NBFC REGISTRATION
About NBFC Registration- NBFC or Non-Banking Financial Company is that kind of financial institution which provides various financial and non-financial services to individuals, business enterprises, entrepreneurs, etc. They are different from the Cooperative and Commercial Banks, They do not need to hold a banking license but must strictly follow the rules and regulations provided by RBI from time to time.
NBFCs, most commonly, operate in the field of industrial and commercial loans and advances, deposits, leasing, hire-purchasing, investment funds, chit fund business, insurance business, instruments of the capital & money markets such as stocks, debentures, bonds, and many other similar activities.
NBFC License must be taken from RBI u/s 45-IA of the RBI Act of 1934. The financial institution wishing to be registered as NBFC must, first, be duly registered either as per the Companies Act of 2013, or earlier Act of 1956. NBFCs are the bridges that link the investors or depositors with the borrowers. They have become a better alternative to the banking and financial sector by providing financial solutions to the unbanked and unorganized segments of society.
Types of NBFC:-
1. Liabilities:• The deposit accepting NBFCs and
• Non-Deposit accepting NBFCs, (Non-deposit taking NBFCs are classified further as per their size:)
• systemically important (NBFC-NDSI). All NBFCs – ND whose asset size is Rs. 500 Crore and more as per the last audited balance sheet
• others.
2. Activities:
• NBFC Factors
• Mortgage Guarantee Companies
• NBFC Investment Credit Company
• NBFC Infrastructure Debt Fund Companies
• NBFC Micro Finance Institution
• Non-Operative Financial Holding Company
• Systemically Important Core Investment Company
• NBFC Infrastructure Finance Companies
• NBFC Account Aggregator
• NBFC Peer to Peer Lending platform
Activities which cannot be registered for NBFC License:-
1. Agricultural Activity
2. Industrial Activity
3. Sale / Purchase of Goods and Services
4. Sale / Purchase of construction of immovable property
Requirements for NBFC Registration:-
1. Company Registration- An applicant must be a company registered under companies Act 1956 or Companies Act 2013.2. Director’s Experience- 1/3rd Directors of the applicant company must possess experience in finance field in order to apply for NBFC license.
3. Five Year Business Plan- An applicant company needs to draft detailed business plan for the next five years.
4. Minimum NOF (Net Owned Fund) Requirement- The applicant company must possess minimum NOF of Rs. 2 Cr. Tax must be paid on it.
5. Qualify Capital Test-The RBI undertakes quality of capital test to check that invested capital is free non-compliance with the prescribed laws.
6. Credit History- The credit score of the company, directors & its shareholders must be fine and they must have not defaulted loan re-payment deliberately to banks or to NBFCs.
7. Quality Of Capital- An applicant company must have complied with the mandatory compliances.
8. FEMA Compliances- In case of involvement of foreign investment, an applicant company must have complied with the FEMA Act. 100% FDI is allowed from FATF member countries.
Conditions to continue NBFC License-
Following conditions must be fulfilled in order to continue NBFC License:
1. Total Assets comprises more than 50% financial assets
2. More than 50% of the gross income should be generated from financial assets
Procedure for Registration of NBFC:-
1. The proposed name of the company must include Finance, FinServ, Final, Investment, Capital, Fintech, and Leasing etc.
2. Register a Private Limited or Public company
3. Plan your Registered office, City and Area of Operations
4. Obtain certificate of Incorporation from Registrar of Companies
5. Deposit Net Owned Funds in bank account opened for company
6. Documentation for obtaining NBFC license
7. Drafting of Business Plan for the next 5 years consisting:
• Executive Summary
• Product Plan
• Lending Model
• Risk Model
• Peer Analysis
• SWOT Analysis
• Financial Projections
8. Apply for registration with RBI under RBI Act, 1934.
9. Applicant Company has to file an online application with the RBI on its official website.
10. After this, an applicant will get a reference number (CARN) to facilitate inquiry in the future.
11. After this, it is required to submit the duplicate hard copies to the concerned regional office of RBI.
12. The regional office shall check the accuracy of all submitted documents.
13. The regional office will send the application for NBFC registration to the central office.
14. The central office of RBI grants NBFC registration only when applicant company fulfils prescribed requirements under section 45-IA.
15. NBFC must commence its business within 6 months from the date of Certificate of Registration
Documents required for NBFC Registration:-
1. Certified copy of COI (Certificate of Incorporation) / MOA / AOA
2. Net Worth Certificate of Directors, Shareholders & Company
3. Educational qualification documents of the proposed directors
4. Highest Experience certificates
5. Directors & Shareholders business profile
6. Credit report of directors & shareholders
7. KYC details, PAN of the company, GST number, address proof of the company
8. Bank account details of the company [Rs. 2 Cr must have deposited as NOF]
9. Audited balance sheet of last 3 years or from the date of incorporation
10. Related Party Disclosures
11. Income tax Returns
12. Banker’s Report confirming no lien on fixed deposit
13. Format of board resolution regarding NBFC registration
14. Underwriting model - Detailed action plan of next 5 years including Fair Practice Code and risk assessment policy
15. Business Structure & Loan Structure
16. IT Policy