NBFC

NBFC Incorporation Process in India

NBFC Incorporation Process in India

NBFC can have the power to raise funds from the public, directly or indirectly. NBFC’s incorporation process in India has provided a free hand in lending to their ultimate spender, which assists in market participation. The body that regulates the NBFC registration process in India is ultimately the Reserve Bank of India in compliance with provisions of Chapter 3B of the RBI Act, 1934, and also through any directions issued under the RBI Act for the NBFC incorporation process in India. The NBFC information process in India has expanded popularly in the financial market in recent years of financial developments.

If any individual wants to acquire the NBFC incorporation process certificate in India, you first have to ensure the necessary documentation procedure for the NBFC registration. The next steps to climb for the NBFC incorporation process in India are all that you consider the assistance of an excellent NBFC consultant.

Variation between the NBFC incorporation process in India and the Bank’s Incorporation process in India

The major difference between an NBFC incorporation process and a Bank incorporation is that a bank is an authorized financial government institution that carries out financial activities by having a registration certificate only. On the other side, NBFC also carries out financial operations without any baking registration certificate.

The major variations are-

According to their statutory compliance-

The non-banking Financial Company registration process requires being registered as a company under the Companies Act of 2013, whereas the Banks must be registered under the Banking Regulation Act of 1949.

According to their incorporation requirement-

The NBFC registration process in India only requires the certification of registration (CoR) of the company issued by the RBI, whereas the Banks hold their registrations.

According to their FDIs (Foreign Direct Investment)-

 The NBFC incorporation process in India can have 100% ownership of the FDIs, whereas the private banks that are not government-owned are allowed to have FDIs up to 74%.

According to their credit and lending activities-

 The NBFC incorporation process in India can allow the NBFCs to provide enormous solutions and credit facilities to their customers and also the businesses who want to avail themselves of personal vehicles, housing, and other loans.

According to their payment of services-

The NBFC registration also provides loans and other financial services to low-income groups and microenterprises, whereas traditional banks allow their customers to make payments, transfer funds, and make financial transactions very easy and secure.

According to their foreign exchange services-

 The NBFC registration also provides foreign exchange services accommodating the exchange of currency and transaction of remittances via the NBFC. Meanwhile, banks only allow the exchange of currency via wire transfer, and foreign accounts hold the currency.

According to their financial intermediation services-

 The NBFC incorporation process in India takes part in the purchase-hire activities, leasing, and businesses to hold the assets without full payment, whereas the banks acquire deposits from the customers and businesses and then only move these funds towards investment and lending activities.

Types of NBFC under the RBI

The NBFC has been classified into various categories according to the holding capacity of the liquids. Each one of them falls in the bracket of different financial subsets and services. They are classified in the following ways such as:

  1. If it is aligning in terms of their liabilities into Deposit and Non-deposit-taking NBFCs
  2. If it is aligning in terms of their liabilities into non-deposit accepting NBFCs by their quantum into systematically important and other non-deposit subsidiaries companies i.e. NBFC-NDSI and NBFC-ND
  3. If it aligns with their types of activities in the broad category of the different types of the NBFC incorporation process in India.

  They are as follows:

  • NBFC-AFC (Asset Finance Companies)-These company’s NBFC registration prima facie deals with the facilitation of advances and loans to their customers and also for the businesses to increase their credit limit.
  • NBFC-IFC (Infrastructure Finance Companies)- The company’s NBFC registration deals with supporting infrastructural development such as roads, overbridges for interconnectivity, etc. 
  • NBFC-FC (Loan Company)- the company’s NBFC registration deals in providing loans and advances to customers for ease of doing business.
  • NBFC-IC (Investment Company)- The company’s NBFC registration is more likely to invest in stocks, shares, and other financial instruments.
  • NBFC-MI (Microfinance Institutions)- The company’s NBFC registration will help facilitate loans to entities dealing with microfinance activities. These companies work for the well-being of individuals with no income, who are jobless, etc., to extend credit to support them.
  • NBFC-NOFHC (Non-operative Financial Holding Company)- The company’s NBFC registration makes sure to keep up with the RBI regulatory requirements to set up these companies so that the financial conglomerates can function in a healthy environment.
READ  Priority Sector On-Lending by NBFC

Above, we see the broad category of the types of NBFC that can be further classified into Systematically Important and Non-Systematically Important. But later on, the RBI, as an apex financial body, came up with the master direction, i.e., master direction (NNBFC- Scale Based Regulations) 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 the further classification of the NBFC based on the layers, i.e., 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 of less than 1000 crores INR has been categorized as the base layer entity. At the same time, the other NBFCs with more than 1000 crores INR are categorized as middle-layer entities.

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

  1. Regulation for the middle layer,
  2. Regulation for the base layer,
  3. Regulation for the top layer,
  4. Regulations for the upper layer and also other specific directions and illustrations under the same.

Steps to be taken for the NBFC incorporation process in India

Certain guiding principles of the RBI have to be followed to file the NBFC incorporation process in India and obtain the certificate. The applicant NBFC should always check the following prerequisites before going for it so:

  1. Learning and understanding of the fiancé related business of the NBFC incorporation process in India
  2. There must be one director with a profile of NBFC background
  3. Undoubtedly CIBIL records

The brief under the provision of Section-45 1A of the RBI Act, 1934 specifically mentions that the NBFC incorporation process in India goes with the trade and commerce only after

  1. Obtaining the Certificate of Registration (CoR) from the Reserve Bank of India
  2. Also, have a net owned fund amount of 2 crores INR

At the same time, there are a few other categories of NBFC that are regulated by other regulators and are precluded from the requirements of the RBI as they govern other specific departments. Those NBFCs are the following:

  1. Chit Fund Companies as defined under Section-2 clause (b) of the Chit Fund Act, 1982
  2. Related to the housing finance companies under the National Housing Bank
  3. Insurance company owning the valid certificate of registration issued by the IRDA
  4. Nidhi companies, as defined under the Companies Act, 2013
  5. Mutual benefit company and stock exchange

Registration process of the NBFC Incorporation process in India

As has been already mentioned, the steps involving the guiding principles laid down under the RBI Act of 1935. There are also other tasks involved to start the NBFC incorporation process in India.

There is the following process for applying for the NBFC registration:

  1. The company that wishes to apply for the NBFC incorporation process in India has to apply online as well as offline and has to submit a physical copy of the application filled along with a few other documents to the Regional Office of the RBI, to whose jurisdiction it lies.
  2. The applicant NBFC Company must have to click on the company registration page login page of the COSMOS application. The Excel form will be available for download. The applicant NBFC can then proceed to download the more suitable application form and fill it out with appropriate data and then will further proceed to upload the form to the website.
  3. The applicant NBFC has to mention the correct name of the regional office in the Excel Application form. Then, the NBFC would get the CARN (Company Application Reference Number) for the certificate of registration application.
  4. Further, the applicant NBFC has to submit the hard copy of the application form along with the supporting documents to the nearest regional office of the jurisdiction. 
  5. Now, the applicant NBFC can check the status of the application form filled out from the above-mentioned safe and secure address by noting the acknowledgement number or the receipt number.
READ  Criteria for NBFC Companies in India

Benefits of NBFC incorporation process in India

The Non-banking Financial Companies (NBFC) registration process offers so many benefits for all the financial service-based entities to operate in the financial arena. It is paramount to take note that specific advantages should be based on the regulatory framework of the NBFC incorporation registration process. These are the following benefits of the NBFC registration:

Diverseness of the financial services

The NBFC has been very flexible in facilitating a variety of financial services like loans, advances, shares, stocks, bonds, debentures, securities, hire-purchase, etc. NBFC has done a very decent job in reaching rural places to make their presence. The NBFC is usually more flexible in operation than the traditional banks.

Annexing the credit

The NBFC can also extend credit to other various sectors of the economy, which facilitates and feeds to the other segments that might not served by the traditional banking system.

Innovation in financial products

The NBFC can be very innovative in launching new financial products and services in the market. As per the requirements of the customers in the market, they can come up with new tailored products to meet the target.

Liberal respect for interest rates

The NBFC always has the liberty to choose its interest rate as per RBI regulatory compliance. The NBFC should never cross the interest limit set by the RBI.

Risk involvement is less.

Whenever it comes to the daily operation of NBFC, the company always prefers a properly planned structure, especially in the lending procedure for the loans to their customers. They frequently follow the effective mechanism for the identification of bad loans to avoid the increase in Non-performing Assets and give them balanced growth.

NBFC

Empowering Financial Access with Digital Lending

In today’s fast-paced world, digital lending provides financial convenience, speed, and accessibility to borrowers.

Download PDF

Necessary documents for the NBFC incorporation in India

For any registration process, the document always plays a paramount role in conferring the necessary compliance. These are the following documents for the NBFC registration process to go on smoothly:

  1. Company’s Certificate of Registration (CoR)
  2. Detail information about the management of the registered company along with the brochure about all necessary clauses
  3. Certified copy of the MOA (Memorandum of Association) and AOA (Articles of the Association)
  4. List of the directors along with their profiles, which would be assigned to them accordingly
  5. CIBIL Report, along with the KYC of the mentioned directors of the company
  6. Board Resolution on the Fair Practice Code and a certified copy of this same
  7. Bank statement of the ITR filings
  8. Audited balance sheet report of the director’s last three years

Challenges involved in the NBFC Incorporation process in India

There are benefits in the way of the NBFC incorporation process in India, but it also paved the way for the challenges involved in it. There are the following challenges faced by the NBFC in its journey:

READ  Banking license for NBFC

Funds for the NBFC to refinance

The major sources of funding for the NBFC are banks and the capital market industry. There is no other way for the NBFC to refinance its resources. As it can be analyzed, refinancing the NBFC in its course of business and public dealing is a very important element for any financial sector.

Lack of statutory tools to recover debts

This is another major challenge with the NBFC is that there are no necessary tools for the recovery of the debts that will hamper the smooth functioning of the NBFC.

The scarceness of education among individuals

The NBFC also helps people who are not well educated and unaware of the rules and regulations of the NBFC. It has been surveyed that the people hesitate at the first instance to take loans and advances from the NBFCs. The NBFC should come up with campaigns like awareness programs about these company’s rules and regulations.

Deducing the Tax

The NBFC has been permitted to make tax deductions for non-performing assets (NPAs). Another major problem with the NBFC is that they do not have a structured taxation system, unlike traditional banks.

Conclusion

It can analyzed from the above-mentioned information about the NBFC incorporation process in India. It has advantages along with various challenges involved if you compare it with the traditional banking system in India. It can be a great opportunity for new entrepreneurs and business houses with basic knowledge about the NBFC functioning so that they can also start their company as NBFC. The incorporation procedure of the NBFC is more or less the same for all the NBFCs registered under the Companies Act 2013, but they differ in a few ways in their operations and functions.

FAQ’s

  1. What steps are involved in the NBFC incorporation process in India?

    A company should first start the registration process under the Companies Act of 2013 or have already registered under the Companies Act of 1956. It can either be a private limited company or a public limited company.

  2. Can the NBFC incorporation process in India be good or bad?

    Generally, NBFC offers loans and advances to its customers easily when compared with traditional banks. NBFC has more flexibility than the traditional banks in India.

  3. How many directors are required for the NBFC incorporation process in India?

    There is a minimum requirement of two directors and two shareholders. It can accepted if the director or shareholder is the same person.

  4. Can the NBFC registration process be mandatory?

    As per the provision laid down under Chapter 3 of the RBI Act, 1934, the RBI, as the supreme body, can supervise the functioning of the NBFC. It can also interpreted that RBI has mandated to get the certificate registration for the NBFC to function legally.

  5. Which body regulates the NBFC Incorporation process in India?

    The Reserve Bank of India regulates the NBFC incorporation process in India.

  6. What can be the cost of the NBFC registration process?

    It can cost up to 15 lakh INR, including the government charges and professional fees.

  7. What is not permissible for the NBFC to perform?

    The NBFCs are not permitted to accept demand deposits from the customers, cannot issue cheques on their own, etc.

  8. Is there any chance of conversion of NBFC into traditional banks?

    Yes, they are subject to approval from the RBI if they meet the eligibility criteria from the Reserve Bank of India.

  9. Is it possible for the NBFC to operate across multiple states in India?

    Yes, there can be a high chance of the NBFC regulating across multiple states if they take complaints of the relevant regulation and approval from the RBI.

  10.  How many are divided under the NBFC?

    It has been divided into four layers: the top layer, upper layer, middle layer, and base layer.   

Trending Posted

Get Started Live Chat