The world of finance is diverse and encompasses various entities that play vital roles in the economy. One such entity is the Non-Banking Financial Company (NBFC), which is involved in a range of financial activities, from lending and investment to insurance and chit funds. To establish an NBFC, one must navigate a complex process that involves regulatory compliance and financial requirements. In this blog, we will delve into the costs associated with registering an NBFC company in India.

Types of NBFCs

Before discussing the costs involved, it’s essential to understand the different types of NBFCs as per the Companies Act 2013. These include:

1. Asset Finance Company (AFC):

Characteristics: AFCs primarily engage in providing finance for the purchase of physical assets like automobiles, machinery, and equipment. They make loans and advances to individuals and businesses for acquiring these assets.

Registration Process:

a. Incorporation: First, incorporate your company as per the Companies Act 2013. Ensure that your company’s Memorandum of Association (MOA) includes the principal business of lending credit for the purchase of physical assets like vehicles, machinery, or equipment.

b. Minimum Capital Requirement: Ensure that your Net Owned Funds (NOF) are not less than Rs. 2 Crores or the authorized share capital of the NBFC is at least Rs. 2 Crores.

c. Application to RBI: Prepare and submit an application to the Reserve Bank of India (RBI) through the RBI’s secured website for online application at https://cosmos.rbi.org.in. Provide details about your company’s financials, promoters, and business plan. Indicate the correct name of the Regional Office in the application.

d. Physical Application: Submit a physical copy of the application form (indicating the online Company Application Reference Number) along with supporting documents to the concerned RBI Regional Office.

2. Investment Company (IC):

Characteristics: ICs focus on investments in various types of shares, stocks, and securities. They primarily deal with investment activities, including buying and selling financial assets.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013. Ensure that your MOA includes the principal business of dealing in shares, stocks, and securities.

b. Minimum Capital Requirement: Maintain NOF of at least Rs. 2 Crores or the authorized share capital should be Rs. 2 Crores or more.

c. Application to RBI: Prepare and submit an application to the RBI through the RBI’s secured website. Include information about your financials and investment strategies.

3. Loan Company (LC):

Characteristics: LCs provide loans and advances to individuals and businesses. They are primarily involved in lending activities, which may include personal loans, business loans, and other credit facilities.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013, specifying in the MOA that your principal business involves lending credit.

b. Minimum Capital Requirement: Ensure that your NOF is at least Rs. 2 Crores or the authorized share capital is Rs. 2 Crores or more.

c. Application to RBI: Submit an application to the RBI via their secured website. Provide details about your lending activities, financials, and promoters.

4. Systemically Important Core Investment Company (CIC-ND-SI):

Characteristics: CIC-ND-SIs are a subset of investment companies and play a significant role in the financial system. They hold substantial investments in other companies, including subsidiaries.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013. Ensure that your MOA includes the principal business of investment in various types of shares, stocks, and securities.

b. Minimum Capital Requirement: Maintain NOF as specified by RBI guidelines.

c. Application to RBI: Prepare and submit an application to the RBI detailing your financials and investment portfolio. Make sure to meet RBI’s capital adequacy requirements.

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5. Infrastructure Debt Fund: Non-Banking Financial Company:

Characteristics: These NBFCs focus on financing infrastructure projects. They play a crucial role in funding long-term infrastructure development in India.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013.

b. Eligibility Criteria: Ensure that your company meets specific criteria as outlined by RBI for Infrastructure Debt Funds.

c. Application to RBI: Submit an application to the RBI, providing details about your ability to finance infrastructure projects and meeting capital requirements.

6. Non-Banking Financial Company (NBFC-MFI) or Micro Finance Institution :

Characteristics: NBFC-MFIs specialize in providing microfinance services to low-income individuals and small businesses. They play an essential role in financial inclusion.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013. Ensure that your MOA specifies your principal business as providing microfinance services.

b. Minimum Capital Requirement: Maintain the required NOF as per RBI guidelines.

c. Application to RBI: Submit an application to the RBI, outlining your commitment to following RBI guidelines regarding pricing, fair practices, and non-coercive methods of recovery.

7. Infrastructure Finance Company (IFC):

Characteristics: IFCs primarily finance infrastructure projects. They provide long-term loans and financial support to projects such as roads, bridges, and energy infrastructure.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013, specifying your principal business as infrastructure financing.

b. Minimum Capital Requirement: Maintain the required NOF as per RBI guidelines.

c. Application to RBI: Submit an application to the RBI, detailing your focus on infrastructure financing, financials, and meeting capital requirements.

8. Non-Banking Financial Company – Factors (NBFC-Factors):

Characteristics: NBFC-Factors provide factoring services, which involve the purchase of receivables or invoices from businesses at a discount.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013. Ensure that your MOA specifies your principal business as factoring services.

b. Minimum Capital Requirement: Maintain the required NOF as per RBI guidelines.

c. Application to RBI: Submit an application to the RBI, providing details about your factoring activities, financials, and capital adequacy.

9. NBFC-Non-Operative Financial Holding Company (NOFHC):

Characteristics: NOFHCs are entities formed as holding companies for regulated financial sector entities like banks. They are part of the regulatory framework for banking licenses.

Registration Process:

a. Incorporation: Incorporate your company under the Companies Act 2013.

b. Eligibility Criteria: Ensure that your NOFHC meets specific criteria as outlined by RBI for holding companies.

c. Application to RBI: Submit an application to the RBI, providing details about your role as a holding company for regulated financial entities and meeting regulatory requirements.

Each type of NBFC has its unique focus and purpose, and the NBFCregistration process involves adhering to RBI guidelines, meeting capital requirements, and submitting detailed applications that showcase their intended business activities and financial viability. It’s essential for aspiring NBFCs to thoroughly understand these requirements and follow the regulatory framework to obtain their registration from the RBI.

Costs Involved in Registering an NBFC :

1. Incorporation Costs: The first step in registering an NBFC is incorporating a company under the Companies Act 2013. This process involves several costs, including legal fees, registration fees, and stamp duty. The specific costs may vary depending on the type of company (private or public) and the state in which it is incorporated.

2. Net Owned Funds (NOF): As per the Reserve Bank of India (RBI) guidelines, an NBFC must have a minimum NOF of Rs. 2 Crores to be eligible for registration. Achieving this financial requirement may necessitate capital infusion by the promoters, which should be factored into the cost considerations.

3. Application Fees: To obtain a certificate of registration from the RBI, an applicant must pay the prescribed application fees. These fees can vary based on the type of NBFC and other factors.

4. Regulatory Compliance Costs: NBFCs are subject to stringent regulatory requirements imposed by the RBI. Complying with these regulations entails additional costs, including fees for engaging legal and compliance experts to ensure adherence to RBI guidelines.

5. Infrastructure and Technology Costs: Establishing the necessary infrastructure, including office space and technology infrastructure, is essential for an NBFC. Depending on the location and scale of operations, these costs can differ significantly.

6. Human Resource Costs: Hiring experienced professionals with knowledge of NBFC operations and finance is crucial. Salaries and benefits for employees should be factored into the overall cost.

7. Audit and Reporting Costs: NBFCs are required to undergo regular audits and submit various reports to regulatory authorities. The costs associated with hiring auditors and preparing these reports are an ongoing expense.

8. Compliance Training: Training employees on regulatory compliance is essential to avoid penalties and maintain the company’s reputation. Costs associated with compliance training should be budgeted for.

9. Insurance Costs: NBFCs often need to secure insurance coverage to protect against various risks. Premiums for insurance policies should be considered in the overall cost structure.

10. Marketing and Promotion: To attract customers and grow the business, NBFCs may need to invest in marketing and promotional activities. This includes costs related to advertising, branding, and customer acquisition.

11. Miscellaneous Costs: There may be other miscellaneous costs associated with legal and financial advisory services, documentation, and ongoing operational expenses that should be accounted for.

Conclusion :

Registering an NBFC company in India involves a range of costs, including incorporation expenses, regulatory compliance fees, infrastructure investments, and ongoing operational costs. It’s essential for entrepreneurs and promoters considering entering the NBFC sector to carefully plan and budget for these costs. Additionally, seeking the assistance of legal and financial experts can streamline the registration process and ensure compliance with RBI guidelines, ultimately contributing to the success of the NBFC venture. Understanding and managing these costs effectively is crucial for the long-term sustainability and growth of an NBFC in the dynamic financial sector.