NBFC Registration

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Introduction of NBFC Registration

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.

Legal Window has team of experts providing you the best assistance, timely delivery and guaranteeing the highest customer satisfaction with respect to Company formation process. You may get in touch with our team on 072407-51000 or email admin@legalwindow.in for NBFC registration and NBFC Compliance services.

Advantages of NBFC Registration

Legal Separate Identity

Once an entity is registered it is born in the eyes of law which means it is separate from its owners, Directors, Managers, shareholders and employees etc.

Limited Liability

The liability of the Members is limited to the extent of Capital invested by them in the Company and therefore, they cannot be held personally liable for the debt and obligations of the Company.

Less Compliance

Registration of NBFC is pretty much easier than that of obtaining the license for Banks and there are less stringent regulations and cumbersome paperwork as compared to banks.

Low Interest Rate

The Rate of interest is the main considerations while applying for any type of loan. NBFCs interest rates lower to the bank rates. Thus, it is easier for the borrowers to afford them.

Lower Rules and Regulations

Less Rules and regulations are involved i.e which are prescribed under Companies Act, 2013 that to the banks. It makes the loan process less complicated and also helps the borrower to get loan easily.

Low Level of Cost

It involves cheaper cost and thereby are more profitable  than banks. There are many rules and regulations to be followed in case of banks as compared to NBFCs.

Minimum Requirements for NBFC Registration

Company Incorporated under Companies Act 1956 / 2013

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 Registration

Company Registration Documents Complete Set of Documents of the Company i.e. COI, MOA, AOA, PAN Card, GST Certificate, if any.

Documents / Details of Directors and Members Brief Profile, Income proof, Credit rating report, Net-worth Certificate, Educational Qualification Certificates, Experience Certificates

Documents of Company Bank Account Details stating the minimum NOF requirement, Banker’s Report confirming that No Lien is remark on the Initial Fixed Deposit of Rs 2 crore, Board Resolution for approving the formation of NBFC, Detailed action plan for the next 5-years, Income Tax Returns.

Pre-Conditions for NBFC Registration

As per Section 45-IA of Reserve Bank of India Act, 1934, the following conditions must be fulfilled in order to register a company as an NBFC:

The financial institution must be registered under Section 3 of the Companies Act 2013 or any other law for the time being in force;

It should have full time Directors and 1/3 of them must have minimum 10 years of experience in finance;

The credit rating of the Company must be good along with its Directors and they must not have any write offs or willfully defaulted on the repayment of loans to NBFC/Bank.

A unique detailed plan should be there stating the operations for the next 5 years;

The Company should comply with the FEMA Act, 1999

The Company should have Net Owned Fund of at least Rs. 2 Crore comprising of only equity paid-up share capital including the premium on shares & reserves , if any, (Preference share capital is not to be included). The minimum requirement of NOF differs for specialized NBFCs (NBFC-MFIs, NBFC Factors, and CICs).

Process of Registration for Applying for NBFC Registration

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

Agriculture Activities

Industrial Activities

Purchase / Sale of Goods and Services

Purchase / Sale of construction of immovable property

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

S. No.BasisNBFCBanks
1.Governed ByCompanies Act, 2013 and sometimes RBI Act, 1934RBI Act, 1934
2.Demand DepositsIt cannot accept Demand DepositsIt cannot accept Demand Deposits
3.Deposit InsuranceNo Deposit Insurance is coveredIt is covered under RBI's deposit Insurance
4.Payment and Settlement system of the RBIIt Cannot avail the payment and settlement system of RBIBanks are provided the support of the Payment and Settlement System (RTGS, NEFT etc.,)
5.Foreign investmentIt is allowed upto 100%It is allowed upto 74%
6.Cash Reserve RatioNot ApplicableApplicable
7.Statutory Liquidity Ratio15% CRAR for Deposit taking NBFCs and Non-Deposit taking – Systemically Important NBFCsApplicable

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FAQ's on NBFC Company

Can all types of NBFCs’ accept deposits?

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.

What are the different types of NBFCs’ registered with RBI?
  1. Assets Finance Company: The principal activity is to finance real and physical assets
  2. Loan Company: The principal activity is to provide loans and advances for working capital.
  3. Investment Company: The principal activity is to acquire shares and securities of other companies
  4. 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.
  5. Infrastructure Finance Company: The principal activity is to provide infrastructure loans.
  6. Infrastructure Debt Finance Company (IDF) NBFC-ND: The main activity is to provide long term debt in Infrastructure Projects.
  7. Micro Finance Institutions NBFC-MFI-ND: This type of NBFC is finance to lower Income groups in the form of loans and advances.
  8. Mortgage Guarantee Company: This type of NBFC is involved in the business of mortgaged guarantee.
What are the post compliances after approval from RBI?

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
How many directors should be from banking/finance background in NBFC?

The minimum of 1/3 or ¼ directors should be from banking/finance background in NBFC

Does the Reserve Bank of India regulate all the finance companies?

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.

What are the things required to get NBFC License?

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).
What is the maximum interest rate that a NBFC can pay on the deposits taken?

RBI has prescribed an interest rate of 12.5% that NBFC can pay on the deposits.

For how many years NBFC licence is granted?

The license is valid for lifetime and can be cancelled on non-compliance of the law.

I want to do loan business. Is it mandatory to take NBFC License?

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.