NBFC

What is a Non Banking Financial Company (NBFC)?

An NBFC or Non-Banking Financial Company refers to a company registered under the Companies Act. NBFCs are engaged in the business of granting loans and advances, acquisition of shares/stocks/bonds etc. issued by the government or local authority. NBFCs doesn’t include institutions whose principal business is industrial activity, agriculture activity, Sale/purchase/construction of any immovable property.

Also, NBFC is a company having a principal business of receiving deposits under an arrangement or any scheme in installments or lump sum by the way of contributions or in any other manner, is also a non-banking financial company.

What are the Different Types/Categories of NBFCs Registered with RBI?

NBFCs are broadly classified as follows:

Based on liabilities-

• (NBFC-D)-Deposit-taking Non-Banking Financial Company;
• (NBFC-ND)-Non-Deposit taking Non-Banking Financial Company.

Further, NBFC-ND is sub-categorized into two parts-

• Systematically Important NBFC-ND
• Others NBFC-ND.

Based on business activities-

• Investment and Credit Company-ICC;
• NBFC-Infrastructure Finance Company;
• NBFC- Non-Operative Financial Holding Company;
• Mortgage Guarantee Companies;
• Micro Finance Company;
• Systemically Important Core Investment Company (CIC-ND-SI)
• Infrastructure Debt Fund-NBFC;
• NBFC Factor;
• NBFC Account Aggregator;
• NBFC -Peer to Peer lending Platforms;
• Housing Finance Companies.

As per the Section 45-IA of the RBI Act, 1934, no NBFC shall commence or carry on business without-

• Obtaining Certificate of Registration (CoR) from the Reserve Bank^[1], and
• Having a Net Owned Funds of Rupees 2 crore.

What is the Difference between Banks & NBFCs?

The functions and few features of both NBFC and Banks are similar yet there are differences between both-

1. NBFCs, unlike banks, are incorporated under the Company Act;
2. NBFC cannot accept demand deposits but Banks can;
3. NBFCs cannot issue cheques drawn on itself;
4. NBFCs do not form part of the payment and settlement system;
5. The depositors of NBFCs are not provided with deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation.

What is the Procedure to apply for NBFC Registration with the RBI?

The following procedure is applicable for NBFC Registration:

• Firstly register the company under the Companies Act 2013;
• Minimum Net Owned Funds (NOF) of the Company should be 2 crore rupees or more;
• There should be minimum 1 director in the company from the same background;
• Then, visit the official website of RBI and fill the application form;
• You need to submit all necessary documents along with the application form;
• After you have submitted the application form, a Company Application Reference Number (CARN) will be generated.
• Thereafter you need to dispatch the hard copy of the application to the RBI’s regional branch.
• After the application has been checked as well as verified, the Registration is finally granted to the company.

Documents required for NBFC Registration

The following documents are required:

• Company incorporation certificate;
• Information on the management of the company;
• Copy of PAN/CIN of the Company;
• Documents regarding officer address;
• Certified copy of MOA and AOA;
• Directors profile signed by each director;
• Credit score of the Company’s Directors;
• Copy of the board resolution;
• Board resolution on fair practices code should be passed and its certified copy should be submitted;
• Certificate from a statutory auditor stating that the company is not holding any public deposit;
• Details of bank account, balances, loans etc.;
• Audited balance sheet & profit and loss statement, if applicable along with directors and auditors report of previous 3 years;
• Self-certified copy of the bank statement & ITR;
• Details of future plan of the company, (next 3 years) with projections of balance sheets and cash flow statement.

Future of NBFCs

NBFCs are now looking to leverage the use of modern technology to offer new and innovative products to its customers. With the help of these technology, NBFCs can serve customers better as it will lower the costs and also help them to offer tailor made customised services. The future of NBFCs looks bright with NBFCs reinventing their business. This will result in better business processes and better execution.

How NBFCs would be able to develop strategic partnerships with key ecosystem players and leverage technology to meet the evolving demands of consumers will determine the future course of this sector.

Conclusion

A Non-Banking Financial Company doesn’t have a banking license but they offer financial services to its customers. NBFCs have become a great alternative to banks for obtaining financial solutions as they are involved in providing loans and advances to public.