete business plan, registration of the said company, obtaining licenses and permits, etc. A lot of hard work and dedication are required to start a financial company in India.

Companies engaged in the financial sector are known as non-banking financial institutions, such as NBFC, Trust and Societies. Nidhi companies, microfinance, etc. NBFC banks, unlike traditional banks, do not require a banking license; they engage in a service of short-term, small start-up loans to various individuals and businesses.

Introduction of Financial Company in India

The financial companies in India are growing rapidly in this competitive market scenario, undergoing a rapid expansion in both existing financial institutions and new entities entering the financial market. Financial companies in India are banks and other non-banking financial institutions that conduct various banking operations, such as dealers, brokerage firms, insurance companies, co-operatives, pension funds, mutual funds, etc. Though banks like NBFC (Non-Banking Financial Companies) do not have a banking license, unlike traditional banks. Recently, banking regulators have allowed a new entity like a payment bank to be created as a Financial Company in India.

The Reserve Bank of India is the authorized regulator that supervises the financial Company in India. The prime motive behind the Reserve Bank of India is to provide the best facilities to A financial company in India. The Indian government has taken various initiatives to reform, liberalize, and regulate financial companies in India. This financial company in India also provides services that are engaged in currency exchange, wealth management, and safe deposits. However, investment banks and Commercial banks are the two categories of financial companies in India. The banking license for a financial company in India is provided by the RBI (Reserve Bank of India), and the company must engage in financial activities like loans, advances, stock acquisition, equities, debts, etc.

The most important component of financial companies in India is the insurance company, which has been expanding in recent years. With the growing demand for private financial solutions, many new financial companies in India have been established in the present financial market, such as Freo, Fi Money, Jupiter, Instantpay, etc. Before starting a financial company in India, one has to get the respective company registered with the RBI.

Market Research and Planning

Market Research and planning is a systematic procedure that evaluates and interprets the respective data, such as the financial market, by gathering information from various sources.  

Market research in financial companies in India helps new start-ups and rising entrepreneurs make sound business decisions. With the assistance of thorough market research, respective organizations or individuals will achieve promising ideas and projects. A successful marketing strategy can be achieved with thorough research on a financial company in India.

Before starting a financial company in India, one should always conduct deep research on the financial market. This research will help them to identify and determine the status of the finance market, its services, demands of the respective product, etc. With the complete analysis of the finance market through research, a target audience, which is the most important element of any business, will be identified. There are two types of market research for establishing a financial company in India: quantitative research and qualitative research.

Choosing your Niche

A financial company in India is vast, and the said company needs to decide which kind of services they are targeting so that they can specialize in one sector, aligning with their interest and expertise. Some of the services in the banking sector are lending, investment, insurance, mutual funds, etc. By choosing the specific specialization, the company can differentiate their competitors of financial companies in India and thus create a unique valuation for the same.

Create a Business Plan

Any individual or entrepreneur needs to have a business development plan to improve the various stages of a business. A financial company in India must have a strategic business development plan to ensure that a customer receives an elegant experience from the respecting banking service. Both retail and commercial banks in India have recognized the importance of creating a business development plan. However, such a plan on business structure should have objectives agreed upon and target dates based on their day-to-day operations. Generally, a business development plan is a plan where the company expects to see itself in the coming years and how it can achieve such a goal.

Though business plans are often misunderstood as strategic plans, a business development plan should be based on how a company can achieve its goal, unlike strategic plans, which help in identifying the targets and itemizing strategies consisting of numbers and ratios of the company’s development.

Registration of the Company

A Financial Company in India needs to get a registered license under the Reserve Bank of India according to the provisions under section 22 of the Banking Regulation unless it’s an NBFC (Non-Banking Financial Institution) bank. The company needs to choose the respective framework of legal structure, such as corporation, LLC, and partnership, and accordingly proceed with the necessary paperwork. Along with such registration, a financial company in India shall also need to obtain a tax identification number to be registered under state laws, local tax laws, and insurance coverage. Therefore, no banking company can start its business in India without obtaining a legitimate license from the RBI.

Obtain Licenses and Permits

For commencing a Financial Company in India, various licenses are required to obtain as per the category of banking services they are providing. The requirement for licenses and permits differs in various categories and locations, such as departments of state banking service, SEC (Securities and Exchange Commission)¹, and FINRA (Financial Industry Regulatory Authority).

Micro, small, and medium enterprises are eligible to apply for MSME or udyok Aadhar registration, unlike other companies, depending on the size of the investment and machinery location. In a financial company in India, the procedure for obtaining licenses and permits is very stringent because of its exposure to money laundering activities.

Raise Capital

A huge amount of capital is required for a financial company in India, and for that, a well-developed plan is required to raise such capital funds to start the business. Firstly, one should understand the need for capital with a strategic plan of budget structure to manage the expenses that are going to occur while running a financial company in India. such capital funds can be raised with a solid plan in hand before the investors, lenders, family members, individual savings, etc.

Development of Products and Services

The major backbone of a financial company in India is the product and service. The banking industry needs to be flexible enough to adapt to the changing landscape of the financial market. Indeed, there is always a risk in introducing a new product or service in the market; deep-routed research has to be conducted by such companies before introducing a new service or product. The rise in the development of products and services arises from the current trending market, customers, internal sales workforce, or any third party. With a developed product and service, a financial company in India can raise funding from various investors. Thus, it is the responsibility of the product team of a respective bank to look into the products and services and rectify them if any gap has occurred after conducting a gap analysis.

Brand Building

With the increasing number of financial companies in India, stress has increased because there are many options for customers to look for banking services. Consumers these days are looking for innovative banking solutions with the best customer experience. A financial company in India is a way of generating wealth by investing in the right banking platform. One of the key elements that attract customers is the branding of the company. Branding shows the identity of a financial company in India in comparison to its peers. Branding includes the name, logo, trademark, and tagline that will connect to the targeted audience as per the business plan. With the advancement in technology and social media, branding has also become a part of digital media, social media, content marketing, and advertisement. Thus, branding of a financial company in India remains the key weapon for a successful banking marketing strategy.

Create an Online presence.

 With the growing digitalization, people are often seen as more active on their phones or systems than in any other medium. A financial company in India shall ensure that they have a well-developed business website as it is one of the important tools for marketing. Such a website has to be created by expert professionals as it is the heart of everything that a financial company in India is doing. In the digital world, a well-developed website has to be created in the name of a banking company that meets the standards of the best website practice in the market targeting potential customers.

In recent years, it has been found that people are more active on their social media platforms like Facebook, Twitter, LinkedIn, etc. Thus, the banking industry should be active in promoting services on such platforms to attract active viewers and customers.

Create Policies and Procedures

A financial company in India must have detail-oriented policies and procedures for governing and regulating banking operations and services. These policies and procedures are important so that the respective company meets the required compliance and procedures to avoid various inconsistencies in delivering the various banking services. These policies ensure an easy way of interacting with the bank with their customers, employees, regulators, and other stakeholders.

Such banking policies and procedures should include drafting policies on lending, investment, customer service, data security, handling customer complaints, dispute resolutions, risk management, code of conduct on employees’ standards, etc.

Setting Up of Office space

Setting up an office space for a financial company in India is another primary factor. Office space plays a very key role in providing a comfortable workspace for the employees for greater productivity. Locations for the respective company need to be decided based on customer target, making sure that it is convenient for the potential customers. A financial company should invest in designing the office to attract its brand and culture. A financial company in India should not hesitate to invest in new technology and equipment that meet the day-to-day business requirements. 

Launching of Business

 After completing all the necessary procedures by the respective banks, they are now ready to launch their project, carrying along the marketing strategy, sales strategy, and plan for customer acquisition. To avoid any loopholes, a financial company in India should track its progress and adjust its banking strategies depending on feedback from customers and employees.

Legal Requirements and Compliance

Meeting the legal requirements and compliance for a banking company in India is very complex. Due to the changing landscape, banking regulations and compliance constantly keep on changing. Thus, it takes a lot of effort for the company to meet the legal banking requirements and compliance requirements. Given below are the legal requirements and compliances:

1. Supervision and Licensing
2. Set up a Regulatory framework.
3. Capital Adequacy and Risk Management.
4. Financial Reporting and Disclosure.
5. Consumer Data Privacy and Protection.
6. Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF).
7. Internal Controls and Audits.
8. Outsourcing and Vendor Management.
9. Training and Awareness.

Financial Management

Financial management is related to managing the company’s financial flow of money out of the respective banking company. Every company business is engaged in selling products and services, paying expenses, maintaining a balance book, paying salaries, and filing taxes. All the transactions of the respective companies come under financial management. The bigger the company, the bigger the complexity of the financial management. Organizations, with the help of financial management, can monitor the ongoing cash flows and control, protect, and report on the status of financial resources. A financial company in India usually has a team comprised of accountants and finance teams who are responsible for the financial transactions of the respective company, such as loans, debts, investments, and other sources of funds. Financial team management is also responsible for ensuring that the company complies with all the rules and regulations and thus stays solvent and as profitable as it can be.

Adapting Financial Industry Trends in India

With the advancement in technology, the financial sector in India is taking new steps with the introduction of technology-driven systems such as AI (Artificial Intelligence) and robotics, making it a global connection with the rest of the fintech companies in the world. The major trends in digital innovations have played a significant role in meeting the best customer experiences by changing the choices of preference and demographics in various banking services.

With the unprecedented COVID-19 pandemic, the financial sector has restructured the policies at technology and thus adopted a new banking facility like branchless service through digital banking, making it convenient for customer to take the service from their respective premises.

The banking company must be able to install the right technology and solutions to maintain the data of the customer diligently with safety and security. However, the boost of technology in the financial sector has increased operational efficiencies, enhanced the speed of the market, and delivered outstanding customer experiences.

Recently, India has introduced an Account Aggregator network that ensures that the customer’s data can be shared with other financial institutions. Such data of the customer cannot be shared without the prior consent of the customers. This reduces the burden on the customers as they don’t have to visit multiple websites to download the information required by the financial services. The value of digital payments in India is expected to reach threefold by the next financial year, 2026.

Conclusion

Starting a financial company in India is a complex task due to its stringent rules and regulations and thus requires deep research and planning to understand such complexity. However, the financial sectors are closely monitored as they have a high chance of exposing to money laundering. The government of India has implemented strict measures to ensure transparency and prevent illegal activities like money laundering and terrorist financing. The stages for creating a financial market in India include market research, a comprehensive business plan, registration, etc. Overall, starting a financial company in India demands dedication and hard work.

FAQs

1. https://www.sec.gov/