A Non-banking financial company (NBFC) is a type of financial institution which aids financial services to the individuals as well as to the business organizations. They function more or similar to that of the banks but both of them are different and registering a NBFC doesn’t necessitate banking license but such Company owns a NBFC License. NBFCs can be considered as an alternative to the banks as they also provide financial solutions to the unorganized part of the society.
NBFC License can be taken from RBI under Section 45-IA of the RBI Act, 1934. In order to obtain the NBFC License one must first have registered as a NBFC under Companies Act, 2013 or any other law for the time being in force. NBFC's creates a link between the depositors or investors with the borrowers.
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Advantages of NBFC License
Minimum Requirement for Incorporation as NBFC
Minimum Net Owned Funds : Rs. 2 Crore (Capital must be tax paid)
Profile of the Directors Should be from Finance or Banking
Capable Business Plan for 5 years
Documents Required for NBFC License
Process of Registration for Applying for NBFC Licence
Step 1. An online application will be filed along with the requisite documents which we will collect from you through which a CARN (Companies Application Reference Number ) will be generated which means the application has been successfully submitted. This no. will be used for future reference.
Step 2. A hard copy of the application and the documents will be sent by us to the Regional Office of RBI in whose jurisdiction the Company is having its Registered Office.
Step 3. Once the documents are verified by the Regional office the same are sent to the Central Office of the RBI where the thorough background check is conducted.
Step 4. If all the conditions as prescribed under Section 45 IA of the RBI Act, 1934 the we will provide you the License granted by the RBI.
Principal Business of a NBFC
The principal business of NBFC is to provide financial aid involving the lending, investments (shares, stocks, debentures, bonds, leasing, hire-purchase, financial information service provider (NBFC-AA) insurance business, P2P Market Place lending business, chit business which are involved in the receiving of deposits under any scheme of arrangement.
Despite of this, any of the following conditions must also be fulfilled in order to continue NBFC License:
- Total Assets comprises more than 50% financial assets
- More than 50% of the gross income should be generated from financial assets
Restricted Activities by NBFC
Conditions by RBI for granting NBFC License
For Registration a company shall apply in the format as prescribed by the RBI. Before registration the company as NBFC, RBI has power to inspect the financial & other books in order to satisfy the following conditions:
- That the NBFC should be able to pay its present as well as/or future investors in full as and when their claims accrue;
- That the operations should not be carried in any manner detrimental to the interest of any of its existing or future investors;
- The management and the Board general character shall not be prejudicial to the interest of the public or its depositors;
- It has sufficient capital structure and earning potential;
- Public interest shall be served by licensing as an NBFC;
- The grant of CoR shall not be unfavorable to the operation of the financial sector. And is consistent with monetary stability, economic growth and considering such other relevant policies of RBI.
How NBFC's are different from Banks
|1.||Governed By||Companies Act, 2013 and sometimes RBI Act, 1934||RBI Act, 1934|
|2.||Demand Deposits||It cannot accept Demand Deposits||It cannot accept Demand Deposits|
|3.||Deposit Insurance||No Deposit Insurance is covered||It is covered under RBI's deposit Insurance|
|4.||Payment and Settlement system of the RBI||It Cannot avail the payment and settlement system of RBI||Banks are provided the support of the Payment and Settlement System (RTGS, NEFT etc.,)|
|5.||Foreign investment||It is allowed upto 100%||It is allowed upto 74%|
|6.||Cash Reserve Ratio||Not Applicable||Applicable|
|7.||Statutory Liquidity Ratio||15% CRAR for Deposit taking NBFCs and Non-Deposit taking – Systemically Important NBFCs||Applicable|
FAQ's on NBFC Company
All types of NBFCs are not allowed to accept public deposits. Only the NBFCs whom a specific permission is granted by the RBI can do so and are allowed to accept/hold public deposits.
- Assets Finance Company: The principal activity is to finance real and physical assets
- Loan Company: The principal activity is to provide loans and advances for working capital.
- Investment Company: The principal activity is to acquire shares and securities of other companies
- Core Investment Company (CIC) NBFC-CIC-ND: The main activity of this type of company is to invest in shares, securities and loans in other Group Corporates.
- Infrastructure Finance Company: The principal activity is to provide infrastructure loans.
- Infrastructure Debt Finance Company (IDF) NBFC-ND: The main activity is to provide long term debt in Infrastructure Projects.
- Micro Finance Institutions NBFC-MFI-ND: This type of NBFC is finance to lower Income groups in the form of loans and advances.
- Mortgage Guarantee Company: This type of NBFC is involved in the business of mortgaged guarantee.
You need to file certain forms with ROC and RBI such as :
- Filing on online portal of RBI
- ROC Filings such as Filing of Financial Statements, Annual Accounts
- Filing of ITR and GST Returns
- Maintaining 50:50 PBC Criteria
- Adopt the norms as prescribed by RBI
The minimum of 1/3 or ¼ directors should be from banking/finance background in NBFC
No. Merchant Banking Companies, Housing Finance Companies, Stock Exchanges, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration as per RBI guidelines.
Any business willing to commence activities of non-banking financial nature as defined under Section 45-IA of the RBI Act, 1934 should comply with:
- It should be a company incorporated u/s 3 of the Companies Act, 1956 or 2013,
- It should have a minimum NOF of Rs. 2 crore. (The minimum NOF requirement for specialized NBFCs like NBFC-MFIs, NBFC-Factors, and CICs differs).
RBI has prescribed an interest rate of 12.5% that NBFC can pay on the deposits.
The license is valid for lifetime and can be cancelled on non-compliance of the law.
If you want to give loans to outsiders, you need to apply for NBFC license. You can also go for Nidhi Company Registration for accepting deposits and granting loans to the members of the company.