Non-Banking Financial Company (NBFC) is a financial institution which does not possess any full fledged banking license but are involved into business of offering financial products, loans and services to customers. NBFC’s mostly deal with the business of loans and advances, finance leasing, acquisition of shares, hire-purchase, chit fund etc.
NBFC’s act as an alternate to the banks as they help in financial problems of the unorganized part of the society which remain unfulfilled by the traditional banking system.
NBFC’s can be a private or a public company which is registered under the Companies Act, 1956 or 2013 and are required to take license from the Reserve Bank of India as per Section 45-IA of the RBI Act, 1934 to carry on its business. Hence, NBFC’s are governed by the Ministry of Corporate Affairs and Reserve Bank of India.
Types of NBFC’s in India
NBFC’s are classified into following two types:
On the Basis of Liabilities
On the Basis of Activities
Now lets dig a little deeper to understand different types of NBFC’s
On the Basis of Liabilities
NBFC’s can be classified as
On the Basis of Activities
Systemically Important Core Investment Company (CIC-ND-SI)
Asset Finance Company
Core Investment Company
Infrastructure Finance Company
Micro Finance Company
Housing Finance Company
Mortgage Guarantee Company
Pre- Requirements for NBFC Registration
An NBFC willing to start a business of non-banking finance should comply with the following RBI guidelines:
It must be registered as a company under Companies Act, 1956/2013.
It should have a minimum of Rs. 2 crore of Net Owned Funds (except for MFC, NBFC Factors and Core Investment Company)
Note:Net Owned Funds can be calculated from the last audited balance sheet of the company.
Out of all the directors, at least 1/3rd of the directors must possess experience in finance sector.
The proposed NBFC must keep ready a draft of detailed business plan for the next 5 years.
The credit score of the company, directors and its shareholders must be clean and have not commit default in repaying any earlier loan to banks or NBFC’s
The proposed NBFC must have complied with the provisions of FEMA Act in case any foreign investment is involved.
NBFC’s which do not require registration with the Reserve Bank of India
Following NBFC’s doesn’t require any approval or registration from the RBI to commence its business activities:
Merchant Banking Companies
Housing Finance Companies
Insurance companies holding a valid certificate of Registration issued by the IRDA
Core Investment Companies (whose assets are less than 100 crores or which have not taken any public fund)
Stock broking activities company
Venture Capital activities company
Chit Fund Companies
Documents Requirement for NBFC Registration
Following documents are required for the NBFC Registration:
Certificate of Incorporation of Company issued by the Ministry of Corporate Affairs.
Detailed information about the management along with a brochure or business plan of the company.
A copy of PAN/Corporate Identity Number (CIN) of the company.
Documents related to registered office address
Certified copies of the Memorandum of Association (MoA) and Articles of Association (AoA).
Complete list of Directors’ with their profile which must be duly signed by each director
Details regarding the bank account, balances, loans, credits, etc.
Audited balance sheet and profit and loss statement along with the directors and auditors report of the preceding three years, if applicable
Self-certified copy of the bank statement and Income Tax Returns
CIBIL/credit reports of the Directors of the Company
A copy of the board resolution certifying that the company has not commenced any activities related to the NBFC Business and will carry only when the registration from RBI is received.
A certified copy of board resolution on ‘Fair Practices Code’
Certificate issued by the statutory auditor stating that the company is not holding the public deposit and does not accept it as well.
Certificate specifying owned funds as on the date of the application from the Statutory Auditor is required.
Information detailing the company’s future plan, generally for the next 3 years, along with the projection of balance sheets, cash flow statement and income statement.
Registration Process of NBFC
Below is the step by step process of NBFC Registration:
First of all, Register a Company as per Companies Act 2013 which may be a Public or a Private Limited Company
Make sure that you Arrange Capital of an amount of Rs. 2 Crore. This is the Minimum capital requirement to get an NBFC License
As soon as you arrange the amount, create a Fixed Deposit of Rs 2 Crore with any of the Nationalized Bank in India. In case of any foreign investment, provisions and rules of FDI as per the Foreign Exchange Management Act (FEMA) needs to be complied with.
Following point of differences make NBFC differ from Banks
Regulated under Companies ACT, 2013
Regulated under Banking Regulation Act, 1949
They are not allowed to accept demand deposits
They are allowed to accept Demand Deposits
NBFC’s cannot issue or draw any cheque on its own
Banks can issue cheques freely
Facility of Deposit Insurance is not available
Banks provide facility of Deposit Insurance
NBFC plays a very important role in the development of the infrastructure, wealth creation and further boosting economic development. Registering a NBFC is a little complex process but government always encourage to obtain NBFC Registration as it mobilizes the financial resources in the right direction.
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LegalWindow.in is a professional technology driven platform of multidisciplined experts like CA/CS/Lawyers spanning with an aim to provide concrete solution to individuals, start-ups and other business organisation by maximising their growth at an affordable cost.