NBFC

Insider Tips for Successful NBFC Registration Approval

Insider Tips for Successful NBFC Registration Approval

The main business of any NBFC registration to get the NBFC license is to raise capital from public depositors and investors; these can then lend more to the borrowers. NBFCs are the bridge that links depositors and investors with borrowers as if they have now become a viable alternative to the financial & banking sector by offering financial solutions to unorganised segments of society today. So, the new NBFC means you are applying fresh; fresh means it is yours. You are the first owner and first shareholder for the NBFC registration. So, the process begins with setting up your Indian subsidiary. The core business of any NBFC registration process is to raise capital from public depositors and investors; they can lend further to borrowers. NBFCs are the bridge between depositors’ investors, and borrowers as if they have now become a viable alternative to financial and banking sectors by providing financial services to unorganised segments of society today. So, a new NBFC license has to be applied freshly, and fresh means that the NBFC license belongs to you, as you are the initial owner and first shareholder. So, the process begins with setting up your subsidiary company in India to abide by the regulatory compliance of the Indian laws.

Understanding the NBFC registration: Dos and Don’t 

NBFC registration helps to set up to create competition in the financial markets. It carries out a large number of activities such as portfolio management, discounting, chit business, etc. However, it does not cover any institution whose primary activity is agriculture, purchase of goods, or any services for the sale/ purchase/construction of immovable property. In addition, an NBFC cannot accept demand deposits, cannot act as a payment gateway, cannot send or receive payments to its depositors, cannot issue cheques, and cannot offer a deposit insurance facility to its depositors. NBFCs are a lifeline for many customers who have been rejected by banks and other financial institutions as their demands are not fulfilled by traditional banks. They have been able to cater to the financial needs of these customers. Even small business owners who may have had difficulty getting a loan from a traditional bank can get it from an NBFC.

Types of NBFC registered under RBI Act,1934

There are NBFCs that have already been classified into various other categories based on the holding capacity of money in the financial market. Every NBFC falls into the bracket or jurisdiction of different financial services. There has been broad categorization in terms of their liabilities into the Deposit and Non-deposit taking NBFCs. The NBFC should also be based on their liabilities into their quantum into systematically important and other non-deposit subsidiaries companies that are NBFC-NDSI & NBFC-ND and last but not least with their types of activities in the broad category of different types of the NBFC registration process in India. Different types of NBFC have been a classification based on the following ways as per their objective and regulatory compliance set by the apex bank of India:

NBFC-IFC

Infrastructure Finance Company Ltd, commonly known as IFCL as the NBFC-IFC, is a fully owned subsidiary of the government of India. IIFCL is registered under the Reserve Bank of India (RBI) and provides long-term financial support to viable infrastructure projects under the Scheme for financing Venture capital funds. IFCL is special venture capital established to support infrastructure development, including road construction, over-bridging, interconnectivity projects, etc.

NBFC-AFC

The asset financing companies act as profit business companies that finance physical assets such as machinery, cars, and so on. However, to be registered as an ABS company, you need to be registered with the RBI. The RBI can impose a fine or penalty or even take legal action against a company in court if it is found that the company is doing business without the required registration. Also known for the NBFC registration, the process of registering an AFC follows the same procedure as that of the NBFC registration.

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NBFC-LC

A loan finance company can be considered a Non-Banking Financial Corporation whose primary objectivity or activity is the provision of loans and other financial assets. If you are looking to provide secured loans to individuals, then you should consider a loan company. This type of company can be any company that is a financial institution that carries out the provision of finance as its primary activity, whether by making loans, advances, or otherwise, for any purpose other than its own.

NBFC-IC

A non-banking financial organization can also be known for the investment companies which make money through purchasing securities like bonds, stocks, or government securities. It can also be advisable or pertinent to mention that any investment company helps individual and corporate investors distribute their capital in the most profitable and efficient ways possible. A Non-Banking Financial Corporation is another name for this kind of firm, whose main activity is to acquire securities, and it is advised that anybody wishing to establish a private equity firm or venture capital fund employ an investment company’s services in the case of the NBFC registration process.

NBFC-MI

A microfinance institution is a non-deposit, non-banking financial corporation (NBFC) for short-term lending to low-income groups across India. This channel is suggested if you are looking to provide small loans to rural households earning less than ₹60,000 or to urban & semi-urban households earning under ₹1,200,00. Throughout this time, the duration of the loan does not exceed 24 months, and there is no prepayment penalty except if the loan amount is more than ₹ 15,000. The company’s registration as a Non-Banking Financial Corporation will allow it to extend loans to microfinance entities. These companies should work based on providing credit to people who are out of work, etc, for this type of NBFC registration process.

Eligibility criteria for the NBFC registration application process

There are certain eligibility criteria that are made to fully comply with new laws and regulatory compliance for online NBFC registration. These are the new eligibility criteria set for the NBFC registration applicable to any individual who wants his company to get registered as NBFC mentioned below for your better understanding of a successful NBFC license application:

Initial company set-up to get an NBFC license

To obtain or seek an NBFC license in India and to acquire NBFC registration, a company has to meet certain criteria. It is the responsibility of the service provider to suggest first that your company has to be registered as a public limited or private limited company in India, which means that a company has to fill in some form and register under the Ministry of Corporate Affairs as per the requirements of the Companies Act. Once the company has completed the NBFC registration process, it will get a certificate of incorporation as per the Companies Act and prove that it is a recognized company.

Net-owned fund regulatory framework

It tends to be considered the most fundamental money-related rule set by the Reserve Bank of India for non-banking financial companies as the base net claimed reserve. This is the base measure of capital an NBFC registration needs to keep up with to keep up with monetary soundness and shield the interests of the clients. The base NOF or the capital adequacy expected for an NBFC is used to 2 crore INR. In any case, the RBI raised the NOF prerequisite to 10 crore INR from the first of October 2022. This hike has created a lot of difficulties for new entrants in the market of non-banking finance companies, and providing such a large amount of capital to a startup can be a challenge. We have also mentioned one table below for your understanding:

NBFCsCurrent NOFBy March 31, 2025By March 31, 2027
NBFC-Factor5 Crore INR7 Crore INR10 Crore INR
NBFC-ICC2 Crore INR5 Crore INR10 Crore INR
NBFC-MFI5 Crore (2 Crore in NE region)7 Crore (5 Crore in NE region)10 Crore

Registered under the Reserve Bank of India

The foremost criterion is obtaining the certificate of registration (CoR). It may very well be observable to consider that organizations should be associated with loaning and getting techniques, the acquisition of offers or bills or securities or gets given by the state or nearby government or some other attractive protections. NBFCs are expected to comply with different rules given by the Reserve of India, including prudential rules, know-your-client rules, anti-money laundering guidelines, and announced rules for NBFC registration in India.

Risk management & fair practice code

Non-banking financial companies’ registration with RBI needs to keep an overarching set of rules and a fair practice code that has been supported by their directorate. This code should give guidelines on the most proficient method to assess credits, how to change the terms of credits, and how to deal with any complaints. Likewise, there should be a complete gamble in the board plan set up to perceive, assess, track, and diminish any potential dangers that might be presented.

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Checklist for NBFC registration approval

There are checklists for the NBFC registration approval for the NBFC which have been categorized in different ways that are type-1 NBFC-ND, type-2 NBFC-ND, NBFC-MFI, NBFC-factor applicant, NBFC-IDF and have been explained in the prescribed for the NBFC registration.

Checklist for NBFC registration for type-1 NBFC-ND

There are the following documents mentioned below for this type-1 NBFC-ND:

  • Copies of extracts of the main object clause in the MOA relating to the financial business.
  • Copies of Certificate of Incorporation and Certificate of Commencement of Business in the case of the public limited company.
  • The following documents must be a certified true copy: fair practice code receipt, audited financial statements, net owned no lien indicating the balances in support of net owned fund and banker’s report; for those companies not accepting public depositors for holding public deposits, a certificate of registration from RBI stating that the business is not carrying out any NBFC or NBFC-supporting activities and that it will not carry out or commence the same before receiving the registration certificate from RBI.

Checklist for NBFC registration for type-2 NBFC-ND

There are the following mentioned below for the type-2 NBFC-ND:

  • The certified copies of the certificate of incorporation and also the certificate for the commencement of the business in case of the public limited company
  • Copies of the main clause of the memorandum of association related to the financial businesses.
  • Certified copies of the board resolution for businesses that do not operate but support the NBFC and won’t engage in commerce related to it until they receive their registration certificate. The business has created a fair practices code under RBI guidelines, obtained a banker’s certificate of no lien demonstrating balances supporting net owned funds, obtained a copy of fixed deposit receipts, audited financial statements, and directors’ and auditors’ reports dating back to the company’s incorporation date, or, if that is less, the previous three years.

Checklist for NBFC registration as per the NBFC-MFI

These are the following checklists required for the NBFC registration as per the NBFC-MFI:

  • Copies of the certificate of incorporation of the commencement of business.
  • Copies of the extract of the main objective through the object clause in the memorandum of association to the financial business.
  • A certified true copy of the board of resolution for the following information for the company is not operating or supporting any activities of the National Bank for Reconstruction and Development and will not operate or commence any such activities until it receives a registration certificate from the Reserve Bank of India, no public depositor holds any public deposit in the company as of the date. The company will not accept any such deposit in the future without prior approval from the RBI. There is no UIB in the group in which the director has a significant shareholding or otherwise accepts any public depositor holding any public deposit on the date.

Checklist for NBFC registration as per the NBFC-IDF

There are the following documents required for the NBFC-IDF:

  • Copies of the certificate of incorporation and the certificate of commencement of business.
  • Copies of the extract of the main objective for the clause of the memorandum of association.
  • Certified copies of the board of resolution, which states that the company is not operating or supporting any activities of National Bank Financial Corporation (NBFC) and will not operate or start any activities of NBFC before obtaining a registration certificate from the Reserve Bank of India, as on the date, no public depositor holds any public deposit and no public deposit will be accepted by the company in the future without prior approval from the RBI.

Updated NBFC Registration Guidelines

A broad category has been made following their types of NBFC that can be further classified into Systematically Important and Non-Systematic Important. But later on, the RBI, as an apex financial body, came up with the master direction, i.e. Master-direction (NBFC- Scale Based Regulations) Direction in the year 2023. It is further mentioned by the RBI that the newly introduced direction will be applicable for the date of October 2022. This will lead to further classification of the NBFC registration based on the layers, i.e., the base, middle, top, and upper layers. Moreover, the SBR framework has introduced a different set of eligibility criteria for the NBFC incorporation process in which the NBFC with net assets less than 1000 crores INR has been categorised as the Base layer entity., while the other NBFC with more than 1000 crores INR are categorised as Middle layer entity as per the regulatory compliance set forth by RBI.

The SBR master direction issued by the RBI has segregated the regulation passed on the different layers separately, which ensures that all the NBFC incorporation processes in India consistently and transparently comply with this statutory master direction of the RBI. So, the SBR master direction is segregated into different categories as follows-

  • Regulation for the middle layer,
  • Regulation for the base layer,
  • Regulation for the top layer,
  • Regulations for the upper layer and other specific directions and illustrations are under the same.
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Insider tips for a seamless NBFC Registration Approval

There are some tips and tricks for easy NBFC registration approval and also for NBFC registration as an NBFC in India that require a thorough knowledge of the regulatory environment, which is mainly controlled by the RBI. The NBFC registration process is a bit complex and requires an in-depth knowledge of the Reserve Bank of India-approved guidelines and a main focus on regulatory compliance set by the apex bank. The first step to getting approved as an NBFC is to fully understand the current RBI rules and regulations applicable to you. Here are a few tips and tricks for NBFC registration mentioned below for a better understanding of this whole process of NBFC registration:

Deep research & preparation

Before the initiation of the NBFC registration process, the NBFC license application was also thoroughly conducted through comprehensive research on the relevant regulations in your state, which can be essential to understanding the regulatory environment, compliance requirements, and legal framework. Create a detailed business plan that outlines your proposed business activities, market research, and financial projections.

Seek expert support

Because of the complexity of the NBFC registration process, it is highly recommended to involve legal and financial experts with knowledge of the relevant NBFC regulations and who also abide by the regulatory compliance of RBI. The experienced consultants will guide you through the complexities of the application, making sure all the required documents and information are properly prepared and submitted.

Clear Financial documentation

One of the most essential elements of a successful application for an NBFC license as well as NBFC registration is to track the clear and transparent financial history. You can demonstrate your financial strength and soundness by keeping well-structured accounts, tax returns and other documents and having a well-structured financial history strengthens your credibility with regulators.

Strengthen corporate governance structure.

Through the establishment of strong and rigid corporate governance, such as the NBFC registration process within your organization, Define roles and responsibilities. Ensure compliance with ethical business practices. Governance is closely monitored by regulators, and a clear framework builds trust.

Risk Mitigation Strategies

The risk mitigation factor for NBFC registration is creating a team to handle risk management strategies and try to demonstrate your capacity to identify, evaluate, and reduce various risks related to financial activities. There should be strong risk management skills that will help you adhere to prudential principles, which is essential for regulatory compliance approval by the apex bank, through developing and implementing a strong compliance framework that is compliant with regulatory standards. Make sure your organization is up-to-date on anti-money laundering and knows your customer’s requirements and other regulatory compliance efforts to help build trust with regulators.

Conclusion

At the end of this blog, we can conclude that applying for an NBFC license, as well as NBFC registration, requires a lot of planning, hard work, and a thorough understanding of the rules and regulations. Engaging experts, keeping financial records transparent, and demonstrating sound governance and risk management are all important steps to increase the chances of a successful license application. Follow these insider tips to get ready for regulatory approval and start your journey to become an essential financial service provider in the market. The following is important information regarding the requirements for the registration of new non-financial corporations in India. A lot of big companies are entering the financial services business by setting up NBFCs in India as per the regulatory requirements.

FAQ’s

  1. What is the key to the approval process for NBFC registration?

    The key to the approval process for the NBFC registration through statutory audits is getting the certificate which certifies the net owned funds of the company as per the date of the application for the information, including a plan of the company usually for the next three years.

  2. What are the essential conditions of the NBFC registration?

    There are the essential conditions of the NBFC registration are the director’s experience, five-year plan, credit history, and FEMA compliances are to be fulfilled as per Section-45-1A of the RBI Act, 1934.

  3. What will be the stages of NBFC registration?

    There are stages of the NBFC registration through stage-1 includes loans overdue by up to 30 days, stage-2 where there are loans overdue by 31-89 and stage-3 for loans overdue by more than 90 days.

  4. What types of activities are permitted by the NBFC registration?

    These are the NBFC to undertake the activities that are not permitted to be undertaken through the banks or for which the banks are permitted to undertake in a restricted manner.

  5. What are the four tiers of NBFC?

    There are NBFC divided into four tiers, known as the NBFC-base layer, NBFC-middle layer, NBFC-upper layer, and NBFC-top layer, as per the new regulatory changes in the NBFC rules and norms.

  6. Do the NBFC follow RBI guidelines?

    The NBFC have the freedom the draft the fair practice code by enhancing the scope of the guidelines but not in the way to sacrificing the spirit to underly the mentioned guidelines in this blog mentioned above.

  7. Which apex body issues NBFC licenses?

    The apex body which issues NBFC licenses can be the apex bank of India which is the Reserve Bank of India (RBI) to hold the deposit and to accept deposits from the public.

  8. Who can audit the NBFC?

    It is the duty of the assigned auditor for the NBFC to audit the functioning of the NBFC registration process, NBFC business, the profit or loss as per the RBI and other regulatory compliances.

  9. Can the audit process be mandatory for the NBFC registration?

    The audit process is mandatory for the NBFC registration as per the RBI in its master circular has been passed by all NBFCs to conduct an IT audit and also to be attested by the RBI IS audit.

  10. What are the 50-50 criteria for NBFC registration?

    The 50-50 criteria for the NBFC registration for the company's financial assets must constitute 50% of the total assets and income from the other financial assets to constitute 50% of the total income.

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