NBFC

NBFC Registration Procedure in India

In the current framework, the NBFC registration procedure in India is rolling beyond the numbers and financial outlooks. It sketches a better picture. Their contributions extend beyond monetary transactions. They are also assisting the country’s economy in growing by creating employment for the weaker section, creating wealth, and developing infrastructure and transportation as well. The reason behind the uprising of the NBFC registration procedure in India as the institution in the current financial market is pushed by the increased demand for loans by small market businesses such as MSMEs (Micro, Small, and Medium Enterprises). They don’t have strict control over the policies regarding the eligibility criteria, in comparison with the traditional banking system of India.

Here are a few Examples of renowned NBFCs that are regulated by the RBI:

1. Bajaj Finance Limited (BFL)
2. Shriram Transport Finance Corporation Limited (STFC)
3. Mahindra & Mahindra Financial Services Limited (MMFSL)
4. Power Finance Corporation Limited (PFC)
5. Muthoot Finance Limited
6. L&T Financial Services, etc.

Types of NBFCs

NBFC registration procedure in India has been diversified into various categories, each of them specializing in different financial strata and services. They are as follows:

• Deposit-taking and systematically essential NBFC (Category A), which accepts deposits. The Reserve Bank of India (RBI) grouped the NBFC registration procedure in India based on their primary activities:

Asset Finance Company (AFC)

The prime burden of these companies is to finance the acquisition of tangible assets like vehicles, equipment, machinery, and other physical goods. They play an important role in establishing a business to acquire essential assets for their operation.

Loan Company

NBFC registration procedures in India focus on providing loans and advances to customers and businesses, and consumer loans are dedicated to accessing increased credit.

Infrastructure Finance Company

NBFC registration procedures in India provide funds and financial support to infrastructure projects such as roads, over bridges, etc. Their role is optimal in supporting the country’s infrastructural development.

Investment Company

NBFC registration procedure in India is the type of NBFC that invests in securities like stocks, shares, bonds, debentures, and other financial instruments. They provide investment diversification for individuals and institutions.

Microfinance Institutions

NBFC registration procedure in India provides small loans to low-income entities, individuals, self-help groups, and enterprises at the micro level. They contribute to the incoming finances and have made various efforts to reduce the poverty level by extending credit to underprivileged or jobless people in society.

Non-operative Financial Holding Company (NOFHC)

If seen through the eyes of the RBI, their regulatory requirements are set up as the holding companies for the financial sector entities. They make sure that the financial conglomerates function in a well-structured environment.

• Non-deposit taking & non-systematically necessary NBFC (Category-B)

This type of financial entity doesn’t accept public deposits and is likely to have less impact on overall financial stability. The NBFC in India is subject to RBI norms and regulations but has a lesser impact on normalizing risk than deposit-taking.

They are differentiated in various ways, such as:

NBFC-ICC

 The Non-banking Financial Companies- Investment and Credit Company (NBFC-ICC) for getting engaged in levelling up the lending and investment activities, facilitating credit and investment related to finance to fulfil the NBFC registration procedure in India.

NBFC-MFI

The Non-Banking Financial Companies- Microfinance Institution (NBFC-MFI) for getting engaged in providing microfinance services for low-income groups to fulfil their basic needs, especially in rural and semi-urban areas, to fulfil the procedure for NBFC registration procedure in India.

NBFCs-ND-INFRA

The Non-Banking Financial Company-Non-Systematically Important Infrastructure Finance Companies (NBFC-ND-INFRA) for the registration of the NBFC in India to engage in financing infrastructure projects without falling into the category of getting classified as important systematically for NBFC registration.

NBFC-Loan

The NBFC-Loan stands for Non-Banking Financial Company- Loan Companies (NBFC-Loan) engaged in providing loans and advances for various purposes, such as personal, housing, and educational loans to fulfil the process of NBFC registration procedure in India.

Necessary Paperwork’s required for NBFC Registration

To get the NBFC registration procedure in India, the company should meet the following conditions as follows-

1. The certificate of incorporation of the applicant company should be paramount.
2. The detailed brochure about the company’s management and administration, like the Board of Directors.
3. The applicant company’s MOA (Memorandum of Association) and AOA (Articles of Association).
4. KYC details, PAN number, and address proof of the applicant company.
5. CIBIL Score or Credit reports of the applicant company of each director.
6. Documents associated with the bank accounts, balances, loans, credits, etc.
7. A certificate by the company’s auditor declaring that neither the company accepts any public deposits as of date, nor it did it in the past, and it won’t do it in the future as well without getting prior approval from the RBI.
8. A copy of the audited balance sheet and reports for the past 3 about the company’s loss and profit.
9. Self-certified copy of the company bank statements and income tax returns (ITR).

The eligibility Criteria for the procedure of NBFC registration procedure in India are the following:

1. The company’s applicant has to get it registered under the Companies Act of 1935.
2. The company’s applicant should have the business plan for the 3 upcoming years.
3. The minimum net worth of the company should be not less than 10 Crores INR.
4. The company’s 1/3^rd of the directors must have qualified work experience and a financial background.
5. The CIBIL Score of the company should be remarkable to apply for the NBFC registration process.
6. The company strictly complies with the rules and regulations given under the FEMA Act.

Procedures Involved in NBFC registration procedure in India

There are the following steps laid down for the NBFC Registration process-

1. You should visit the portal of the Minister of Corporate Affairs.
2. Try to get your company incorporated under the Companies Act 1956, & 2013 on the portal and obtain the certificate of incorporation.
3. The mandatory criteria should be fulfilled already mentioned above.
4. Must visit the RBI official website and get the appropriate application for the NBFC registration under Section-45 1A of the RBI Act, 1934.
5. Try to fill in all the information asked in the application form and annex all the required documents. After filling out the forms without any glitches, only submit the form.
6. Next to the successful submission of it, a CARN (Company Application Reference Number) will be generated.
7. After taking the print of the hard copy, submit it to the regional branch of the RBI, where the company’s office is located.
8. Thereafter, the RBI officials will examine and verify the received application form, and if found satisfactory, then the applicant company will be issued a Certificate of Registration.

Cancellation of Certificate of NBFC registration

Procedure in India

RBI may cancel at any the Certificate of Registration of the NBFC if-

1. It ceases to carry on the business of a non-banking financial institution in India.
2. It has failed to match the conditions subject to which the certificate of registration has been issued to it.
3. It any time fails to suffice any of the conditions such as adequate monetary structure and earning prospects, monetary stability, economic development, public interest, etc.
4. It fails to maintain accounts as per the direction of the RBI
5. It fails to submit a book of accounts and other relevant documents when so demanded by the scrutinizing authority of RBI. 
6. It has been forbidden from accepting deposits by an order made by the RBI for a minimum of 3 months. 

Benefits of availing NBFC registration procedure in India

Many benefits can be offered by the NBFC as compared to the traditional banking services in India. These are as follows:

Liberty concerning the interest rates

NBFC can enjoy the freedom of fixing their rate of interest on the loans they are offering. The only condition that they should make a call on is not to cross the interest rate that has been prescribed by the RBI.

More Flexible

If we look at the conduct of the NBFC registration procedure in India, then we will figure out that they are way more flexible as compared to the traditional banks, and that’s the main reason behind their wide recognition and faith in the various sections of the Indian economy. Though the banks have limited reachability, NBFCs have done an excellent job of making their presence, especially when we talk about the rural areas.

Trouble-free Processing of the loan amount

The requirement of the documents is much lesser and more flexible in the case of the NBFC registration procedure in India as compared to the banks. It also offers satisfactory options for its customers.

Consider a Low/Moderate credit score.

Compared with traditional banks, NBFCs have much more flexible policies and even consider individuals with a lesser credit score to provide loans as the rules laid down by RBI for the NBFCs to lend are much fewer.

Customer Services oriented

They usually provide customer-oriented service by facilitating a wide range of services apart from lending, such as trading in money market instruments, educating financing support, providing investment advisory and retirement plans, etc.

Recent modifications done by RBI in the NBFC registration procedure in the India framework

The Reserve Bank of India has issued a notification shaping a new regulatory framework for the NBFCs’ SBR framework. The RBI has always played a crucial role in regulating NBFC registration procedures in India over the years. Previously, NBFCs had been classified, i.e. systematically important and non-systematically important. However, starting in October 2022, the RBI introduced a new classification system based on layers like base, middle, upper, and top.

The new classification brings out some progressive changes but also has created certain vagueness in the applicability of the regulatory rules. Specifically, the base layer and middle layer structure were related to the non-systematically important (non-systematically and systematically important). 

Moreover, the SBR Framework has introduced different criteria. According to this type of framework, those NBFCs with assets less than 1000 Crores INR are categorized as base layer entities. At the same time, those with assets of more than 1000 Crores INR are classified as middle-layer entities. This is creating a huge area for those whose assets have been falling between 500 and 1000 Crores INR.

To resolve this issue and to provide a more streamlined regulatory framework, the RBI has issued the Master Direction- Reserve Bank of India (Non-Banking Financial Company- Scale Based Regulation) Directions, 2023 (‘SBR Master Directions’). The SBR Master Direction, effective implementation immediately, intends to consolidate the various regulations issued under the SBR framework governing the different layers of NBFCs. It brings clarity from the complexity of compliance requirements and makes sure that all NBFCs operate within a framework that is consistent and transparent. The SBR master direction has been divided into two categories of NBFC registration procedure in India based on their size as well as function:

1. Regulations for the base layer
2. Regulations for the middle layer that would be in addition to the regulations for BL (base layer)
3. Regulations for the upper layer (this would be in addition to the regulations for BL and ML.
4. Regulations for the top layer (to be specifically communicated upon the classification in TL)
5. Specific directions for IDFs (Infrastructure Debt Funds) this is in addition to the regulations based on layers.

Later on, the specific regulations issued by the RBI would still be relevant and continue to their applicability to Housing Finance Companies, Core Investment Companies, Asset Reconstruction Companies, etc. In addition to that, based on the classification under the SBR framework (BL or ML), the relevant provisions of the SBR Master Directions shall be applicable.

Lastly, it would also specify that the existing NBFC-ND-SI (Non-systematically important non-deposit taking NBFC) with asset size of 500 Crores INR and above but below 1000 Crore INR would be again classified as NBFC-BL. However, upon doing an initial review of the SBR Master Directions, it appears that certain guidelines that were typically applicable to NBFC-SI should now apply logically to NBFC-ML are explicitly hanged on for the NBFC registration procedure in India with asset sizes exceeding 500 Crores INR. As the financial outlook continues to evolve, the RBI’s proactive role ensures that the NBFC sector remains up to date.

Moreover, the perusal of the SBR Master Directions, it can be noticed that certain regulations were issued under the SBR framework that have not been consolidated, such as follows:

1. Compliance Function and Role of Chief Compliance Officer (CCO)- NBFCs
2. Implementation of Core Financial Services Solutions by the NBFCs

There are also specific directions on Information Technology framework, fraud reporting, etc., that have not been consolidated. The SBR master directions usually issued by the Department of Regulations (DoR) as applicable to the NBFCs shall continue to be complied with. Following the aforesaid regulations that were issued by the Department of Supervision (DoS) or Department of Non-Banking Supervision (DNBS), they have not been consolidated and are neither listed in the repeal section of the SBR Master Directions. There does not seem to be any reason to believe that for the aforementioned regulations to be repealed, and hence, it seems that only those circulars and notifications that are issued by the DoR have been considered while compiling the regulations, including those introduced under the SBR framework and assuming that there are several standalone notifications on the aforementioned headings that are issued by the DoS or DNBS. Therefore, the said regulations should also continue to be applicable.

Conclusion

The NBFC registration procedure in India is set to reach greater heights in the upcoming years. It has wholly changed the dynamics of the banking system in India, making it take a turn from the traditional banking system to the non-traditional banking system. The elaborative procedure always makes sure that the NBFC registration procedure in India abides by strict operational and financial standards and also safeguards the interest of both the consumers of the service and the financial market. There will always be strict measures taken by the RBI to check the due diligence and eligibility criteria set by the NBFC that are contributing to maintaining financial stability in the market. The NBFC gets legal recognition through their smooth registration process, accessing their funds, and also facilitating financial services, which is adding up to growing the nation’s economy.

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