What do you mean by Non-banking financial Company (NBFC)?
There companies are the financial institutions which are registered under Companies Act 2013 or 1956 and provide various financial services and supports to public without having banking license. Reserve bank of India under Section 45(1A) regulates the Non – Banking Finance Company.
Activities which are dealt by NBFC are: Loans and Credit Facilities, Assets Financing, Acquisition of Shares, Stock, Bonds, Hire-Purchase of assets, Insurance, Currency Exchange activities, Peer to Peer lending facilities etc.
No activities other than financing and investment are carried out by the NBFCs. Demands which are not fulfilled by the earlier banking systems; NBFCs try to meet them in a shorter period of time.
Brief Explanation of registration of Non – Banking Finance Company
It takes 90 to 120 working days in India to register NBFCs and commencing the finance activities.
Usually NBFC takeover is not considered over New NBFC registration. Department of Non-Banking Regulation issues the registration certificate if you qualify the several steps of registration such as Business Eligibility test, experience in finance, Business Plan, Quality of Capital test, Profile Assessment, Business Plan and Public interest concern of the Regulator.
We India Financial shall provide you consultation regarding the NBFC company registration, Fintech based NBFC Business Plan, Software of NBFC, CISA Audit and complete support in registering, managing, controlling and guiding the NBFC business In India.
- Assessment Test of Profile
- Registration of Non – Banking Finance Company (NBFC)
- High-Level Business Plan
- Filing of Application online
- Questions/Clarification of Reserve Bank of India
- Final Decision on Registration Certificate
- Commencement of Business
- On-Going legal and regulatory Compliances
What are the advantages of NBFC registration?
The Reserve bank of India regulates the Non – Banking Finance Company in India as a result it has many advantages such as it secures the capital invested by owner in the business, builds the confidence of borrowers etc.
- Registration Process of NBFC does not require much cost.
- Personal Liabilities of the Owner are secured and also it safeguards the owner from business risk and legal risk.
- Borrowers are attracted as they gain confidence.
- Raising Investments in NBFC is easy.
- Access of CIBIL – Borrowers be afraid of poor credit score and Hence lowest Default
- Interest Rate are open without any Cap
- Free to charge Processing Fees – No Cap
- Protection by Law for recovery of loan
- Easy Bank Finance
- 100% FDI are allowed
- Processing of loan in no time
- Soft Eligibility Criteria
- Rules and Regulations are not much to be followed.
- Loan, Investments and Assets financing in one Single License
- All India Coverage – With NBFC License you can operate All Over India, no need to seek any approval from the local authority.
- No additional approval from RBI is required to open branches upto 1000
- Direct sale agencies (DSA) can be appointed by the Non Banking Finance Company.
What are the checklists for registering the NBFC in India?
Below mentioned conditions are required to be fulfilled by the company as per Section 45(1A) of the Reserve bank of India.
- Profile of Directors: Experience in Finance must be possessed by atleast 1/3 of Directors.
- Unique Plan of Business: Company must have detailed Business plans which are going to be implemented in the next five years.
- Owned Fund: The Shareholders in total, Must have Rs. 2 Cr as a net owned fund, Invested Capital must not be the borrowed fund. A gift from Spouse is considered as an Owned fund.
- Clean Credit History: There should not be any default by the directors and shareholders in the repayment of the loans to NBFC/ Bank.
- Experienced NBFC Advisor: Managing the registration of NBFC requires experienced professionals as such registration requires regulatory and legal compliances to meet.
What is the procedure to Apply for Non Banking Finance Company License?
To fulfill the credit gaps which are created by the banks, Non-banking Finance companies come into force and also it sanctions the loans without much processing by using the latest, updated and better technology.
Registration process of NBFC is governed by the Ministry of Corporate affairs along with the rules and regulations framed by the Reserve bank of India on time to time basis.
- Step 1: Hiring of Experienced NBFC Consultants (CA/CS/Lawyers/Ex-Banker – Suggested Consultant Team Size Should be more than 100+)
- Step 2: Qualify Eligibility Test - NBFC Advisors on the basis of his experience are required to conduct the eligibility test as per the rules framed by the Reserve Bank of India (RBI) Act.
- Step 3: Registration of Company (With Authorize share Capital of Rs. 2.5 Cr), Opening of Bank Account & Apply for Goods and Services Tax Number.
- Step 4: Appointment of Auditor – Auditors are expected to have experience in the NBFC audit and requisite knowledge of Reserve Bank of India (RBI) Act.
- Step 5: Constitute Board of Directors (Right Composition of Board secures NBFC License easily as RBI Approves Cor only in the interest of Public)
- Step 6: Selection of Right Category and Customer Interface Option
- Step 7: With the help of NBFC Consultants high level business plans are required to create. Fintech Based Business model recommended
- Step 8: Infusion of Rs. 2 Cr capital and Creation of Fixed Deposit of Rs 2 Cr
- Step 9: Expert reviews the application.
- Step 10: Online Filing of Application (Cosmos)
- Step 11: Submit Physical submission of Application to Reserve Bank of India (RBI) Office
- Step 12: RBI Clarification/Questions are required to be solved, so there should be proactive respond to them.
- Step 13: Within 90 to 120 Days, Reserve Bank of India announce its final decision on registration certificate.
- Step 14: Within 6 months, commencement of Business shall be filed to Reserve Bank of India (RBI) once NBFC License is obtained.
- Step 15: After successful receiving the NBFC License you are required to comply with the NBFC Regulations, RBI Directions which is issued from time to time.
What activities are performed by an Non Banking Finance Company?
Based on alternative lending models, an NBFC sanctions both secured and unsecured loans to the borrowers. In order to encourage the small unorganized money lenders who are curious to run their financial services business and to make their lending operation easy and simple, NBFCs are established and are being supported by the government.
There have been many amendments in the rules and regulation applicable to the NBFCs but now at present, most of the NBFC Start-ups have adopted the high-end tech-based business model in order to perform the financial services in an effective and efficient manner.
- NBFC helps in balancing the financial needs of the country where the same as not been met by the traditional banks of India.
- In order to assess the loan application, Non banking Finance Company grants loans which is based on alternative credit score model.
- To offer financial services, Indian Financial Start –ups are also using the NBFC model
Which documents are needed for Non Banking Finance Company registration?
- Certified Copy of documents such as: Certified copy of Certificate of Incorporation (COI), Memorandum of Association (MOA) & Article of Association (AOA) from the Regional registrar of companies are required to be submitted
- Updated KYC: Latest KYC & Directors and Shareholders’ income proof are required for NBFC registration
- Certificate of Net Worth: Directors, Shareholders, and Company’s latest certificate of net worth is required.
- Clean Banker Report: Banker report regarding the no Lien remark on the Initial Fixed deposit of Rs 2 Cr is required to obtain from the banks.
- Education Proof of Education: Applicant Company’s directors’ educational and professional proofs are required to be submitted.
- Credit report of Directors and shareholders: Latest credit reports of directors and shareholders are required.
- Experience in the financial sector: At least one Director's profile with 10+ years’ experience in the financial services sector is required to submit.
- Underwriting model: Action plan about the loan products, fair practice code, credit and risk assessment policy are need to submit in details.
- Matrix of Organization: Every NBFC is required to disclose the organizations structure and decision-making process regarding the approval/rejection of application of loan.
- System and Information Technology (IT) Policy: Policy regarding Information Technology is required to be submitted.
Who has the authority to regulate the registration process of Non Banking Finance Company (NBFC)?
Reserve Bank of India is an apex body and has 2 departments which regulate and monitor the activities of NBFC companies.
What is DNBR (Department of Non-banking Regulation)?
Rules and regulations for Non banking Finance Company is prepared by the DNBR and is also responsible for performing the Fresh Registration process of NBFC through transparent as well innovative assessment process of NBFC Application
- Assessments are carried out for application submitted for obtaining the NBFC License (All Category of NBFC)
- Profiles of Directors / Shareholders are investigated
- During Pre-Registration Process, there is direct contact with the company applying for NBFC registration.
- Approval of Executive Director Office (RBI) regarding the final decision is communicated to the applicant company.
- DNBR also regulates & administers the activities of NBFC business in India.
- It also publishes Notifications, Circulars& Orders for Non Banking Finance Companies (NBFC).
What is DNBS (Department of Non-Banking Supervision)?
The role of DNBS relates to the supervision of post-registration and solving the other administrative related issues of Non Banking Finance Companies (NBFCs). There is regional as well central operation (from Mumbai) of DNBS. Other communication can be expected from DNBR, once it is approved by the Department of Non-Banking Supervision (DNBS).
- Net owned certificate & Bankers Report are collected by the NBFC once it is approved by the DNBS before issuance of the original NBFC License.
- NBFC Rules and Regulations which are issued by the Reserve Bank of India are to be complied with.
- Timely basis Audit / On-site Inspection should be conducted.
- Communicates with NBFC for all On-going compliance
- Where there is non-compliance with the laws, the NBFC License can be suspended or cancelled.
- There should be proper Education and seminar conduction for the general awareness regarding the Regulations, Compliance and Business of Non Banking Finance Companies (NBFCs).
How many types of NBFC are there in India?
NBFCs are categorized into 2 types which are distinguished on the basis of the activities performed as well as on the authorization of the department to accept deposits from public.
NBFC Based on the authorization to accept deposits from public
- The Deposit Taking NBFC (Type -1)
- Non-Deposit accepting NBFC (Type -2)
NBFC Based on their activities performance
- Non-Banking Financial Company – Investment and Credit Company (In a recent development, RBI has merged Asset Finance Companies, Investment Companies and Loan Companies into a single category)
- Infrastructure Debt Fund (IDF-NBFC)
- Non-Banking Financial Company – Factors (NBFC-Factors)
- Peer to Peer Lending Marketplace.
- Infrastructure Finance Company.
- Core Investment Company
- Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)
- Mortgage Guarantee Company.
- Housing Finance Company
- Chit Fund Company
- Mutual Benefit Finance Company (Nidhi Companies)
What requirements are required to be fulfilled for registration of NBFC?
Pre registration requirements are need to be complied with before filing for NBFC registration:
- As per Companies Act 2013, Company must be registered.
- Capital of Rs. 2 Crore should be arranged as minimum capital requirement for a Non Banking Finance Company.
- Fixed Deposit of Rs 2 Cr is required to be created.
- In the case of foreign investment Compliance of Foreign Direct Investment as per FEMA Act must be fulfilled.
- Documentation must be completed for an NBFC license
- Necessary and relevant documents along with Fixed Deposit receipt is required to be submitted to Reserve Bank of India (RBI).
What Support Services from India Financial are offered after obtaining the Certificate of Registration from the Reserve Bank of India (RBI)?
- Advisory for Fintech Based Credit Assessment model
- Guidance in the Standard Operating Procedure (SOP) of the Organization
- Advise in designing the loan product
- Assistance in finalizing the formats of reports as per each and every verticals of the organization
- Assistance on Digital Financial Services Marketing
- Forming Company Policies are also assisted by us.
- Assistance in developing the High-Level Business Plan & Investor Deck
- Preparing founders to go to market strategy
- Proper guidance in the process of raising fund through Automatic route of Foreign Direct Investment (FDI).
- Guidance in meeting secretarial compliances
- Consultation in meeting Compliance of Reserve Bank of India (RBI).
- Advisory on which Ind-AS to be adopted by the organization.
- Services of Internal Audit
How must cost is required to register Non banking Finance Company (NBFC)?
Registration of NBFC Company requires minimum capital of 2 Cr along with the requisite government fees.
What compliances need to be complied with after Certificate of Registration?
Post registration compliances are required to be fulfilled. Moreover, Every NBFC Company needs to follow the rules and regulations framed by the RBI Act, RBI Guidelines, Circulars, and notifications published in the public domain on timely basis.
Compliance of Reserve Bank of India (RBI) for NBFC
- Fair Practice Code must be followed
- Cosmos Registration
- Registration of FIU-IND (Financial Intelligence Unit – India)
- Registration of CIC (Central Information Commission)
- Registration of C-KYC (Central Know your Customer)
- Registration under Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI).
- Through the use of Online Platform of RBI (COSMOS), Filling of NBS-9 by
- Secretarial compliances
- Compliance of KYC Anti-money Laundering
General Compliance Requirement for NBFC
- Appointment of Statutory Auditor (CA having 5+ years of experience)
- Statutory and Tax Audit
- Income Tax and GST Return filing
- ROC Returns
- Competent Authority may require any other Compliance / Returns to be complied with.
Non Banking Finance Company (NBFC) Registration vs. Non Banking Finance Company (NBFC) Takeover
Registering new NBFC is always preferable to opt for rather than taking over an existing NBFC because the process of registration of new NBFC has been made simpler now especially for Foreign Companies, who plans to enter into the Indian Financial service market.
Some of the benefits of Fresh NBFC Registration above NBFC Takeover
- Lower Legal Risk: NBFC License may be cancelled where there is past non compliance with RBI Act in case of NBFC takeover.
- Timeline: It usually takes less time to obtain fresh registration of NBFC than to take over the existing NBFC. Fresh NBFC Registration can be completed in a period of 90 to 120 days it takes 5 to 9 Months to take over an existing NBFC.
- Ownership Risk: No ownership exists while obtaining the fresh registration of NBFC. The precise title of shares cannot be established as you are the first shareholder of your NBFC Company in acquiring an existing NBFC.
- Tax Liability: The entities that are willing to take over the existing NBFC shall be liable for all the tax liabilities of an existing NBFC.
- Capital: Bankers report stating that the bank balance is equivalent to the value of the shares are required to be submitted in case of NBFC takeover by the proposed shareholders but in case of new NBFC you need to have minimum 2 Cr as a capital or Fixed Deposits in Bank Account.
Frequently Asked Questions about NBFC Registration
Shareholders owned fund i.e. gifts from spouse or relatives but it cannot be a borrowed fund.
NBFC License is compulsory in case you are running the business of lending and investment.
The net owned fund is computed on the basis of latest audited balance sheet which includes the Paid up Equity Capital, Reserves and surplus (excluding the revaluation reserve) and Long Term Liabilities (which are to be paid after 1 year), after deducting the accumulated loss and Trading investments and fictitious assets.
You can avail the NBFC License even running the business as a Sole-proprietorship or Partnership with or without a local lending license under the state laws but once the NBFC License is granted to you, need to surrender the local lending license.
Only taxed owned capital is required to meet the minimum capital requirements of the NBFC. Gifts from spouse or relatives can be obtained to finance the same.
Developing or sourcing the NBFC Software can be done only after the approval of application by the RBI.
For loan business you can make use of this fund once Reserve Bank of India approves your application.
Either you should have experience in the Finance or you can hire a professional having experience in Finance. However, 99.99% of shares can be kept by you or family members.
It would be better to hire an NBFC Consultants as they possess vast amount of experience in this field and moreover the process to register the NBFC usually takes 4 months. It would be difficult to apply for registration again in case the application is rejected.
The FEMA Provisions along with the RBI Act are required to be complied with in case you allow Foreign Direct Investment at the initial stage of the NBFC formation and moreover there are no such restrictions on Foreign Direct Investment but FDI must be in the form of T1 Equity.