Non-Banking Financial Company (NBFC) Registration
Register a “Non-banking financial company”
> Rs. 6,00,000 + Govt. Fees
> NBFC License from RBI
> 100% NBFC license assurance
NBFCs or Non-Banking Financial Companies are registered under the Companies Act 1956/Companies Act 2013. Though these do not possess a banking license, yet they are involved in various financial services. Some of the services include:
- Loan and credit facilities
- Asset Financing
- Acquisition of shares/stocks/bonds
- Insurance business
- Chit business
- Currency exchange
- Peer to peer lending
- Hedge funds
What is not included under NBFCs?
And if the company is engaged in other activities, then it is not registered as an NBFC. Some of the activities are:
- Agriculture activity
- Industrial activity
- Purchase/sale of any goods
- Providing any services and sale/purchase/construction of the immovable property
Classification of NBFC
The classification based on authorization to take deposits:
Type-1: Deposit-taking (NBFC-D)
Type-2: Non-deposit taking (NBFC-ND)
The classification based on their activities:
Asset Finance Company (AFC):
If the primary business of the company is to finance the assets of a firm, such as machines, automobiles, generators, material equipment, industrial machines, etc., then it is called an “Asset Finance Company”.
Investment Company (IC):
These companies deal primarily in securities.
Loan Companies (LC):
The main business for these companies is to grant loans and advances. These loans are not for asset acquisition, but other purposes, such as working capital finance, etc.
Infrastructure Finance Company (IFC):
The companies falling under this category possess at least Rs.300 Crores and deploy 75% of their total assets in infrastructure loans. These companies must also have a credit rating A or above and CRAR of 15%.
Systematically Important Core Investment Company (CIS-ND-SI):
In case a company owns assets worth Rs.100 crores or more and has deployed 90% of it’s assets in debt instruments or loans in group companies, then it is considered as CIS-ND-SI. Of the 100%, 90% should be invested in equity shares.
Infrastructure Debt Fund (IDF-NBFC):
The investment of these companies is primarily in the infrastructure sector. These funds are crucial, as it is difficult to obtain funds of such amounts.
You could either register this as a trust or a company.
In case it’s a trust, then it would be a mutual fund which comes under SEBI regulations. It will then be called “IDF-MF”.
And if it is a company, then it would be under RBI regulations. Then it will be called as IDF-NBFC.
Mutual benefit financial company:
This is a type of company, whose main aim is to enable it’s members to pool their money with a pre-calculated investment objective. The sources of these funds are share capital & deposits from it’s members and the general public.
Micro Finance Institution (NBFC-MFI):
This is a non-deposit taking NBFC that has at least 85% of it’s assets in the form of microfinance.
Housing Finance Company
In the Memorandum of Association of these companies, there is a clause of housing finance mentioned. These provide mid-term capital loans to individuals or firms. Due to their less stringent regulations and flexibility, these companies are a much better alternative to commercial banks.
Core Investment Company
These are the business companies which conducts the business of acquisition of securities and shares. These companies hold 90% of their assets in the form of bonds, equity shares, and preference shares. Also, these companies need to invest at least 60% in equity shares.
Regulations of NBFC
|NBFCs registered with RBI||Regulation, supervision, surveillance and enforcement under RBI|
|NBFC regulated by other regulators||Depends on the type of institution|
|Housing Finance Institutions||National Housing Bank|
|Merchant Banking Company/Venture Capital Fund Company/Stock Broking/Collective Investment Schemes (CIS)||Securities Exchange Board of India|
|Nidhi Companies and Mutual Benefit Companies||Ministry of Corporate Affairs|
|Chit Fund Companies||State Government|
|Insurance Companies||Insurance Regulatory and Development Authority|
|Non-Banking Non-Finance Companies||Regulation, supervision, surveillance and enforcement under the Companies Act 1956.|
Pre-requirements of NBFC
For a company to be considered an NBFC, it should be registered as per the rules, regulations, and provisions mentioned in the Companies Act 2013.
The minimum amount of fund owned by an NBFC should be at least Rs.2 crores and this shouldn’t be borrowed fund. (This limit is different in other cases like that of specialized NBFCs:- “NBFC-MFIs, NBFC Factors, CICs, as it is decided on the kind of NBFC”). Any gift from spouse comes under owned-funds.
At least 1/3rd of the directors must have some experience in finance.
Also, there must be a detailed plan for the next 5 years.
NBFCs as sponsors of IDF-MF
For a company to be considered as an “IDF-MF”, the minimum owned fund should be at least Rs.3 crores, CRAR of 15% and NPA not more than 3% of the net advances. Along with this, the company should be operational for the last 5 years and profitable in the last 3 years.
Fee of registration
The government charges are “Rs.3,50,000” approx. And adding this to the professional fee could bring the total amount to Rs.15 lakh. But, if you use our services, it would cost you Rs.6,00,000 + Government fee for the registration.
Significant documents required for an NBFC Registration in India, which are as follows:
- Documents related to the administration and management of the company
- Company Incorporation Certificate
- The Memorandum of Association and the Articles of Association of the applicant-company or firm
- Documents describing the location of the company
- Detailed information about Directors or Partners of the Company
- Accounts of the company well-audited for last three consecutive years
- Board Resolution in favor of NBFC formation
- Should have a bank Account with a minimum paid up equity share capital of INR-2 Crore
- Income tax PAN, etc.
- NBFCs can provide loan and credit facilities to its clients
- These companies can also trade in money market instruments.
- The NBFCs can also take part in wealth management such as managing a portfolio of stocks and shares.
- These companies become the last resort for many other businesses as these are pumping huge amounts of money in country-wide projects.
- The functioning of these companies is much faster than banks.
- Due to the use of technological advancements, you don’t have to depend on bank branches.
- Due to it’s digitization, the reach of the NBFCs has broadened and it can reach a wider audience within seconds.
- Investing in property, has become profitable with NBFCs due to their flexible rates, easy repayment options, acceptable property collaterals, with quick and easy processing.
- Most of the NBFCs have formed partnerships with the government and used their database to identify a customer’s worthiness before the granting of a loan. This reduces the risks and maximizes profits.
Role of NBFCs
- NBFCs create a favorable balance in the financial needs of the country as most of the applications are rejected by the traditional banks.
- These companies use an alternative credit scoring model to assess a potential client and after all this is done, then only loans are processed.
- Most of the Indian Fin-tech companies have been using the NBFC model to offer financial services.
NBFCs can lend both secured and unsecured loans based on their alternative lending models. These companies play a significant role in the financial services of the economy and have gone considerable changes in recent years. And after adopting high-end tech-based business models, the roles offered by them are:
Frequently Asked Questions
– A hard copy of the above-mentioned application along with demanded documents and enclosures to the concerned Regional Office of the RBI.
– After the verification and approval of the submitted application and documents, the regional office sends the application to the Central Office of RBI, which goes through a crucial examination to grant the Certificate.
-If the terms and conditions under section 45-IA of the “Reserve Bank of India Act, 1934” are fully satisfied, then only the Certificate will be granted.
– Documents related to the administration and management of the company
– Company Incorporation Certificate
– The MoA and the AoA of the applicant-company or firm
– Documents describing the location of the company
– Detailed information about Directors or Partners of the Company
– Accounts of the company well-audited for last three consecutive years
– Board Resolution in favor of NBFC formation
– Bank Account with a minimum paid-up equity share capital of INR-2 Crores
– Income tax PAN, etc.
• Asset Finance Company
• Investment Company
• Loan Company
• Infrastructure Finance Company
• Micro-Finance Company
• Core Investment Company
Through financial institutions like banks, insurance companies, public deposits (only for NBFCs holding a license to accept deposits from RBI).
Through the issue of debentures, commercial papers, and other inter-corporate loans.
1. NBS-1 – Quarterly returns on deposits in the First Schedule.
2. NBS-2 – Quarterly returns on Prudential Norms.
3. NBS-3 – Quarterly returns on Liquid Assets.
4. NBS-4 – Annual returns of critical parameters by a rejected company holding public deposits.
5. NBS-6 – Monthly returns on exposure to capital market institutions with total assets of Rs.100 crores and above.
6. Half-yearly ALM returns – With companies having public deposits of over Rs.20 crores or asset size of over Rs.100 crores.
7. Audited Balance sheet and Auditor’s Report.
8. Branch Info Returns.
Returns to be submitted by NBFCs-ND-SI:
1. NBS-7 – Quarterly statement of capital funds, risk-weighted assets, their ratio, etc.
2. Monthly Returns on Important Financial Parameters.
3. ALM returns:
a. Monthly statement of short term dynamic liquidity in format ALM [NBS-ALM1],
b. Half-yearly Statement of structural liquidity in format ALM [NBS-ALM2],
c. Half-yearly Statements of Interest Rate Sensitivity in the form ALM -[NBS-ALM3].
4. Branch Info returns.
5. Quarterly returns on important financial values & basic information like name of the company, its address, NOF, Profit & loss statement during the last 3-years of NBFC-NDs with assets between Rs.50 croreS and Rs.100 crores.