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How to register an NBFC in India

A Non-Banking Finance Company, NBFC is required to register under the Companies Act, 2013 in India and also obtain a Certificate of Registration from the Reserve Bank of India. This article gives a detailed insight into the registration process of an NBFC in India.

What is an NBFC?

NBFC stands for Non-Banking Finance Company. NBFC is a private or public limited company in India registered under the Companies Act of India, 2013. The NBFC also obtains a COR, Certificate of Registration from the Reserve Bank of India.

The activities of an NBFC are very similar to that of a bank and include some major activities that distinguish it from a bank. A major difference between NBFC and banks is that NBFC provides quick loans to first-time entrepreneurs, whereas banks have several processes to sanction loans. NBFCs have primary business activities like providing loans and advances, acquisition of shares, and stocks and other investible securities. NBFC is known as a provider of financial support and services to businesses and individuals.

NBFCs obtain a license from the RBI which permits them to carry out business activities including providing various kinds of loans such as Personal Loans, Asset Financing, SME Lending, Gold Loans, Loan against Property, Loan against Shares, Short term Personal Loans, etc.

NBFC Registration in India.

Section 45-IA of the RBI Act, 1934, requires every Non-banking Financial company to obtain a Certificate of Registration from the RBI to commence or carry on the business of a non-banking financial institution. The NBFCs is also required to have Net Owned Funds of ₹ 25 lakhs (₹ Two crores since April 1999).

Advantages of NBFC Registration in India

NBFC registration helps all businesses that carries out non-banking business activities. Some of the advantages of registering an NBFC under the RBI are given below:

· Easy registration, Saves time

· Cost-effective

· Easy recovery of loan

· Economic growth

· Trading in money market instruments is easier

· Manages portfolios of stock and shares

· CIBIL or credit score does not become a hindrance in getting a loan.

Categorization of NBFCs in India:

NBFCs can be categorized into 10 main forms in India, namely:

  • 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)

Criteria to obtain NDFC License from RBI:

AN NBFC that wants to obtain the NBFC license and commence the business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:

Ø It should be a company registered under Section 3 of the companies Act, 1956

Ø It should have a minimum net owned fund of ₹ 2 crores. This Initial capital of Rs. 2 Cr cannot be a borrowed capital.

Ø The middle name of the company must include keywords such as Finance, Investment, Leasing, Capital Fintech, etc.

Ø Company should provide documents showing the highest qualification of the directors associated with the company.

Ø Net worth certificate of the shareholders, company, and directors which needs to be CA Certified.

Ø There should be an explicit clause in the MOA explaining the financial or Investment of the company.

Ø It is important to have certified documents for the certification of Incorporation, MOA, as well as AOA, verified from the respective regional registrar of the companies.

Ø Document supporting the income proof of the shareholders, founders, and directors of the company along with their KYC.

Ø Having a Banker Report regarding No Lien remark on the Initial Final deposit of Rs 2 Cr.

Ø A company must have an experienced NBFC Consultant.

Ø Report analysis of the credit card owned by the shareholders and the directors of the company.

Ø Submitting one of the directors’ profiles who has a financial experience of 10+ years as a Senior Management in Bank or NBFC.

Ø It is important to have the credit report of the directors and the shareholders verified which keeps them from repaying the loan or financial facilities over life. In case there is a proper clarification of the delay, the RBI may accept the application for the same.

Ø There needs to be a high-level business plan in order to get through the process of an NBFC License.

Ø A detailed action plan should be in place regarding the loan products and Credit & Risk Assessment Policy.

Ø An elaborate decision making as well as the organizational structure for the approval or the rejection of the application of a loan.

Ø Having a true copy of the Audited Balance Sheet with Profit & Loss account along with the auditor’s report of three years holding the company. This is mandatory if the applicant is a subsidiary of the Public Limited or Private Limited or Foreign Company.

Ø In case of an FDI, all the necessary FDI Compliance as per the FEMA Act must be compiled.

Ø The Non-Banking Financial Company must be able to pay claims to its present as well as future investors in full

Ø It cannot carry out any operation in a manner prejudicial to the interest of both its existing or future investors

Ø The general character of the Board and the management must not be detrimental to the interest of the public and depositors

Ø The company’s working must be consistent with the economic growth, monetary stability, and other related policies of RBI

How to calculate Net Owned Fund/Capital:

Net Owned capital 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 more than 10% of the owned funds will be subtracted from the Net Owned Funds.

Process of NBFC registration in India:

The process of registering an NBFC in India can be segregated into few steps :

Step 1: Register the company under the Companies Act 2013 or under the Companies Act 1956. Step 2: Make sure the company meets all the conditions outlined by RBI for registering NBFC

Step 3: Once the company meets all the conditions, visit RBI’s official website and fill in the application form Step 4: Submit all the required documents along with the application form. Step 5: Once you have submitted the application form, a CARN number will be generated. Step 6: Send the hard copy of the application to the regional branch of RBI. Step 7: After the application is checked and verified, the License will be given to the company.

Documents required for the registration of NBFCs

1. Incorporation Certificate of the Company

2. Documents related to the Management and administration of the Company.

3. The documents stating the Article of Association and Memorandum of Association of the firm or company.

4. Documents verifying the location of the company.

5. Company Account which has been well audited for last three years.

6. Elaborate Information regarding the Director and the Partners associated with the Company.

7. Resolution from the board favoring the formation of NBFC.

8. A bank account with a minimum equity share of INR 2Cr.

9. PAN Card of the Company

10. Additional documents that can be asked at the time of verification.

11. CIBIL/credit reports of the Directors of the Company are required.

12. 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.

13. A board resolution on ‘Fair Practices Code’ is to be passed and a certified copy of the same is to be submitted.

14. Certificate issued by the statutory auditor stating that the company is not holding the public deposit and does not accept it as well.

15. Certificate specifying owned funds as on the date of the application from the Statutory Auditor is required.

16. Information regarding the bank account, balances, loans, credits, etc. is to be furnished.

17. Self-certified copy of the bank statement and Income Tax Returns is required.

18. 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 Fees for obtaining NBFC license

The fees to obtain an NBFC license in segregated according to the process of obtaining the certificate.

  • 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 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 are required to be paid while submitting the application to the registrar.

Self-Registration of NBFC through RBI

Any NBFC can self-register its company in the RBI and obtain the Certificate of Registration and NBFC License. The RBI website has PDFs which contains the documents required to obtain the license for different types of NBFCs.

This image shows the PDFs available on the RBI website. These PDFs give the information regarding the documents required for the registration of NBFCs in India.

Just below the section of PDFs is the application forms available for companies to fill and apply for the NBFC License. The website provides all types of forms required for an NBFC.

RBI website also has its FAQs section that may be used to clarify any doubts regarding the process of registering an NBFC.

Confusion in the process of registering an NBFC ?

Many first-time entrepreneurs may face confusions regarding the process of registering an NBFC, the documents required for the registration, the type of license required based on the type of NBFC formed, the fees for registration, or the time constraints required to fill an application.

RegisterKaro is an online business compliance platform that helps entrepreneurs and other individuals with various registrations, tax filings, and other legal matters. The company also helps entrepreneurs with the registration of NBFCs and obtaining an NBFC License from the RBI.

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