NBFC

NBFC Registration Process

An NBFC Registration process is a procedure that every company looking to establish a banking business in NBFC has to follow, as well as the instructions and guidelines according to the Reserve Bank of India. RBI is the regulatory body that is responsible for looking after the NBFC registration process to navigate the seamless functioning of the non-banking financial corporation’s financial service available to every section of the economy. To Carry out any NBFC activity, get the NBFC banking licence by filling out an application for the NBFC registration aligning with the provisions of the RBI Act.

A Non-Banking Financial Company or NBFC is a company that is registered under the Companies Act 2013 to engage in the business of financial services such as loans, advances, acquisition of shares, stocks, bonds, debentures, or securities issued by the government or any other local authorities. Unlike traditional banks, NBFC banks are not engaged in the principal business of agriculture activity, industrial activity, purchase or sale of any goods other than securities, or any services connected to immovable properties sale, purchase, and construction. Further, the NBFC must obtain a banking license from the concerned authority after fulfilling the NBFC registration process according to the regulation and compliance frameworks stipulated in the RBI Act of 1934.

Comprehensive Guide to NBFC Registration from Start to Finish

Non-Banking Financial companies, unlike traditional banks, do not have a banking licence, but they have to follow the NBFC registration process to obtain an NBFC licence from the concerned authority to offer and function financial services to customers. It is important to note that the NBFC registration process is different from the traditional bank registration procedures since the NBFC cannot accept savings or current account deposits and cannot issue cheques drawn on itself. Moreover, customers or depositors in NBFC banks do not get deposit insurance and credit guarantee coverage.

To be precise, the NBFC registration process has to be conducted diligently since NBFC registration is mandatory, according to the Reserve Bank of India. However, the failure of an applicant company in the NBFC registration process will mean that the company will not have access to an NBFC banking license to operate the NBFC banking services to the customers. Further failure of an NBFC company to comply with the requirements of the RBI guidelines means facing several penalties and legal liabilities that damage the reputation of the company. NBFC banking services have benefitted several sections of the economy, which is not eligible according to the other traditional banking services. Documents Required for NBFC Process

Eligibility Criteria for NBFC Registration With RBI

Reserve Bank of India is the statutory governing body that provides guidelines that every company registered under the Companies Act 2013 is desirous of commencing NBFC financial services. Major criteria that should be complied with by the applicant bank are the following:

1. An applicant company must be a company registered under the Companies Act 2013.

2. Such applicant company must have a minimum net owned fund of Rs.2 crore for setting up NBFC banking services such as NBFC-MFIs, NBFC-Factors, etc.

Therefore, the above registration requirements have to be fulfilled to initiate the NBFC registration process for obtaining an NBFC license.

Benefits of NBFC Registration in India

Unlike a traditional bank, NBFC financial service does not require a banking license; it requires registration from the Reserve Bank of India. NBFC’s principal business is to receive deposits under various schemes or an arrangement, lending, etc. Non-banking financial companies have evolved to become an important source of credit for various micro, small, and medium enterprises (MSME), contributing 30% of the Indian GDP and employing more than 110 million people. Given below are the major advantages of NBFC registration:

1. NBFCs are eligible to provide loans and credit facilities to customers.

2. NBFC can trade in money market instruments.

3. An NBFC company can also conduct wealth management like portfolio management of stocks and shares.

4. NBFC bank can underwrite stock, shares, and various other obligations.

5. Customers who do meet the traditional bank always consider NBFC bank as a last resort for meeting their financial needs.

6. The NBFC Registration process is faster and simpler than traditional banks.

7. Unlike traditional banks, NBFC banking services are faster than traditional banks.

8. NBFC banking services have adopted a modern method of financial lending or services that has overcome the key challenges of overwhelming conventional lending. To a certain extent, NBFC has taken advantage of advanced technologies by using phones, and internet banking in the financial business operation making it convenient for customers to have easy access to information.

9. With digitalization, NBFC is also able to present multiple choices of banking services reaching larger audiences at a quicker pace giving rise to larger NBFCs.

10. Another major advantage of NBFC baking services is their ability to understand the ground level of customers’ profiles and their financial requirements, which are not able to meet the criteria of traditional banks.

NBFC Registration Fees

NBFC registration process fees are approximately coming to Rs.3,50,000 with a net owned fund of Rs.2 crores. However, if you take the help of a professional in the NBFC registration process you may have to pay additionally up to Rs.15 lakhs rupees. Further, such costs differ from NBFC registration process services to services.

Documents Required for NBFC Registration Process

To obtain a non-banking financial corporation license, an applicant has to submit the documents below during the NBFC registration process in India. Getting ready with such documents will help the applicant company to seamlessly obtain an NBFC license from the concerned authority. Below is the important list of documents for the NBFC registration process:

1. A certified copy of the certificate of Incorporation (CoI) of the applicant company.

2. If the company is a public limited company, then a certified copy of the certificate of commencement of business has to be submitted.

3. Certified copy of MoA extracting the main objective connected to the NBFC proposed business.

4. Resolution of the board of directors stating the following details:

a) That the applicant company is not carrying any NBFC financial service or has stopped any NBFC financial services and will not carry the same unless an NBFC registration is granted by the concerned authority RBI.

b) That the applicant company has not accepted any public deposit in the past and does not hold any kind of public deposit as of date and thus will not accept the same unless prior approval is granted by the Reserve Bank of India.

c) That the applicant company has formulated a Fair Practice code according to the RBI guidelines or regulations.

d) A copy of the receipt on the fixed deposit and banker’s certificate indicating that the applicant company has no lien in support of the net-owned funds.

e) In case the company already exists, such a company must submit during the NBFC registration process an audited balance sheet and accounts of profit and loss along with directors and auditors reports until the existence of the company or for the last three years, whichever is less.

f) A copy of the director’s highest qualification certificate.

g) A copy of the experience certificate of any of the directors in the financial service sectors.

Prerequisite for NBFC Registration Process

A non-banking financial corporation is a financial institution, unlike a commercial cooperative bank, that engages in the business of both financial and non-financial services to interested customers and companies under various terms and conditions. However, these NBFC banks do not hold a proper banking license like any other traditional banks but do follow stringent rules and regulations according to the Reserve Bank of India guidelines and policy frameworks. To be precise, NBFC banks are mandatorily registered according to section 45 ia of the RBI Act of 1934 to run a financial service by meeting the following conditions:

1.      A desirous company must be duly registered with the Companies Act of 2013. Thus, only companies incorporated under the Companies Act of 2013 are eligible to get an NBFC license.

2.      An applicant bank must have a minimum net owned fund of 2 crore as of now, but one should keep updated with the RBI master circulars.

3.      A business whose total financial flow exceeds 50 % of the total assets of a company is eligible for applying for an NBFC license.

NBFC Registration Procedure

Given below is the NBFC registration process that is to be followed by every company seeking to run NBFC financial services. To get an NBFC license from RBI following the NBFC registration process is mandatory to avoid any discrepancies.

1.      Firstly, the applicant company must ensure that they are registered as a company under the Companies Act 2013, either as a private limited or public Company.

2.      Secondly, a minimum net Fund of Rs. 2 crores must be possessed by the applicant company. further, the applicant company must ensure that the name proposed must include finance, Fiserv, fin, investment, capital, fintech, leasing, etc.

3.      Thirdly, the applicant company can visit the concerned website apply online, download the same, and submit the hard copy to the respective concerned authority with duly attaching the mandatory documents.

4.      Such documents shall include the Company Application Reference Number that will be available once you apply to the online website or portal. Some of the major documents to be submitted along with the hard copy of the NBFC registration application are a certificate of Incorporation, the latest company’s annual audited accounts, statutory auditor certificate, certificate of directors, shareholders, and the company’s net worth, CIBIL scores of both directors and shareholders, etc.

5.      After submitting the above application and documents before the concerned regional office of RBI, such regional office of RBI shall send the same to the central authority for further verifications of the documents submitted.

6.      The NBFC registration process goes in vain if the concerned authority does not grant the NBFC license. However, the concerned authority after verifying the applications will accordingly grant an NBFC registration under section 45-ia of the RBI Act 1934.

7.      Lastly, RBI may ask for further clarification and information from the applicant bank if required.

Types of NBFC Registrations

According to RBI, different kinds of NBFCs have been categorized to serve different types of financial services to customers. Different types of NBFC registration processes slightly differ from each other; however, obtaining a certificate of registration is necessary for every type of NBFC. Given below are the types of NBFC registration process:

Asset Finance Company (AFC)

Assets Finance Company’s primary business is to help individuals and businesses purchase various physical assets for business operations to increase productivity and economy. Moreover, to get a licence on AFC, at least 60 % of the NBFC financial service must be connected to such banking services. Some of the major examples of AFC are automobiles, tractors, and various other equipment to run a business.

Investment Company (IC)

This NBFC bank is engaged in financial service by acquiring securities in the form of equity shares, debt instruments, and various other government securities. These NBFC ICs help both individuals and corporations to invest in the best and most productive way.

Loan Company (LC)

Any NBFC not fulfilling AFC criteria but providing loans comes under loan company.

Infrastructure Finance Company (IFC)

This NBFC is engaged in the financial service to various sectors like power, roads, telecom, and transport. However major requirement for this NBFC licence is that company 75% of assets have to be invested in infrastructure loans.

Microfinance institutions (MFIs)

Microfinance institutions are the kind of NBFC financial services that provide loans to low-income individuals and self-help groups. The main objective behind MFIs is to uplift poverty and foster sustainable livelihoods.

Systemically Important Core Investment Companies (CICs-SI)

CICs-SI non-banking financial corporations are different from NBFC-IC since they need to invest 90% of their total assets in their group of companies, and 60 % of their total asset have to be invested in equity shares of their group of companies.

Rejection Of Application for NBFC Registration 

Applicant company, after following the RBI guidelines on the NBFC registration process, there is a high chance of getting rejected or cancelled if they do not comply with the updated guidelines and regulation frameworks. Given below are some of the major reasons behind the rejection of applications for the NBFC registration process:

1.      If the applicant company is not able to meet the minimum net owned fund of Rs.2 crore, however, such NOF may differ depending on the specific type of NBFC license you want to obtain RBI as the concerned statutory authority shall cancel the NBFC registration. A company that runs an NBFC financial service without an NBFC license is a clear violation of section 45 of the RBI Act of 1934.

2.      In case the NBFC bank is not following the board-approved policies and codes, such as fair practice code policy, recovery policy, and grievance redressal policy, NBFC registration shall be cancelled by the concerned authority. These policies are important for every NBFC bank to protect the interests of customers in the best interest of the public.

3.      Failure to make a repayment of the deposits according to the terms and conditions, then gives the right depositors to approach the company law board and consumer forum to file a suit to recover the deposit amount from such NBFC bank. Therefore, if RBI or Reserve Bank of India finds that NBFC is not able to repay the deposit amount then such NBFC license shall be canceled by the RBI.

4.      If the concerned authority finds that the NBFC is not engaged in the business of carrying out a financial activity, it shall cancel the NBFC license. According to the RBI, a company running an NBFC financial service must have 50% of the total financial assets and constitute 50% of the gross income. This eligibility criterion is also commonly known as the 50-50 test, and thus, every NBFC banking service has to follow this condition regularly to operate an NBFC financial service.

5.      Whenever an RBI team of audit inspects the NBFC banking operation and in case such NBFC bank fails to provide updated books of account, RBI as the statutory authority has the full right to cancel the license of such NBFC banks.

6.      If, during the time of the NBFC registration process, a concerned authority finds that the applicant bank is not meeting the requirements of the directors’ criteria, it may also result in the cancellation of the NBFC registration. Some of the major criteria for a director for an NBFC license are a financial background, not being in violation of any economic laws and regulations, having no criminal history background, etc.

Conclusion

Thus, NBFC or non-banking financial company has to obtain an NBFC license registration to operate NBFC financial services. An applicant company seeking an NBFC license must follow the guidelines and procedures of the NBFC registration process for the smooth functioning of the registration procedures. It is indeed important for an applicant company to be equipped with all the mandatory documents to avoid any discrepancies at the time of the NBFC registration process. Further, RBI is the concerned authority to whom the applicant bank shall make all the submissions for NBFC registration online as well as offline. Thus, after certain verification by the concerned authority, RBI shall grant NBFC registration or license to an applicant company. However, if an NBFC company does not follow the guidelines and code, RBI has the right to cancel the license of an NBFC company.

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