NBFC

NBFC Registration

NBFC Registration

NBFC registration is for those banking services obtained by complying with the Companies Act, 2013 provisions and RBI Act, 1934. However, a company, after acquiring an NBFC registration, will be assured a license for NBFC banking services, unlike traditional banking services. Moreover, after obtaining an NBFC registration, an NBFC company must follow the RBI or Reserve Bank of India updated circulars, guidelines, and notifications to align with the mandatory standards and compliance in the field of NBFC Financial Banking services.

NBFC acronym stands for Non-Banking Financial Corporation, registered under the Companies Act 2013 and regulated under the provisions of the Reserve Bank of India (RBI). NBFC banks are engaged in the banking business operations of loans, advances, equities, debts issued by the government or local authorities, and various other stock acquisitions, etc. However, NBFC banks are different and distinct from traditional banking or cooperative banks. A company holding an NBFC registration is not eligible to carry a principal business of agriculture activity, industrial activity, or purchase of sales and goods except for securities or business engaged in providing services or purchase, construction, and sale of various other immovable properties.

In India, NBFC registration is boosted extensively due to its flexible eligibility criteria. Its demand has been increasing rapidly, meeting the needs and requirements of the customers as compared to the traditional banks. The government of India, through its concerned authority RBI, has circulated various regulations and guidelines to promote easy access of finance services to the public. Thus, the Reserve Bank of India has framed specific rules and regulations for smoothly functioning the NBFC registrations and its business operations, protecting the interests and credibility of the banks and depositors.

What do you mean by NBFC Registration in India?

Any company that is seeking to form or obtain an NBFC company or non-banking financial company has to apply for an NBFC registration before the concerned authority, RBI, or Reserve Bank of India after fulfilling all the requirements according to the guidelines or regulations put up by the RBI. The Reserve Bank of India is the concerned authority responsible for monitoring the activities and business operations of NBFC Bank in India. This NBFC financial service is engaged in offering loans and advances and acquiring stocks, equities, and debts issued by the government or any local authorities. Before obtaining an NBFC registration, a company registration under the Companies Act 2013 is mandatory to carry out the NBFC financial business. Moreover, the primary business of NBFC activity is to receive deposits under a prescribed scheme and arrangements. Such deposits can be made either in a lump sum amount or in instalments using contributions from the customers. Further, according to 45 IA of the RBI Act 1934, no NBFC bank can operate its banking operations without obtaining an NBFC registration from the concerned authority.

NBFC registration certificate can only issued by the concerned authority i.e. Apex Bank and no other authority is authorized for the same. Therefore, the Apex Bank regulated various compliance and regulations concerning NBFC registration ensuring easy access to obtaining an NBFC licence.

Eligibility Criteria for NBFC Registration

According to section 45-ia of the RBI Act, 1934  given below are the prerequisites before obtaining an NBFC registration, a company must:

1.      A company get NBFC registration by registering as a company according to section 3 of the Companies Act,2013.

2.      The company must ensure that at least 1/3rd of the total directors hold a finance or banking experience of 10 years. Moreover, such a director shall be employed as a full-time director of a company.

3.      A company must have a detailed-oriented business plan capable of operating business for at least five years or more.

4.      The company must have a minimum net-owned fund of Rs.2 core. However, such NOF must only consist of equity paid-up share capital and not preference share capital.

5.      A company must also ensure that both the company and directors have a good CIBIL score or Credit Information Bureau of India Limited. The concerned company shall also ensure that the company does not have any kinds of wilful defaults or write-offs on loan repayments to banks and NBFC.

6.      If in case a company is engaged in a foreign investment service then the company must comply with the FEMA (Foreign Exchange and Management Act) regulations or provisions.

Documents Required for NBFC Registrations

Some of the major document requirements for NBFC registration are as follows:

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1.      A company’s incorporation certificate.

2.      detailed information about the company’s management system along with the company’s brochure.

3.      A copy of the company’s PAN card or the CIN (Corporate Identity Number) of the company.

4.      Documents showing the address and location of the registered company.

5.      A certified copy of both MOA (Memorandum of Association) and AOA (Article of Association).

6.      List of directors duly signed by every director of the company.

7.      CIBIL scores or credit reports of the company’s directors are to be submitted before the concerned authority for NBFC registration.

8.      A copy of the company’s board resolution declaring that a company has not carried out an NBFC financial business operation and will not carry the same until an NBFC registration is granted by the RBI to the respective company.

9.      A company must submit a certificate issued by a statutory auditor declaring that the concerned company is not holding any public deposit and also does not accept the same.

10. A certified copy of the company’s board resolution has to be submitted by the concerned company declaring that a Fair Practices Code is to be followed by the company in operating their specific business.

11. A company must also submit a document certificate stating net-owned funds of the company issued through a statutory authority as of the date of application for NBFC registration.

12. Various other information about the company has to be submitted, such as bank account information, loans, credits, and balances.

13. Unless it is applicable, a company seeking an NBFC registration must submit the following listed statements of the previous three years, such as an audited balance sheet, bank statement of profit and loss, and reports of both directors and auditors of a concerned company.

14. A copy of a self-certified income tax return and bank statement has to be submitted by the concerned company before the concerned authority for NBFC registration.

15. A document stating information about a company’s plans and projects normally for the coming next three years including the balance sheets, income statements and cash flow statements has to be submitted before the concerned authority for NBFC registrations.

How To Register as NBFC and its Legal Procedures

Here are the given below on how NBFC registration with RBI or Reserve Bank of India Act and  legal procedures are conducted:

Company Registration 

The first step to obtaining NBFC registration in India is to register a company under the Companies Act reflecting the NBFC banking services by adding characters to the company’s name such as finance, investment, invest, fin stock, etc. Further, RBI generally does not allow companies to operate NBFC finance businesses that do not reflect the NBFC characteristics.

Minimum net-owned fund

The minimum net owned fund for a company eligible for NBFC registration was 2 crores, but now it has been changed to 10 crores circulated through an RBI or Reserve Bank of India.

Bank Account Opening

The minimum net owned fund of a company must be kept as a deposit account in the concerned bank ensuring that such funds are free from liens. Commonly such funds are kept in a fixed deposit by a company. Thus, RBI at the time of considering the company for NBFC registration verifies such deposits or amounts held by the company kept in the banks.

Applying Online as per RBI

The applicant company shall apply for an online application for NBFC registration along with a physical submission of an application before the RBI attaching all the necessary documents to the concerned regional office of the Reserve Bank of India. Thus NBFC application can be submitted online for obtaining a certificate of registration following RBI guidelines.

Filing of an additional Documents.

RBI has the authority to issue a bank licence to a company seeking an NBFC registration. Such finance companies seeking NBFC license from RBI needs to enclose the following other documents with the application such as a copy of E-Form Spice 32 an experience certificate of a director if any in an NBFC banking business etc.

Certificate Of Registration

After submitting the applications by a company for NBFC registration before the concerned authority RBI, the same shall be evaluated by the Reserve Bank of India, and various documents and further clarifications may be requested from such applicants from time to time. Finally, once the RBI approves the applications to align with all the formalities and compliance requirements, the RBI shall issue a certificate of NBFC registration to a concerned applicant company.

NBFC In India Registration Fees

Depending on the type of NBFC bank and the company’s NOF or net-owned fund, the cost of NBFC registration will differ. Moreover, along with the NBFC registration fees, NBFC bank also needs to pay a specific deposit amount with RBI; such a deposit with RBI also depends on the NOF of the company. Further, the NBFC registration processing fee is approximately Rs.3,50,000 with a net owned fund of Rs 2 crore plus an additional charge of around 10-12 lakhs if a consultancy professional company is engaged. Therefore, the total expenditure for NBFC registration will cost around 20 lakhs or more, depending on the scenario.

Procedure For NBFC Registration

The applicant company seeking NBFC registration may follow the following steps in the process of NBFC registration:

1.      An applicant must register a Private Limited or Public company according to the Companies Act,2013 before filling out an application for NBFC registration. Moreover companies registered under the companies act can only file an application for NBFC licence.

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2.      The applicant company has to apply for NBFC registration online before the concerned authority, along with a physical copy of an application attached with the required documents, before the concerned regional office of the Reserve Bank of India.

3.      The proposed name of an NBFC company must ensure that the name contains Finance, FinServ, Fin, Investment, capital, Fintech, etc.

4.      The applicant company must deposit a minimum net-owned fund of Rs.2 Cr.

5.      This application can be submitted online by accessing RBI’s guidelines through the online official website of RBI. Such application from the website shall be downloaded, and the data will be entered to fill out the important details and thus uploaded.

6.      The applicant bank, after the online submission of the application, will receive a CoR or a Company Application Reference Number to initiate a further procedure. After the online application, an applicant needs to submit an online application before the concerned authority along with CoR and various other supporting documents before the concerned authority.

7.      Documents to be submitted along with the application form are certificate copy of COI, latest audited annual accounts, statutory auditor certificate, education qualifications of directors, shareholders, and company, net worth certificate of directors, shareholders, and company, etc. before the concerned regional office of RBI.

8.      Such application shall be verified and rectified by the concerned officer before giving the final approval.

9.      The applicant company, after completing the process of registration and submitting the said application, can regularly check and follow the status of their application on the official website through an acknowledgement receipt.

10. The concerned authority i.e. RBI grants an NBFC registration after final approval of the applications and documents under section 45 ia of the RBI Act, 1934. Thus NBFC bank must ensure that provisions of the RBI act are complied with. 

Compliances For An NBFC

NBFC plays an important role in uplifting the financial ecosystem by providing various financial services similar to =banks. However, to operate a financial service, NBFC has to meet strict compliance requirements to stay relevant to the NBFC regulatory framework. Given below are the important NBFC compliance checklist:

1.      To obtain an NBFC registration and license from the concerned authority to run the NBFC business operations. Thus, NBFC is regulated by the RBI.

2.      NBFC Bank has to maintain a robust corporate governance framework. This includes being equipped with a competent board of directors, resolution, meetings, effective risk management, and various other internal control management. Moreover, NBFC has to be incorporated under the companies act.

3.      NBFC banks have to maintain minimum capital adequacy requirements to meet unexpected losses and to safeguard the depositors’ and investors’ interests.

4.      NBFC banks must comply with the required prudential norms and asset classification.

5.      It is indeed important for NBFC banks to comply with KYC and anti-money laundering measures to mitigate activities connected to money laundering and terrorist financing.

6.      To ensure a customer’s interest protection, NBFC must have a fair practices code and consumer protection.

7.      With the advancement in technology, NBFC also has to be equipped with data security and information technology systems by complying with various data protection laws to protect customers and prevent data breaches.

8.      NBFC banks must maintain regulatory reporting and compliance with the concerned authority within the stipulated time to avoid any legal liabilities and penalties.

Powers of RBI on NBFCs

Reserve Bank of India is the concerned authority that regulates and governs NBFC banking business operations. Given below are some of the important powers of RBI on NBFC financial services:

1.      RBI is responsible for the NBFC registration and license for operating its banking business.

2.      Power of RBI to remove directors from the office and to appoint alternate directors while removing directors from the board.

3.      RBI regulated NBFC by prohibiting NBFC from issuing prospectus and advertisements soliciting deposits of money.

4.      RBI is the authority responsible for framing and issuing policies and directions on NBFC banking services.

5.      RBI has also the power to collect information from NBFCs such as details of the bank statements, and information connected to deposits.

6.      RBI has also the power to prohibit NBFC banks from accepting deposits and alienation of assets if found that NBFC bank is violating RBI regulation frameworks.

7.      RBI has the power to file a winding-up petition under the Companies Act 2013 if NBFC is not able to pay the debt amount.

8.      The Reserve Bank of India also has the power to inspect the NBFC business operations.

Advantages of NBFC Registration

Given below are the major benefits of NBFC registration

1.      It provides easy eligibility criteria for meeting customers’ facilities for loans and credit.

2.      NBFC registration allows a company to enter into the convenience of trading in market instruments.

3.      NBFC registration also provides wealth management services such as managing stocks and shares portfolios.

4.      Unlike a traditional bank, NBFC registration provides customers with easy access to apply for loans with not-so-complex rules and regulations.

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5.      NBFC banks are capable of underwriting shares, stocks, and other liabilities.

6.      NBFC or non-banking financial companies registration also ensures 100% Foreign Direct Investment in the country.

7.      With the advancement of technology, NBFC banks have also introduced various technologically advanced software and modules attracting a larger number of customers or audiences by providing an option to a customer for credit facilities or services.

8.      NBFC banks like any other banks can now authorized to use the Securitization and Reconstruction of Financial Assets and Enforcement Security Interest Act to recover a debt amount from the borrowers.

Reasons Behind Cancellation of NBFC Registration

Here are the reasons behind the cancellation of an NBFC registration:

  1. If an NBFC company is operating the business without a bank license or without registration from RBI, it is granted the right to run NBFC financial services.
  2.  If NBFC bank is not able to maintain the required net owned fund.
  3. If NBFC fails to operate or follow policies such as the fair practice code, recovery policy, and various grievance redressal policies,
  4.   If the NBFC bank fails to make a repayment of the deposits.
  5.  In case the NBFC bank is not carrying out NBFC financial business activities.
  6.     Failure of NBFC bank to submit a book of accounts to the concerned authority.
  7. If the board of directions of an NBFC bank is not able to fulfil the requirements as per the RBI guidelines to run an NBFC business.

Conclusion

An NBFC registration has to be obtained by any company seeking for an NBFC banking license. NBFC banks, unlike traditional banks, don’t have stringent eligibility criteria, thus fulfilling the various sections of the economy that may not be eligible for a loan in a traditional bank. NBFC plays a crucial role in the financial market by meeting people’s financial needs and requirements. RBI is the concerned authority that is authorized to frame policies and regulations on NBFC and its functions. NBFC, to have a seamless performance, must follow the guidelines and master circulars issued by the RBI. NBFC registration is considered to be one of the toughest approvals to be obtained from the RBI. However, with a thorough understanding and knowledge, one can secure the NBFC registration very smoothly.

FAQs

  1. What Does the term NBFC mean?

    NBFC acronym is a non-banking financial company formed under the Companies Act of 2013. NBFC is a company engaged in banking services, and it is mandatory to register with the RBI, complying with the required guidelines to get an NBFC license for operating various financial services like loans, advances, acquisition of equities, debts, stock, etc. Further, NBFC banks are similar to traditional banks but, at the same time, do not possess full-fledged banking licenses.

  2. What are the criteria for Obtaining an NBFC license from RBI?

    Some of the major criteria for carrying on any NBFC license are a company registration under the Companies Act, 2013, a minimum of 10 years of experience of at least one director of an applicant company with a finance company, 5 years detailing planning of a company for next 5 years, a minimum of Rs 2 crore net owned fund, good CIBIL score of both company and directors and various other compliance with FEMA in the case of NBFC dealing with FEMA investments.

  3. How is an NBFC different From a Bank?

    The major difference between NBFCs and traditional banks is that NBFCs are regulated and administered by the Companies Act of 2013, while traditional banks are governed and regulated under the Banking Regulation Act of 1949. NBFC banks cannot accept deposits, whereas traditional banks can accept deposits. Further, NBFC banks are also not eligible to draw cheques, whereas banks can easily draw or issue cheques.

  4. What are all the documents required to obtain the certificate of registration for NBFC?

    The documents required as per the RBI Act 1934 are the company’s incorporation certificate under the company’s act, detailed information of the company management, PAN and CIN number of a concerned company, registered company address and location, a certified copy of the company MOA and AOA, CIBIL score, etc and various other documents as mentioned under the RBI guidelines to get an NBFC license.

  5. Are all the financial companies Governed by RBI?

    No, not all financial companies are governed by the RBI. As such, companies that are engaged in a business of financial operations but are regulated and administered by various other regulators are given a specific exemption under the Reserve Bank of India. For example, Nidhi companies are governed and administered by the Ministry of Corporate Affairs.

  6. What are the Powers RBI is having over an NBFC?

    The RBI, or the Reserve Bank of India, has obtained power under the RBI Act of 1934 to regulate and administer various rules and regulations for NBFC registration for running finance business operations like traditional banks. The RBI has also the power to penalize and cancel the NBFC license if certain criteria and compliance are not fulfilled in a timely as per the guidelines given by the RBI. Thus, NBFC registration can be obtained in India only through the Reserve Bank of India.

  7. Can I apply for an NBFC license for my existing businesses?

    Yes, you can apply for an NBFC license for your existing business if you have obtained a minimum business asset of Rs.200 crore and minimum net owned funds of Rs.2 crore. The applicant company must obtain NBFC registration from RBI.

  8. From where can I get an NBFC licence?

    You can get an NBFC license by first registering a company under the Companies Act, 2013, and then by filling out an application before the RBI under section 45 ia of the RBI ACT of 1934.

  9. Are NBFCs allowed to accept deposits?

    Generally, all the NBFC banks are restricted from accepting demand deposits, unlike traditional banks, which include both savings and current account deposits. However, NBFCs with special authorization from a bank and with investment grade are allowed to accept and hold deposits up to 1.5 times their NOF and not more than that.

  10. Is it mandatory to get my business an NBFC registration?

    Yes, if you want to run an NBFC banking financial service, obtaining an NBFC registration is mandatory.

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