NBFC Registration: A complete Guide

Sonal Pruthi

31 Dec, 2020

NBFC is a Non-Banking Financial Institution, which is registered under the Companies Act, 2013. NBFC is regulated and controlled by RBI. It is very true that an NBFC is very much similar to a bank, but it is not a bank. The work of an NBFC is to provide financial support and services, to businesses people, and individuals.

A Non-Banking Financial Company is covered under section 45-1(c) Reserve Bank of India, 1934. The principal business of an NBFC is of lending loans or receiving deposits under scheme/ arrangement by any mode.

Principal Business

A business of NBFC must constitute:

a. The Company’s financial asset must be 50 percent of the total assets.
b. The income from financial assets must be 50 percent of the total revenue.

Role

1. It cannot accept demand deposits like banks.
2. NBFC cannot issue cheques on themselves like a traditional bank.
3. It does not form part of the settlement and payment scheme.
4. The deposit insurance provided by the Deposit Insurance and Credit Insurance Guarantee Corporation (DIGC) is not available to the depositors of NBFC depositors.

Aim of NBFC

1. It provides loans, working loans, personal loans, shared investment, shared investment, stocks, debentures, leasing, insurance business, as well as offer place lending mechanism.
2. It lessens the gap between the organized and unorganized sectors.

Exclusion of business

The NBFC is excluded from doing business such as:

1. Agricultural Activity
2. Industrial Activity
3. Purchase or sale of goods excluding securities
4. Sale/purchase or construction of immovable properties
5. Providing of any services.

Requirements for Registration of NBFC

Some of the mandatory requirements as follow:

• The Company must be registered under the Companies act 2013.
• The company Net owned funds capital fund of INR 2 Crores, which includes share capital, the premium on shares, and reserves if any.
• It is necessary for the NBFC registration to have in the middle of the company name must be finance, Investment, Leasing, Capital Fintech, etc.
• A document which shows the highest qualification of the Director must be submitted along.
• Registration can be either Public Limited or Private Limited.
• The object clause in the memorandum of association must show the financial or investment of the Company.
• Documents like Certificate of Incorporation, Memorandum of Association, and Article of Association must be verified from the respective regional Director of the Company.
• Documents were stating the income proof of the directors, shareholders, founder/promoter, along with their KYC.
• Banker Report regarding no lien mark on the initial financial deposit of Rs 2 Crore.
• Submit the director’s experience report who has at least 10 years of experience.
• A detailed plan must be attached along with the loan products and Credit and risk assessment policy.
• A true copy of the financial statements of the audited balance sheet with Profit and Loss Account along with the Auditor’s report of 3 years.
• In the case of FDI received, the compliance report as per the FDI under the FEMA Act must be given.

NBFC Registration Procedure

1. Important documents required

• Incorporation Certificate of the Company.
• It must include documents relating to the management and administration of the Company.
• The documents stating the Article of association and Memorandum of Association.
• Company accounts which have been well audited for the last 3 years.
• Information regarding the directors and partners associated with the Company.
• Resolution of Board favoring the NBFC.
• A PAN Card of the Company.
• A bank account with the minimum equity share of INR 2 Crores.

2. Steps which are followed for NBFC Registration/Incorporation

• Register the Company under the Companies Act 2013^[1].
• Minimum Net Owned funds must be 2 Crores.
• There should be at least 1 Director.
• Good CBIL score to be present in order to be registered as NBFC.
• Visit the RBI website for the application form.
• Online application has to be submitted along with the required document, which generates for the Company an Application Reference Number.
• The form needs to be submitted to the Regional Office of the RBI.
• Once the documents are approved, the regional office sends the application to the Central office of the RBI.
• The RBI does the intricate checking of the documents, which then grants the certificate to the applicant’s Company.
• With this, a hard copy of the registration form has to be submitted with a list of the documents mentioned above.
• After the form submission, a CARN shall be issued/generated.
• After being satisfied with all the terms and conditions by the RBI, it gives the Certificate to the applicant for the Non-Banking Financial Corporation.
• The license shall be issued once all the form is submitted.

Types of NBFC

The NBFC can be classified into two parts:

1. NBFC-Deposit-taking- Non-Banking Financial Company

a. Deposit accepting NBFC

1. Asset Finance Company
2. Loan Company
3. Infrastructure Finance Company
4. Investment Company

2. NBFC- Non-Deposit- Non-Banking Finance Company

b. Non- Deposit NBFC

1. Infrastructure Debt Finance
2. A systematically important Investment core company
3. Microfinance institution
4. Mortgage guarantee company
5. Non- operative financial holding Company

Conclusion

Read our article:Documents Required for NBFC Registration in India