Prerequisites of NBFC Registration

Ashish M. Shaji

07 Dec, 2020

NBFCs have a crucial role to play in the Indian GDP. Therefore their registration process is made simpler. The company that wishes to register NBFC can approach MCA before getting RBI approval. However, many are unaware of the requirements to be fulfilled for its registration. In this article, we will discuss the prerequisites of NBFC Registration in India.

What is an NBFC?

Non-Banking Financial Company is a company registered under Companies Act. It is engaged in the business of loans and advances, acquisition of stocks/shares/debentures/securities issued by government or local authority. NBFCs lend and make investments and therefore their activities are similar to that of banks but there are differences as well.  

Prerequisites of NBFC Registration: Conditions

The fulfilment of the following conditions is essential for availing registration from RBI:

• The organization must be registered entity under the Companies Act of 2013.
• It should have 100% compliance with the Registrar of Companies.
• The net owned funds of the company should not be less than 2 Crore rupees.
• Minimum 1 director should be having work experience with NBFC/Bank.
• The CIBIL records should be clear.
• The company should have a minimum understanding with respect to NBFC business, RBI regulations, etc.

Prerequisites for NBFC Registration: Documents required

The following documents are needed for registration:

• Certificate of Company Incorporation;
• Information about the management in detail with a brochure of the company;
• Copy of PAN/CIN of the Company;
• Documents confirming the location of the office;
• Certified copy of the Memorandum of Association and of Article of Association;
• Profile list of directors duly signed by every director;
• CIBIL or credit reports of the directors;
•  Copy of the board resolution which certify that the company hasn’t carried out or stopped NBFC activity and shall certify that it will not carry out such activity until registration from RBI^[1] is received;
• Board resolution on fair practices code to be passed and copy of the same should be submitted;
• Certificate by statutory auditor certifying that the company is not holding public deposit and doesn’t accept the same;
• Certificate stating owned funds as on the date of application from statutory auditor;
• Information about bank account, balances;
• Audited balance sheet and profit and loss statement with directors and auditor’s report of the preceding 3 years, if applicable;
•  Self certified copy of the bank statement and Income tax return; and
• Information about the future plan of the company for the next three years with projection of balance sheets, cash flow statement and income statement. 

Prerequisites of NBFC Registration: Registration Fees

The fee structure is classified under different types for NBFC Registration:

• When registering the company, a fee is to be paid on the authorized capital of the company. It is paid to the MCA.
• The company shall pay fee on the basis of authorized capital and other factors for MOA and AOA of the company.
• Filing of Simplified Proforma for Incorporating Company electronically shall require of the company to pay fees;
• A predetermined fee should be paid for Reserve Unique Number and Directors Identification Number;
• For DSC generation, payment of periodic fees is required; and
•  An additional fee is required while submitting the application.

Other Compliances for NBFC Registration

There are various other compliances which must be followed by the company:

• The middle name of the company should have the words such as finance, investment, leasing, Fintech etc.
• Documents that certify the highest qualification of directors of the company.
• The net worth certificate of the shareholders and directors should be certified by a CA.
• The company should be registered as a Public Limited or Private Limited Company.
• In the Memorandum of Association, there should be an explicit clause explaining the financial investment of the company.
• It is crucial to have the credit report of the directors and the shareholders verified which keeps them from loan repayment.
• The 2 crore initial capital should not be a borrowed capital.
• There should be a high level business plan to get through the process.
• A detailed action plan regarding loan products and Credit and Risk Assessment Policy should be in place.
• In case of FDI, all necessary compliances as per the FEMA Act should be complied with.

How to Register NBFC?

Now that you have known everything about the pre-requisites, let’s now discuss the procedure of registering an NBFC.

 For NBFC Registration the following procedure should be followed:

• Firstly, register the Company under the Companies Act;
• As stated earlier the Minimum net owned funds of such company should be at least 2 crore rupees or more;
• Visit the official website of the Reserve Bank and fill the application form accurately;
• Next, submit all the above mentioned documents with the application form;
• When the application for registration is submitted, a CARN (Company Application Reference Number) number is generated;
• Send the hard copy of application to the regional branch of the Reserve Bank; and
• Once the application is scrutinized and verified, the NBFC License shall be given to them.

What compliances must be followed by the NBFC after its registration?

It may be noted that there are certain post compliances for an NBFC once it’s registered. There are certain guidelines that are laid down by the RBI in this regard. Income tax return should be submitted, ROC returns, Tax audit and various NBS return for deposit accepting and non-accepting companies are some of the vital statutory compliances to be followed by an NBFC.

Conclusion

Read our article:NBFC Registration Procedure with Reserve Bank of India