Procedure for Incorporation of NBFC Under Companies Act 2013: Complete Details

Incorporation of NBFC

NBFC is an acronym used for Non-Banking Financial Company incorporated under the Companies Act, 2013 and managed by RBI. The functions of an NBFC are mostly similar to that of Banks. They are involved in the businesses of Loans and Advances, Acquisition of stocks, shares, hire purchase insurance business, or chit-fund business. NBFCs are well known to provide quick loans to individuals and the corporate in contrast to the traditional banks.  NBFCs are filling up the gap left by the banks in the financial market as Banks alone cannot serve the requirement of all. Moreover, the process of NBFC Registration is a lot easier as compared to the Banks. In this blog, we shall discuss in detail the process of incorporation of NBFC in India.

Points of difference between Banks and NBFCs

  • A Bank is registered under the Banking Regulation Act, 1949, whereas an NBFC is registered under the Companies Act 2013 or 1956 and RBI Act, 1934.
  • Unlike Banks, NBFCs cannot accept and lend deposits.
  • Foreign Investment in Banks is limited up to a specific fixed limit, whereas foreign investment in NBFC is allowed 100%.
  • Banks can issue a self-demand draft on itself, whereas NBFCs are not allowed to issue a self-demand draft.
  • An NBFC cannot issue cheque drawn on itself as they are not part of the payment system.
  • Bank provides a variety of transaction services, whereas NBFCs do not facilitate transaction services.
READ  CRIF gets RBI's Approval to Operate as an NBFC Account Aggregator

Pre-Requisites for Incorporation of NBFC

For incorporation of NBFC in India following conditions must be fulfilled:

  • The Company must be registered under the Companies Act 1956 or Companies Act 2013.
  • The Company is required to have a Net-Owned Capital Fund of 2 crore, which includes Share Capital, Premium on Shares, and Reserves, if any.
  • At least one of the Directors of the Company must have a working experience with NBFC/Banking.
  • The CIBIL records of the Company must be clear without exception.
  • The applicant company is required to draft a detailed business plan for the next five years.
  • The middle name of the Company must have either of the keywords out of Finance, Leasing, Capital Fintech, etc.
  • In case of an FDI, the necessary FDI Compliances as per the FEMA Act must be complied with.
  • Before incorporating an NBFC, it is important for the Company to have an experienced NBFC consultant.

Benefits of NBFC

Benefits of NBFC
  • NBFCs offer loans and credit facilities at a faster rate as compared to the traditional Banks.
  • NBFCs provide loans at lesser interest rates, thus making it easy and affordable for the borrowers to avail of a loan.
  • Availing money from NBFCs is a lot easier as compared to the Banks.
  • Extensive use of technology makes NBFCs a more favored choice as compared to traditional Banks. The use of technology enhances the whole process of availing services from NBFCs a lot easier and hassle-free.

Documents required for Incorporation of NBFC

Given below is the detailed list of documents required for incorporation of NBFC:

  • The Certificate of incorporation of the Company
  • Memorandum of Association (MoA) accompanied by Articles of Association (AOA)
  • Educational qualification documents of the proposed Directors
  • Experience certificate of the Director proving his prior experience in the field of NBFC/Banking
  • CIBIL Data of the Director
  • Documents verifying the location of the Company
  • Board Resolution approving the submission of the application
  • Board Resolution showing the Company’s acceptance/pledge concerning the integrity of public deposit.
  • Board Resolution showing the formulation of “Fair Practices Code.”
  • Audited Balance Sheet of the last three years
  • Income Tax returns
  • Bank account with a minimum equity share of Rs 2 crore
  • PAN Card of the Company
  • Detailed action plan for the next five years
  • Complete plan of the organization hierarchy and decision-making process
READ  NBFCs in India and their Future

The registration process for Non-Banking Financial Company (NBFC)

  • The first step towards the incorporation of NBFC is to register the Company under the Companies Act 2013.
  • The minimum Net owned capital fund of the Company should be Rs 2 crore.
  • The CIBIL record of the Company should be clean without any exception.
  • The Company must also comply with the requirements for capital compliances and FEMA.
  • After all the above-mentioned conditions are fulfilled, visit the official website of the Reserve Bank of India (RBI) and fill the details in the application form.
  • Next, you will have to submit all the required documents.
  • After filling up the application and submission of documents, a Company Application Reference Number (CARN) is generated.
  • The hard copy of the required documents as mentioned in the website needs to be submitted in the Regional Office of the RBI.
  • Further, the regional office sends the application to the central office of the Reserve Bank of India (RBI), which then scrutinizes the application and does a background check of the documents.
  • If all the requirements mentioned in section 45-1A of the Reserve Bank of India Act are satisfied, the License is granted to the Company.

NBFC Incorporation Fees

Given below is the classification of the fees structure of NBFC registration:

  • Firstly while incorporating an NBFC, the applicant is required to pay the fees to the Ministry of Corporate Affairs (MCA) based on the Company’s authorized capital.
  • The fee structure of NBFC also includes the expenses for the Memorandum of Association (MoA) and Articles of Association (AoA).
  • To register as NBFC, a Company is also required to pay a certain amount of fees to fill Simplified Proforma for Incorporating a Company Electronically (SPICe +) form.
  • The generation of Digital Signature Certificate (DSC) for the Directors of the Company also requires the payment of periodic fees.
  • An additional fee has to be paid while submitting the application to the registrar.
READ  RBI Guidelines for the Opening of Representative Office Abroad By NBFC

Final Thoughts

NBFCs are playing a vital role in the financial sector by filling up the void left in the sector by the traditional banking system. These Non-Banking Financial Companies are entirely changing the experience of Banking by using modern-day technologies. The extensive use of technology has made the overall experience of NBFCs quite hassle-free for its customers. The various benefits offered by NBFCs such as flexible tenure and interest rates, use of financial technology, etc. are allowing them to build a strong customer base. Also, for corporate seeking NBFC registration, the overall incorporation of NBFC gets very simple with proper guidance. If you wish to incorporate an NBFC, our team of experts at Enterslice will guide you to the overall process of NBFC incorporation. Further, if you have any queries related to NBFC incorporation or any other NBFC related topic, please contact us.

Also read: What are the Regulatory Requirements of Non-Banking Financial Company in India?

Trending Posted