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NBFC Registration

NBFC Registration Process in India

Shubham Chauhan

| Updated: Nov 23, 2016 | Category: NBFC, RBI Registration

NBFC Registration

NBFC, an acronym used for Non-Banking Financial Company, is a financial institution that offers various banking services but does not possess a banking license. Registration for NBFC License is conducted under the Companies Act, 2013, and is managed by the Reserve Bank of India under RBI Act, 1934. NBFCs play a very crucial role in promoting inclusive growth of the country, by serving the diverse financial needs of bank excluded customers. In this blog, we shall discuss the NBFC Registration Process in detail.

Generally, NBFCs are engaged in the business of loans and advances, acquisition of shares, leasing, insurance business and chit business etc. Moreover, NBFCs also provide financial services to Micro, Small, and Medium Enterprises (MSMEs) as per their requirements. So mainly, NBFCs are playing a critical role in filling up the void left by the traditional banking system by delivering credit to the under-privileged and under-served segments of the society.

Since the rules and regulations of NBFCs are formulated by the Reserve Bank of India (RBI), it is mandatory to attain a license from RBI to start an NBFC as per Section 45-IA of the RBI Act[1], 1934. RBI regulates NBFCs and ensures that they are following the prescribed rules and regulations.

Difference between Banks and NBFCs

Largely the services offered by NBFCs and Banks are almost similar; there are few differences between them both as given below:

  • Regulated Authority: NBFCs are registered under the Indian Companies Act, 2013, whereas Banks are regulated by the Banking Regulation Act, 1949.
  • Unlike Banks, NBFCs cannot issue self-drawn cheques and demand drafts.
  • Demand Deposit: NBFC can only accept the public deposit and not the demand deposit.
  • Banks take part in the country’s payment mechanism whereas NBFCs are not involved in such transactions.
  • Foreign Investment: Foreign Investment in NBFCs is allowed up to 100% & in private sector Banks are allowed up to 74%.
  • Maintenance of Reserve Ratios: It is compulsory for Banks to maintain Reserve Ratios, whereas there is no such requirement for NBFCs.

Business activities restricted under NBFC

An NBFC does not include an institution with following principal business:

  • Agricultural activity
  • Industrial activity
  • Sale/Purchase of goods and services
  • Sale/Purchase of construction of immovable property

Types of NBFCs registered with RBI

NBFCs are basically categorized into two categories:

On the basis of liabilities

Based on Activities

Pre-Requisites of NBFC Registration

To complete the NBFC Registration process, the following requirements need to be fulfilled:

  • The Company should be registered under Section 3 of the Companies Act, 2013 or the Companies Act, 1956.
  • The net owned fund of the Company should be minimum Rs 2 crore or more, which includes Share capital, Premium on Shares, and Reserves if any.
  • CIBIL records of the Company should be clean.
  • To establish your NBFC, it is mandatory that at least one full-time Director of the Company should be from NBFC/Banking background.

The above-given pre-requisites are to be fulfilled in order to begin the NBFC registration process in India. Apart from the above-given pre-requisites, various documents required to establish your NBFC. Given below is a list of documents required to apply for NBFC license.

Our Recommendation: Check List for an NBFC Business Model

Documents required for NBFC Registration Process

  • Incorporation Certificate of the Company.
  • Certified copies of Memorandum of Association (MOA) and Articles of Association (AOA) of the Company.
  • Documents related to the educational qualification of the proposed directors.
  • Audited balance sheet of last 3 years from the date of incorporation.
  • KYC details and PAN card of the Company.
  • Bank account details of the Company with a minimum equity share of Rs 2 crore.
  • Documents confirming the location of the Company.
  • CIBIL data related to directors of the Company.
  • Income tax returns.
  • Complete information related to the Director and associated partners of the Company.

Registration Process of Non Banking Financial Company (NBFC)

Following steps should be followed to register your NBFC:

  • The first step towards NBFC registration process is to submit an online application along with the required documents, which eventually would generate a Company Application Reference Number.
  • While filling the online form, a detailed list of documents is mentioned in the website, a hard copy of the mentioned documents should be submitted in the Regional Office of the Reserve bank of India (RBI).
  • Once the documents are submitted in the regional office of the RBI, further the documents are transferred to the central office of RBI where they are put through an intricate examination. If the submitted documents are found satisfactory, RBI will grant the NBFC license to the applicant.
  • Finally, if all the terms and conditions mentioned in the section 45-1A of RBI act are fulfilled, RBI grants NBFC registration.
  • It is mandatory for an NBFC to commence its business within the six months from the date of Certificate of Registration.

Other requirements to complete the NBFC Registration Process in India

To establish your NBFC, you will have to fulfill the following requirements:

  • To get your NBFC registered, it is mandatory to use keywords such as Finance, Investment, Leasing, Capital Fintech, FinServ, etc. as the middle name of the Company.
  • Since getting the approval of RBI for your NBFC is a cumbersome task it is advised to hire an experienced NBFC Registration consultant who has an experienced team of professionals like CAs, CS, lawyers to get your job done.
  • One of the Directors of the NBFC should have a financial experience of more than 10 years as a Senior Management in Bank or NBFC.
  • In order to get through the process of NBFC license you will have to create a sound business plan.

Conditions on which NBFC license may get cancelled

RBI may cancel your NBFC License on following grounds:

  • RBI may cancel the license if the Directors of the Company have insufficient financial experience.
  • The business profile of Directors and shareholders is not satisfactory enough.
  • The Business plan prepared by the applicant does not match the required standards.
  • If the minimum capital required is procured from a prohibited sources.

Essential NBFC Compliances after obtaining NBFC License

Once you obtain the NBFC License from RBI, following compliances are required to be fulfilled to commence further operations.

Before commencing the business NBFC has to apply for:

  • Registration with Credit Rating Agencies– CIBIL, ICRA, Equifax and Experian.
  • CERSAI Registration
  • Central KYC
  • FIU-IND Registration
  • National E-Governance Registration
  • Adoption of Anti Money laundering Policy and IT Policy
  • Submission of Financial Information to Information Utilities.

Annual Compliances of NBFC after NBFC registration process is completed

After the NBFC Registration process is over, NBFCs are required to follow the below mentioned compliances annually:

  • The registered NBFC will have to file annual return with RBI.
  • Filing of Income Tax returns and GST returns.
  • Statutory Auditors certificate on Income & Assets


Advantages of Non Banking Financial Companies (NBFCs)

Following are some of the benefits that NBFCs offer:

  • NBFC Registration process is relatively easier than registering a small bank. Opening a bank requires a large capital and a lot of time.
  • The collaboration of NBFCs and Fintech is increasing rapidly, hence enhancing the services offered by NBFCs.
  • The allowance of 100% FDI in NBFCs is another benefit of NBFCs over Banks.
  • The loan recovery mechanism of NBFCs is well-organised.

How can we help you through NBFC Registration Process?

We at Enterslice have a team of experienced CAs, CS and lawyers to guide you through NBFC registration process and help you create a perfect business plan for your NBFC. We are dedicated to help you complete the process of NBFC registration and also help you with post incorporation compliances.

Also, read: A Brief Overview on Applicability of GST on NBFCs

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Shubham Chauhan

A passionate legal content writer, a nature enthusiast, an avid reader, and a part-time thinker. By means of conducting in-depth research on industry related topics, Shubham often builds flawless and intelligible legal content for populace from all walks of life.

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