Non-Banking Financial Company (NBFC) is a financial institution that does not have 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 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 a deposit insurance and credit guarantee coverage.
NBFC in India can be basically categorized into:
- Deposit accepting NBFCs
- Non-deposit accepting NBFCs
NBFCs in India are categorized in 10 forms that are mentioned below:
- Asset Finance Company (AFC)
- Loan Company (LC)
- Infrastructure Finance Company (IFC)
- Investment Company (IC)
- Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
- Systemically Important Core Investment Company (CIC-ND-SI)
- Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)
- Non-Banking Financial Company – Factors (NBFC-Factors)
- Mortgage Guarantee Companies (MGC)
- Non-Operative Financial Holding Company (NOFHC)
How to Register as NBFC
Step 1: Register the company under the Companies Act 2013 or under Companies Act 1956.
Step 2: Minimum Net Owned Funds of the Company should be Rs. 2 crore or more.
Step 3: There should be atleast 1 director in the company from the same background.
Step 4: Good CIBIL score is required to present in order to register as NBFC.
Step 5: Next, visit RBI’s official website and fill in the application form.
Step 6: Submit all the required documents along with the application form.
Step 7: Once you have submitted the application form, a CARN number will be generated.
Step 8: Send the hard copy of the application to the regional branch of RBI.
Step 9: After the application is checked and verified, the License will be given to the company.
Also Know: What is the criteria for MSME registration?
Registration Requirements for NBFC
NBFC’s in India are regulated by the Reserve Bank of India (RBI). As per RBI guidelines, an NBFC cannot carry on non-banking financial business if, a) it does not have a certificate of registration from the bank (except for the NBFC’s who are not regulated by the RBI), and b) it does not have Net Owned Funds of Rs. 2 crore.
An NBFC incorporated under the Companies Act, 1956 or Companies Act, 2013 willing to commence a business of non-banking finance should comply with the following RBI guidelines:
- It must be registered under Section 3 of the Companies Act, 2013 or the Companies Act, 1956
- It should meet the requirement of minimum of Rs. 2 crore of Net Owned Funds (except for NBFC-MFIs, NBFC-Factors and CIC)
Net Owned Funds can be calculated from the last audited balance sheet of the firm. Paid-up Equity Capital, Free Reserves, Share Premium Account Balance, and Capital Reserve will constitute Total Owned Funds. To calculate, Net Owned Funds, deduct Revaluation Reserves, Balance of Accumulated Loss, and the book value of Intangible Assets from Total Owned Funds. If any investment in shares of other NBFC’s or in debentures and shares of subsidiaries and group companies is in excess of 10% of the owned funds will be subtracted from the Net Owned Funds.
Documents Required for NBFC Registration
- Certificate of Company Incorporation.
- Detailed information about the management along with a brochure of the company.
- A copy of PAN/Corporate Identity Number (CIN) of the company.
- Documents related to the office location/address
- Certified copy of the Memorandum of Association (MoA) and Articles of Association (AoA).
- List of Directors’ profile duly signed by each director must be attached.
- CIBIL/credit reports of the Directors of the Company are required.
- A copy of the board resolution which certifies that the company has not carried out or stopped NBFC activity and will not carry any until the registration from RBI is granted.
- A board resolution on ‘Fair Practices Code’ is to be passed and a certified copy of the same is to be submitted.
- 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 regarding the bank account, balances, loans, credits, etc. is to be furnished.
- If applicable, audited balance sheet and profit and loss statement along with the directors and auditors report of the preceding three years has to be submitted.
- Self-certified copy of the bank statement and Income Tax Returns 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.
NBFC Registration Fees
Fees to be deposited for NBFC registration is classified under various types which are mentioned below:
- While registering the company, a fee based on the authorized capital of the company is to be paid to the Ministry of Corporate Affairs (MCA)
- A company would also need to pay fees on the basis of the authorized capital and other few factors for the MOA (Memorandum of Association) and AOA (Articles of Association) of the company
- Simplified Proforma for Incorporating Company electronically (SPICe) filling might also require the company to pay certain fees
- For a Reserve Unique Number (RUN) and Director Identification Numbers (DIN), a predetermined fee is to be paid to the MCA
- A Digital Signature Certificate (DSC) is required for every director and thus its generation would require a payment of periodic fees
- Additional fees is required to be paid while submitting the application to the registrar.
Frequently Asked Questions (FAQs)
Q1. I want to know about the leading NBFCs in India?
There are numerous NBFCs in India but some of the leading NBFCs include Bajaj Finserv, Aditya Birla, Tata Capital, Muthoot Finance, HDB Finance, Capital First, Lendingkart Finance, IIFL, etc.
Q2. What compliances are required to be fulfilled once the firm is registered?
Certain guidelines have been laid down by RBI that has to be complied with. Submission of Income Tax Returns, ROC Returns, Statutory Audit, Tax Audit, various NBS returns for Deposit accepting and non-deposit accepting companies are some of the most important statutory compliances.
Q3. Are NBFC’s allowed to accept deposits?
Only NBFC’s which have special authorization from the Bank and have an investment-grade are allowed to accept and hold deposits up to 1.5 times of its Net Owned Funds. However, all NBFC’s are barred from accepting demand deposits that include savings and current account deposits.
Q4. What is the significance of the 50-50 test for NBFC’s?
A 50/50 test means that a firm’s financial assets constitute more than 50% of the total assets and income from financial assets constitute more than 50% of the gross income. A firm which fulfills both these criteria will be registered with the RBI as an NBFC. If, after registration, a firm violates the 50/50 criteria then RBI has the authority to penalize the NBFC.