NBFC Registration Process in India

Ashish M. Shaji

29 Sep, 2020

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:

• NBFCs are registered under the Indian Companies Act, 1956, whereas Banks are regulated by the Banking Regulation Act, 1949.
• Unlike Banks, NBFCs cannot issue self-drawn cheques and demand drafts.
• 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 Direct Investment is allowed up to 100% & in private sector Banks are allowed up to 74%.
• 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 and should have 100% compliance with ROC.
• 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.

Documents required for NBFC Registration Process

The documents required for NBFC Registration Process are as follows:

• Incorporation Certificate of the Company.
• Certified copies of Memorandum of Association (MOA) and Articles of Association (AOA) of the Company.
• A copy of PAN/Corporate Identity Number of the company.
• Documents related to address of the company and the location.
• List of directors profile signed by each director.
• Credit reports of company.
• A board resolution on fair practices code is to be passed and certified copy of the same should be submitted.
• Certificate by statutory auditor specifying that the company does not hold the public deposit and doesn’t accept it as well.
• Information about the bank account, balances, loans etc.
• If applicable, audited balanced sheet and profit and loss statement with the directors and auditor’s report of the preceding three years.
• Self certified copy of bank statement and IT return is required.
• Information about the company’s future plan, (for three years), with the projection of balance sheets, cash flow statement and income statement.

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.

Conditions on which NBFC license may get cancelled

RBI may cancel your NBFC License on following grounds:

• In case an NBFC ceases to carry on the business activities of a non-banking financial institution.
• In case of failure from an NBFC to comply with the requirements or the conditions for its registrations provided under the Act and any other conditions mentioned by RBI at the time of issuing the Certificate of Registration.
• If the NBFC fails to fulfil or comply with the directions or notifications by the RBI.
• In case where an NBFC fails to maintain the books of accounts and records according to the RBI Act 1934.
• In case where NBFC fails to submit the books of accounts or records or any other relevant documents to the RBI for inspection purposes according to the RBI Act 1934.
• In case NBFC is unable to repay deposits. The RBI will provide an opportunity to such company before cancelling their license.

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-organized.

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.

Read our article:Advantages of Digitalization in NBFCs