NBFC Registration with RBI (Reserve Bank of India)

Ashish M. Shaji

28 Dec, 2020

In this post, we will discuss the NBFC Registration procedure in India. The financial services sector of India comprises not just the commercial banks, but also Non-Banking Financial Companies (NBFCs). These entities offer a wide range of financial services like loans, chit-funds, etc., and function differently from banks.

NBFCs are very important to the economy, especially in developing countries like India where 70% of the population lives in rural areas, and has a constant need for short and long-term finance. If you rightly approach RBI for the NBFC registration procedure, COR can be obtained in 90-120 days.

What is the Business Activity of an NBFC?

NBFCs are proving to be a perfect alternative to mainstream banking in India as an integral part of the Indian Financial System, thereby making a remarkable contribution toward the country’s financial development. The Central Government and Reserve Bank of India are the major regulators of the NBFCs in India. The unorganized sector seeking loans and advances have been the most important beneficiary of NBFCs, providing easy access to the small local borrowers.

What is the RBI Requirement for NBFC Registration?

As per the Reserve Bank of India and the latest amendments under Companies Act, an NBFC is a company registered under the Companies Act, 2013 engaged in the business of providing loans, purchase of shares, debentures or other securities issued by a government or any local authority or other securities of a like nature.

It also includes a company with the prime objective of receiving deposits under any scheme or arrangement in one lump sum or in small installments, but it does not include any company carrying out agriculture or industrial activity, purchase or sale of any goods except securities, or any immovable property.

How are NBFCs different from Banks?

Both being the financial intermediaries, banks are regulated by the Banking Regulations Act as well Companies Act, while NBFCs are registered under Companies Act 2013^[1]. RBI controls both the intermediaries.

Following activities are not allowed by an NBFC:

• NBFCs cannot accept demand deposits;
• NBFCs cannot issue cheques drawn on itself since they do not form part of the payment and settlement system;
• Credit guarantee corporation and deposit insurance facility is not available to depositors in case of NBFC.

The lower costs in establishing NBFC make it a more lucrative option as compared to banks. More and more customers are opting for NBFCs as they offer cheaper loans to customers. Credit growth of NBFCs is an average of 24.3% per year as against 21.4% for banks.

NBFC Registration Procedure: How to Register with RBI?

The prerequisite for an NBFC to get a license from the Reserve Bank is that it should be a company registered under the Companies Act and shall possess minimum net owned funds of 200 lakhs. If the same conditions are satisfied, then an online application shall be made to RBI in the prescribed format along with all the necessary documents. The application for NBFC license should be complete and documents provided should be valid in all respects.

After the submission of an application for registration, RBI will scrutinize the documents on all grounds and upon being satisfied with the proper compliance with the rules and regulations, it shall issue a certificate of commencement of business.

Earlier, all NBFCs were subjected to strict governance requirements, such as the Fair Practices Code (FPC) and anti-money laundering, resulting in an extra compliance burden. Under the Revised Regulatory Framework, 2014, only those NBFCs that have a customer interface are required to comply with such governance requirements. Moreover, the RBI has also allowed non-deposit taking NBFCs to apply separately for registration so that the processing can be fast-tracked. As these companies do have access to funds from the public, they can be subjected to less scrutiny and due diligence. This paved the way for easier registration.

NBFC Registration with RBI: Documents Required

• Certified copy of Certificate of Incorporation;
• Certified copies of extract of the main object clause in the Memorandum of Association relating to financial business;
• Board resolution stating that the company is not carrying on any NBFC activity nor will it commence any such business until it gets NBFC registration. Further the board resolution stating that the company has formulated fair practices code and that the company hasn’t accepted public funds and won’t accept the same without RBI approval;
• For companies already in existence, the audited balance sheet, profit and loss account with directors and auditor’s report;
• Bankers report.

What is Future of NBFC in India?

The NBFC sector has shown considerable growth in the last few years despite the slowdown in overall economic growth, accounting for 14% of the country’s GDP by the end of March 2015. This has gone up from 8.4% in March 2006 only counting NBFCs with assets more than Rs 100 crore. If all the NBFCs are taken into consideration, the growth chart will go up further.

Conclusion

NBFCs have emerged as the largest receiver as well as lender of the net owned funds due to its access to even the remote areas of the country. NBFCs are expected to accelerate the growth of the economy as a whole. RBI is also continuously striving to provide regulatory support to the segment and also to ensure financial stability in the long run. The procedure for NBFC Registration with RBI has been simplified by the end of 2016.

Read our article:How NBFC is different from Nidhi and Micro Finance Company?