Non-Banking Financial Company (NBFC) REGISTRATION
Non-Banking Financial Company (NBFC) is a financial institution that does not have a banking license but is allowed to offer financial products and services to customers. NBFC is primarily concerned with the business of loans and advances, acquisition of shares, finance leasing, hire-purchase, chit fund, etc. It is important to note that an NBFC is different from the bank in ways like an NBFC cannot accept savings and current account deposits, cannot issue cheques drawn on itself and its depositors do not get deposit insurance and credit guarantee coverage.
The process of NBFC registration can be complex, with numerous regulatory requirements and legal obligations to fulfill. At The Startup Trends, we specialize in providing NBFC registration services to guide you through the ERP-driven registration process and ensure adequate compliance with RBI Act 1934. In this comprehensive guide, we will walk you through the steps involved in NBFC registration, explain the benefits of partnering with our firm, and answer common questions related to NBFCs. If you are engaged in the business of providing loans & advances, acquisition of shares/stocks/bonds/debentures/securities or other marketable securities of similar nature, leasing, hire-purchase, insurance business, Digital lending or co-lending and any other financing or investment then as per RBI guidelines on Principal business criteria (PBC), you will require to apply for NBFC certificate of registration with RBI.
What are the Benefits of NBFC Registration?
The benefits of an NBFC Registration are as follows:
1. Low Cost and Time: Usually, registering a company as an NBFC is considered an easy task as compared to registering a small Bank. Further, a lot of time and cost are required for opening a Bank.
2. Easy Registration: The process of obtaining NBFC Registration is very easy if the applicant has an experienced consultant who is having prior NBFC Registration experience.
3. Industry Growth Ratio: Presently, the Fintech industry is rising at a mounting rate as nowadays everyone needs an easy source of funding, so registering a company as an NBFC will be advantageous for aspiring Entrepreneurs in order to earn a good return in Fintech Industry.
4. Easy Recovery of Loans: Since NBFCs work systematically and offer considerably less loan amount, therefore, it helps the borrowers to return the said borrowed amount easily, which thus makes it convenient for lenders
Role and Function of NBFC in India
Some of the specific role and functions of an NBFC are listed as follows –
1. Development and Growth of the sectors like Infrastructure;
2. Help in increasing Wealth creation;
3. Substantial Employment Generation;
4. Helps in providing finance to the Economically Weaker Section of the Society;
5. Helps in Economic Development;
6. A Large Contribution towards the State Exchequer;
7. NBFC offers the facility for Long-term Audit and Specialized credit;
8. Assists in the Development and Growth of the Financial Markets.
Advantages of NBFC Registration in India
In India, the advantages of an NBFC Registration are:
1. Saves Time and Cost: In contrast to small banks, the process of incorporating an NBFC is much simpler. Opening a bank involves a large amount of capital, time and cost, whereas the same is not in the case of an NBFC. One just needs the assistance of a good NBFC consultant with prior experience to obtain NBFC Registration in India.
2. Easy Recovery of Loan: NBFCs work systematically and offer customised loan products with achievable repayments. It becomes a convenient process for the borrowers as they can repay the loan amount quickly within the prescribed time period.
3. Economic Growth: Businesses and individuals are looking for an easy and reliable source of credit for their financial requirements. NBFCs provide affordable and secure credit facilities to an unserved market for their personal and business-related credit requirements. Therefore, NBFCs have contributed to the country's economic growth by providing financial freedom to MSMEs, self-employed professionals and individuals.
4. Trading Money Market: NBFCs serve the benefits of trading in money market instruments.
5. Provide Multiple Choices: Due to technological advancement, NBFCs are providing multiple choices to reach a huge audience at a quicker step. Non-Banking Financial Company covers both the large businessperson & small sectors by providing them multiple choices to avail themselves the credit facilities.
Documents Required for NBFC License
Following are the Documents required for obtaining NBFC License in India –
1. Certificate of Company’s Incorporation.
2. Detailed information about the management together with a brochure of the company
3. A copy of the PAN card or the CIN (Corporate Identity Number) of the company.
4. Documents related to the location or address of the Registered office
5. Certified copy of the MOA (Memorandum of Association) and AOA (Articles of Association)
6. List of Directors’ duly signed by each director
7. CIBIL or the credit reports of the Directors of the concerned Company are required
8. A copy of the board resolution declaring that the company has not carried out or has stopped NBFC activity and will not carry out the same until RBI grants NBFC registration to that company
9. A board resolution regarding the ‘Fair Practices Code’ is to be passed in the board meeting and a certified copy of the resolution is to be submitted
10. Certificate issued by any statutory auditor declaring that the concerned company is not holding any public deposit and also do not accept it.
11. Certificate issued by the Statutory Auditor specifying the net owned funds as on the date of the application is required
12. Information concerning the following is to be furnished bank account; loans; credits; balances;
13. If applicable, following listed statements of the previous three years have to be submitted.
An Audited balance sheet;
Profit and loss statement;
Directors and Auditor’s report;
14. Self-certified copy of the following is required to be submitted
Income Tax Return; and
Bank Statement;
15. Information dealing with the company’s future plan, normally for the next three years, together with the projection of the balance sheets, income statement, and cash flow statement.
Types of NBFC License
Before applying for NBFC License, the type and category of NBFC license must first be determined. The following are the categories of NBFC Companies:
1. Asset Finance Company(AFC): An Asset Finance Company is a company which is a financial institution carrying on as its principal business the financing of physical assets such as automobiles, tractors, lathe machines, generator sets, earthmoving and material handling equipment, moving on own power and general purpose industrial machines.
2. Investment Company: An Investment Company is any company which is a financial institution carrying on as its principal business the acquisition of securities (shares/stocks/bonds / other financial securities).
3. Loan Company: Loan Company is any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.
4. Infrastructure Finance Company: Infrastructure Finance Company is a non-banking finance company that deploys at least 75 per cent of its total assets in infrastructure loans, has a minimum Net Owned Funds of Rs. 300 crore, maintains a minimum credit rating of ‘A ‘or equivalent with a Capital to Risk Assets Ratio of 15%.
5. Systemically Important Core Investment Company: Systemically Important Core Investment Company is an NBFC 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.
6. Infrastructure Debt Fund: Infrastructure Debt Fund is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. Infrastructure Debt Funds raise resources through issue of Rupee or Dollar denominated bonds of minimum 5-year maturity.
7. Non-Banking Financial Company – Micro Finance Institution (Most Popular): Micro Finance Institution is a non-deposit taking NBFC that is engaged in microfinance activities.
8. NBFC Factor: NBFC Factor is a non-deposit taking NBFC engaged in the principal business of factoring.
NBFC Registration Process
Step-1: Organizing the Documents- It is critical for the applicant to gather all of the necessary documents in order to begin the NBFC Registration process.
Step-2: Making an Application to the RBI- The applicant must file the application with the authority after assembling the necessary documents. The following requirements must be met
1. Capital Requirement for Fixed Deposit-The capital required for a fixed deposit is Rs. 2 crores, which should be increased to Rs. 2.2 crore before filing an application with the RBI.
2. Capital Requirement for the Incorporation of a Pvt. Ltd. Company- The minimum capital required for the incorporation of a Pvt. Ltd. company is Rs. 10 lakhs. Following incorporation, promoters must raise the capital to Rs. 2.2 crore. If this is not done prior to obtaining an NBFC Registration license, the company will be unable to begin lending operations. The company will maintain a Rs. 2 crore FD in the bank.
3. Number of Members- There must be at least two shareholders or directors, one of whom must have experience in the financial sector and knowledge of finance.
Step-3: Submission of Application- The next step is for the applicant to submit the application along with the necessary documents for verification by the authority
Step-4: Verification Documents- The authority will verify the documents and application to ensure the accuracy of the applicant's submissions
Step-5: Registration Certificate- The registration certificate will be issued after the authority has successfully verified the application and documents.
Cancellation of NBFC Registration or License
1. The business plan is not up to the mark;
2. NBFC consultants are not experienced;
3. It can be cancelled in case of insufficient financial experience;
4. Shareholder and Directors business profile is not satisfactory;
5. The area of carrying NBFC operations is not promising;
6. Capital is arranged from a prohibited source.
The Startup Trends Role in Registration of NBFC
1. We will assist you in the process of documentation and evaluation of NBFC registration in India.
2. Our consultants will provide you complete assistance in filling the application for the NBFC registration.
3. We will coordinate with RBI officials to ensure proper coordination in order to avoid inaccuracy in registration of NBFC which could result in the rejection of an application.
4. We will assist you in keeping the track of the status of an application.
5. Our consultants will fulfill all the requirements, if asked by RBI.
In case of any query, we will provide you with the best solution to your concerns regarding registration of NBFC.