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NBFC has a phenomenal role to play in the Indian economy to have a sound source of funding. Sharing the broadening of financial services role they have come near to a banking system in meeting the shocks of the economy. In this article we described about Procedure for Applying for NBFC License.
Table of Contents
NBFC is nothing but a financial institution who acts alike Bank but not a Bank. As defined by RBI, Non-Banking Financial Companies is Company registered under NBFC whose principal business is to grant loans and advance, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority, leasing, hire-purchase, insurance business, chit business, receive deposits under any scheme or arrangement.
As stated above NBFC deals with financial activities it requires to be regulated. RBI has sent notices to thousands – tens of thousands perhaps – of companies asking them whether they are NBFCs. And, if yes, why they have not registered. This is worrying because if a Company is an NBFC is not registered then it demands serious consequences for the Company and its concerned directors/officers. For example, the law provides for minimum and mandatory punishment of one year for non-registration as NBFC.
In perhaps, the lawmakers made a radical and unduly broad law in 1997. It required any and every company engaged in specified finance activities to register as NBFC first even if it intended to use own funds for its business and not accept any public deposits. No minimum size companies are exempt from registration.
And now these notices. The process of responding and disposal will be lengthy and time consuming for the companies, their auditors and of course the Reserve Bank of India itself. The defining whether a Company is an NBFC or not is subject to qualitative and/or quantitative criteria.
There are other concerns too. The significances of non-registration are not just the stringent punishment of imprisonment for non-registration and fine. The question is what would happen of consequential non-compliances. A registered NBFC is required to comply with several directions, particularly relating to Prudential Norms. It is possible that these would not have been followed.
The responsibility of reporting whether a Company is NBFC or not is on their auditors too by specific Directions addressed to them. Non-compliance by them may levy fine, in some cases prosecution and also reference to the Institute of Chartered Accountants of India.
The Reserve Bank of India regulates and organizes Non-Banking Financial Companies which are into the principal business of lending or acquisition of shares, stocks, bonds, etc., or financial leasing or hire purchase or accepting deposits.
Financial activity as the principal business is when a company fulfills the following conditions:
Read Also: Service Offered by Non Banking Financial Companies (NBFCs).
The RBI has not defined the Principle business under the Act but for the purpose of the financial activity, it has set conditions to be fulfilled before taking License.
Therefore, companies involved in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial activity in a small way, will not require NBFC registration.
In addition to the above below financial companies are not required to get the license of NBFC. Since such NBFCs are regulated by other regulators.
The following are the categories of NBFC Companies:
Asset Finance Company (AFC): A company which is a financial institution carrying on as its principal business the financing of physical assets.
Investment Company: A company which is a financial institution carrying on as its principal business the acquisition of securities.
Loan Company: A company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances but does not include Asset Finance Company.
Infrastructure Finance Company: A Company that deploys at least 75 percent of its total assets in infrastructure loans, has a minimum Net Owned Funds of Rs. 300 crore.
Systemically Important Core Investment Company: A Company with an asset size of over Rs.100 crores and accepts deposits, involved in the business of acquisition of shares and securities which satisfies certain conditions.
Micro Finance Institution: Micro Finance Institution is a non-deposit taking NBFC that is engaged in microfinance activities.
The applicant of NBFC shall comply with the following conditions:
There is the following process of NBFC Registration in India-
The company can then check the status of the application from the above mentioned secure address, by inputting in the acknowledgment number.
Recommended Article: How to Obtain NBFC License in India?.
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