Documents required for NBFC registration

Affidavits or Declarations on stamp paper are also required.

We require the appointment of the company's statutory auditor.

We require a Net Worth certificate from the auditor as well as a Net Worth certificate from the promoter or directors.

We require the Promoters' source of funds, a banker's report on the Promoters or Directors, and a CIBIL report on the Promoters or Directors.

We also need information on the other company in which the Promoters or Directors have a stake.

A well-organized Business Plan for the next three years.

We also need documents for the incorporation of the Private Limited Company.

Types of NBFC

NBFCs can be categorized into two different parts

I. NBFC On the Basis of Activities

NBFC-Factors

It is concerned with the acquisition of receivables from an assignor in order to extend loans at a discount against the security of the receivables.

NBFC-Peer to Peer Lending (P2P)

Through the peer-to-peer lending marketplace, borrowers can obtain loans from individuals who are willing to lend their money to the borrower at an agreed-upon interest rate. For a P2P Lending License, it may take approximately 180 working days for RBI in-Principle Approval, followed by the Mandatory CISA Audit..

NBFC-Account Aggregators

It enables data sharing across multiple financial sector organizations that act as consent brokers, i.e., the intermediary data transfer among financial organizations with the user's consent. It entails aggregating data from various accounts such as bank accounts, investment accounts, consumer accounts, and other related financial accounts onto a single platform.

NBFC-Systemically Important Core Investment Company

It primarily invests in the equity, preference shares, debt, and loans of group companies.

NBFC-Infrastructure Debt Fund(IDF)

Its primary goal is to facilitate the flow of long-term debt into infrastructure projects.

NBFC- Investment and Credit Company (ICC)

An Investment and Credit Company is a company that does its primary business-asset finance by lending money. It enables the licensee to engage in various types of wholesale, retail loans, and investment business, including loan, asset finance, and investment company licenses, for a period of 120 days.

NBFC Infrastructure Finance Company (IFC)

An NBFC deploys at least 75% of its total assets in infrastructure loans and has a minimum net owned funds (NOF) of 300 crore rupees and a CRAR of 15%.

Non-Operative Financial Holding Company (NOFHC)

It is a type of financial institution that allows a promoter group to establish a new bank. It is a wholly owned NOFHC that holds banks and other financial services companies regulated by the Reserve Bank or other financial sector regulators to the extent permitted by regulatory prescription.

NBFC-Microfinance Institutions (MFIs)

It makes loans to small businesses that are underserved or do not qualify for loans. It was established to provide credit to economically disadvantaged groups.

Housing Finance Company

These are utilized to provide loans to people who want to build their dream home, with their main business being financing the purchase or construction of houses.

NBFC Mortgage Guarantee Company(MGC)

It refers to financial institutions where the mortgage guarantees business accounts for at least 90% of the business turnover or where the mortgage guarantee business accounts for at least 90% of the gross income and the net owned funds are 100 crore rupees.

II. NBFC On the Basis of Liabilities:

Deposit-taking NBFCs

These are the ones that allow for public deposits.

Non-Deposit Taking NBFCs:

These are the ones that are not able to receive public deposits. On-deposit-taking NBFCs are further subdivided into systemically important NBFCs and others. In NBFC-ND-SI, all NBFCs-ND with assets of Rs. 500 crores or more as per the most recent audited balance sheet are exempt from adhering to the Prudential Norms, 2015.

NBFC Registration Process

Step-1: Organizing the Documents

It is critical for the applicant to gather all of the necessary documents in order to begin the NBFC Registration process.

Step-2: Making an Application to the RBI

The applicant must file the application with the authority after assembling the necessary documents. The following requirements must be met

Capital Requirement for Fixed Deposit

The capital required for a fixed deposit is Rs. 2 crores, which should be increased to Rs. 2.2 crore before filing an application with the RBI.

Capital Requirement for the Incorporation of a Pvt. Ltd. Company

The minimum capital required for the incorporation of a Pvt. Ltd. company is Rs. 10 lakhs. Following incorporation, promoters must raise the capital to Rs. 2.2 crore. If this is not done prior to obtaining an NBFC Registration license, the company will be unable to begin lending operations. The company will maintain a Rs. 2 crore FD in the bank.

Number of Members

There must be at least two shareholders or directors, one of whom must have experience in the financial sector and knowledge of finance.

Step-3: Submission of Application

The next step is for the applicant to submit the application along with the necessary documents for verification by the authority

Step-4: Verification Documents

The authority will verify the documents and application to ensure the accuracy of the applicant's submissions

Step-5: Registration Certificate

The registration certificate will be issued after the authority has successfully verified the application and documents.

Advantages of NBFC Registration in India

Low cost and time:

The registration process for an NBFC is simpler than that of a small bank. Opening an account with a bank requires a significant amount of capital, time, and cost, whereas an NBFC does not.

Economic Growth:

NBFCs serve an underserved market by providing affordable and secure credit facilities for personal and business-related credit needs. As a result, NBFCs have aided the country's economic growth by granting financial independence to MSMEs, self-employed professionals, and individuals.

Allowed FDI:

Up to 100% Foreign Direct Investment is permitted under NBFC, which is another fantastic benefit of NBFC registration. Non-banking financial companies are the largest proponents of start-up finance in the country, and the financing process is faster and simpler than with banks.

Give Loans to People with Low Credit Scores:

Banks check credit scores first, and if the credit score is low, the loan application is rejected. NBFCs, on the other hand, make loans to people with poor credit.

Partnership:

The combination of partnership and database aids in increasing financial inclusion penetration. To successfully reach a large number of customers while minimizing risks, NBFCs have formed partnerships, including with the government, to use their database to identify customer worthiness, and thus lending has been productive.

Loan Recovery is Simple:

Because NBFCs are very systematic and offer significantly less loan amount, borrowers return the amount easily, making it convenient for lenders. It contributes to customers receiving lower-interest loans. It is also simpler to obtain a loan from an NBFC because banks have stringent regulations and time-consuming paperwork.

Provide a Variety of Options:

NBFCS has made extensive use of technological advancements such as mobile phones and the internet, which has aided in making information easily accessible at any time and from any location. As a result, it reaches a larger audience more quickly and indirectly gives rise to larger NBFCs. It has decreased demand for and reliance on bank branches.

RBI Requirements for Issuing an NBFC License

To obtain an NBFC Registration License, the proposed NBFC must adhere to following RBI requirements:

The business plan of the firm and the NBFC's capacity to pay back investors' loans must serve the societal good.

Activities of NBFCs must not be harmful to the general public's ability to invest enough funds to get an NBFC registration license.

Income potential of the proposed business

Actions must be carried out in a way that serves the general welfare.

The granting of licenses will help the nation's economy grow.

Pre-Requisites for NBFC Registration in India

As per the Section 45-IA of RBI, the following conditions must be satisfied for a company to be enrolled as an NBFC:

Company Registration:

The company must be registered in accordance with the Companies Act of 1956 or the Companies Act of 2013.

Director Experience:

At least one-third of the company's directors must have at least ten years of experience in the finance field and be employed as a full-time director.

5-Year Business Plan:

An applicant company must develop a detailed five-year business plan.

Minimum NOF:

The applicant must have a Net Owned Fund (NOF) of Rs. 2 crores and pay tax on it. However, due to price increases, GDP, and regulatory decisions, the entry point norms proposed to be revised from Rs. 2 crores to 20 crores. Applicable immediately for new registrations, with a 5-year grace period for existing registrations

Quality capital test:

The Reserve Bank of India conducts a quality capital test to ensure that invested capital is free of noncompliance with the prescribed laws.

Capital Quality:

An applicant company must meet the mandatory compliances.

Credit History:

The Company's credit score, directors, and shareholders must be in good standing, and they must not have purposefully defaulted on loan repayment to banks or NBFCs.

FEMA Compliances:

In the case of foreign investment, the company must have complied with the FEMA Act.

Object clause:

The object clause in the Memorandum of Association must correspond to the business plan.

Appropriate Directors:

The directors must be suitable and appropriate.

How NBFCs are Different from Bank?

#	Factors	NBFC	Banks
1	Meaning	Meaning Anyone can access financial services from NBFCs without having a bank license. Government-approved financial intermediary Bank intends to offer banking services to the general population.	Government-approved financial intermediary Bank intends to offer banking services to the general population.
2	Demand Deposit	Demand deposits are not permitted by NBFCs.	Demand deposits are accepted by banks.
3	Foreign Investment	Foreign investment is fully permitted in NBFCs.	Private sector banks are permitted up to 74% foreign investment.
4	Creation of Credit Credit is not made by NBFC	Credit is not made by NBFCs	Credit is made by banks
5	Management of reserve ratios	In the case of NBFCs, not necessary	Reserve ratios must be maintained by banks.
6	Services for Transactionss	NBFCs are unable to offer transaction services	Transaction services are offered by banks.

What is not included under NBFCs?

The definition of an NBFC excludes institutions engaged in agriculture, industrial activity, the purchase or sale of goods (other than securities), the provision of services, or the construction or sale of real estate.

NBFCs are institutions that offer financial assistance and various banking services but do not have a banking license. They are not the same as both “Cooperative and Commercial” banks, They don’t have to hold a financial permit however they should carefully follow the standards and guidelines given by RBI from time to time. NBFCs, most usually, work in the field of industrial and commercial loans, hire-purchasing, investment funds, deposits, debentures, chit fund business, leasing, insurance business, instruments of the capital & money markets like “bonds, stocks, and various other similar activities.”

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: 1. It should be a company incorporated under section 3 of the Companies Act, 1956 or 2013, 2. It should have a minimum NOF of Rs.2 crores. (The minimum NOF requirement for specialized NBFCs like NBFC-MFIs, NBFC- Factors and CICs differs).

NBFCs provide loans and make investments. These characteristics are the same as that of banks. However, there are some differences: 1. NBFCs cannot accept deposits payable on demand, 2. They are not part of the payment and settlement system and cannot issue cheques drawn on itself, 3. The deposit insurance facility of “Deposit Insurance and Credit Guarantee Corporation” is not available to the investors of NBFCs.

Just call “LegalRaasta” at +91 875 000 8585. We'll complete the advantage of accumulating the documents as required by RBI according to how you wish to start your NBFC. Advise you on the procedures to be met and arrange for them to get completed. File them with the RBI regional office. Provide consultancy on the steps to be taken by you. Answer all the queries on time. And get you registered conveniently.

• Certificate of Incorporation of the Company. • MoA and AoA. • Administrative Documents of the Company. • Address proof of the Company. • Detailed information about Directors or Partners of the Company. • Well-audited accounts of the Company since its formations or for at least the past 3-consecutive years. • Board Resolution approving the creation of NBFC. • Bank Account that holds the paid-up equity share capital of minimum Rs. 2 Crore. • Latest KYC. • Net worth certificate. • Clean banker's report. • Other relevant documents on request.

No, “Merchant Banking Companies, Stock Exchanges, Housing Finance Companies, Venture Capital Fund Companies, Stock-broking/Sub-broking Companies, Nidhi Companies, Insurance Companies, and Chit Fund Companies” are NBFCs and they do not need to be registered with RBI but are subject to certain conditions. They are regulated by other regulators.

RBI has the authority to register, lay down policy & provisions, issue directions, regulate, supervise, inspect, and exercise surveillance over NBFCs meeting the “50-50” criteria of principle business. It can penalize NBFCs for infringing the provisions of the RBI Act or directions/orders issued under it. The penal action can also be cancelation of the CoR or prohibiting them from accepting deposits and alienating their assets or filing a winding-up petition.

Businesses whose principle activity is “lending, investing, or accepting deposits” must be registered with the RBI as NBFCs .If they are found without an NBFC license, then RBI can impose a penalty or fine on them. They can even be indicted in a court of law. Members from the general public are invited to report such firms to the nearest Regional Office of RBI. Appropriate action will be taken against such entities for violating the provisions of the RBI Act, 1934.

The provisions are as follows: a) They shall not be subjected to any statutes, whether prudential or conduct of business regulations if they have not accessed any public funds and do not have a customer interface. The norms are “Fair Practice Code, KYC, etc.” b) Those with a customer interface are subject to these codes if they are not accessing public funds. c) If public funds are accessed, NBFCs will be subjected to certain prudential regulations but no conduct of business regulations if no customer interface is there. d) When both public funds are accepted and the customer interface also exists, those companies are subject to both the limited prudential regulations and the conduct of business regulations

Public Fund means “public deposits, bank finance, inter-corporate deposits, and all funds received” whether directly or indirectly, from outside sources. It could be funds raised by issuing Commercial Papers etc.

A. Returns to be submitted by NBFC-Deposit Accepting are: 1. NBS-1 - Quarterly returns on deposits in the First Schedule. 2. NBS-2 - Quarterly returns on Prudential Norms. 3. NBS-3 - Quarterly returns on Liquid Assets. 4. NBS-4 - Annual returns of critical parameters by a rejected company holding public deposits. 5. NBS-6 - Monthly returns on exposure to capital market institutions with total assets of Rs. 100 crore and above. 6. Half-yearly ALM returns - with companies having public deposits of over Rs. 20 crore or asset size of over Rs. 100 crore 7. Audited Balance sheet and Auditor’s Report. 8. Branch Info Returns. B. Returns to be submitted by NBFCs-ND-SI: 1. NBS-7 - Quarterly statement of capital funds, risk-weighted assets, their ratio, etc. 2. Monthly Returns on Important Financial Parameters. 3. ALM returns: a. Monthly statement of short term dynamic liquidity in format ALM [NBS-ALM1], b. Half-yearly Statement of structural liquidity in format ALM [NBS-ALM2], c. Half-yearly Statement of Interest Rate Sensitivity in the form ALM -[NBS-ALM3]. 4. Branch Info returns. 5. Quarterly returns on important financial values & basic information like name of the company, its address, NOF, profit & loss statement during the last 3-years of NBFC-NDs with assets between Rs. 50 crore and Rs. 100 crore.

Residuary Non-Banking Company (RNBC) is a type of NBFC whose principle business is of receiving deposits under any “scheme/arrangement/some other manner”. It is not an “Investment Company, Asset Financing Company, or Loan Company.” They are required to maintain investments and liquid assets as required by RBI. Their functioning is quite different from those of NBFCs in terms of how they mobilize deposits and the requirement of deployment of depositors' funds as per RBI Directions. Besides, Prudential Norms Directions apply to them also.

All NBFCs are not permitted to accept public deposits. Only the NBFCs which have taken specific permission from the RBI to do so, are allowed to accept/hold public deposits. To get permitted by RBI, they must have an investment-grade rating to a limit of 1.5 times of it’s NOF.

RBI has capped the annual rate of interest an NBFC to a maximum of 12.5%. The interest may be paid or compounded at a frequency of one month or more.

The deposits with NBFCs can be accepted/renewed for a minimum period of 12 months and a maximum of 60 months. They cannot accept demand deposits.

NBFC License

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What is a NBFC?