NBFC Registration
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Understanding the NBFCs
Although it offers financial services and products, a non-banking financial company, sometimes referred to as a non-banking financial institution, is not recognized as a bank with an official banking license. Although they do not function as banks, NBFCs do engage in lending as well as other operations including advances and loans, credit facilities, savings and investment products, money market trading, stock portfolio management, money transfers, and so forth. The NBFC has taken the road of mainstream institutions when it comes to availing the financial services in India.
- Right Business Model to choose for NBFC Registration
- NBFCs based on Liabilities
- NBFCs based on Asset Size
- NBFCs based on Activities
- Benefits of NBFCs
- Challenges faced in NBFC Registration
- Prerequisites for NBFC Registration
- Documents required for NBFC Registration
- Process for NBFC Registration
- Why RegisterKaro?
- Frequently Asked Questions
NBFC Registration Certificate
Right Business Model to choose for NBFC Registration
There are different forms of Business Model to choose under the law when it comes to NBFC Registration. Choosing the right model for the business is equally important for the registration as the business structure decides many factors such as taxation slabs, leverages, regulatory statute, etc. There are major three categorization of NBFCs on the basis of Size, Liabilities, and activities:
NBFCs based on Liabilities
Deposit Accepting NBFCs: Deposit accepting NBFCs are such NBFCs that are open to accepting deposits from the general public. Moreover, this form of NBFCs have also to comply with the statutory liquidity requirements laid down within the RBI guidelines. NBFCs accepting public deposits with total assets of at least Rs 100 crore must furnish monthly return on capital market exposure. NBFCs are required to maintain a minimum level of liquid assets of 15% of outstanding public deposits as of the final business day of the quarter before.
Non-Deposit Accepting NBFCs: Non deposit accepting NBFCs are such NBFCs that does not accept the deposits from the general public. Non-deposit taking non-bank financial institutions (NBFCs) with assets over Rs. 50 crore but under Rs. 100 crore must file a quarterly return covering key financial metrics. Non-deposit taking NBFCs with asset sizes between Rs. 50 crore and Rs 100 crore must disclose basic information on a quarterly basis, such as the company name, address, NOF, and profit or loss for the last three years.
NBFCs based on Asset Size
Systematically Important NBFCs [NBFC-ND-SI]: Systematically important NBFCs or NBFC-SI are those NBFC possessing the net assets of Rs 500 crore or more as per the latest audited balance sheet.
Non-systematically Important NBFCs: Non-systematically important NBFCs are such NBFCs which possess the net assets up to Rs 500 crore as per the latest audited balance sheet.
![NBFCs based on Asset Size Systematically Important NBFCs [NBFC-ND-SI]: Systematically important NBFCs or NBFC-SI are those NBFC possessing the net assets of Rs 500 crore or more as per the latest audited balance sheet.](/_next/static/media/nbfcs_based_on_assestes.d0923588.svg)
NBFCs based on Activities
Asset Finance Company (AFC):
It is a financial institution that primarily engages in financing physical assets supporting economic and productive activity. The range of assets include tractors, cars, lathe machines, earth moving, generator sets, and material handling equipment, self-powered vehicles, and general-purpose industrial machines. For the purposes of this definition, the company’s principal business is the totality of financing real and physical assets that support economic activity and the income generated from such activities, which accounts for at least 60% of the company’s total assets and income.
Investment Company (IC):
- Investment company or IC refers to any such company acting as a financial institution which carries the acquisition of securities as its primary business.
Loan Company (LC):
- LC refers to any financial organization that does lending, advances, or other forms of financing for businesses other than its own as its primary operation; asset finance companies are not included in this definition.
Infrastructure Finance Company (IFC):
- As a non-banking finance business, IFC offers services related to infrastructure loans to fund at least 75% of its total assets. It must have a minimum Net Owned Funds of ₹ 300 crore along with the minimum credit rating of ‘A’ (or equivalent), and a 15% CRAR.
Systemically Important Core Investment Company (CIC-ND-SI):
- With an asset size of Rs 100 crore (or more), CIC-ND-SI is an NBFC that accepts public funds and engages in the business of acquiring shares and securities that meet a variety of requirements. The requirements state that it must own debt, loans, preference shares, equity shares, or other investments in group firms for at least 90% of its total assets. Furthermore, at least 60% of its total assets are made up of its investments in group company equity shares (including instruments that are mandatory convertible into equity shares within a maximum of ten years from the date of issue). Furthermore, it only engages in block sales for the aim of diluting or disinvesting its investments in shares, debt, or loans in group firms. Furthermore, it is crucial that it refrain from engaging in any other financial activity covered by Sections 45I(c) and 45I(f) of the RBI Act, 1934, with the exception of investing in government securities, bank deposits, money market instruments, loans to group companies, and guarantees issued on their behalf.
Infrastructure Debt Fund- Non-Banking Financial Company (IDF-NBFC):
- it is a form of business structure that was established to help long-term debt flow into infrastructure projects. It is registered as an NBFC. IDF-NBFC raises capital by issuing bonds with a minimum five-year maturity denominated in dollars or rupees. IDF-NBFCs can only be sponsored by companies like Infrastructure Finance Companies (IFC).
Non-Banking Financial Company– Factors (NBFC-Factors):
- The primary activity of NBFC-Factor, an NBFC that does not accept deposits, is factoring. A factoring company’s financial assets should make up at least half of its total assets, and the revenue it receives from factoring should equal at least half of its gross revenue.
Mortgage Guarantee Companies (MGC)-
- Financial institutions known as MGC have net owned funds of ₹ 100 crore and at least 90% of their business turnover comes from mortgage guarantee business or from mortgage guarantee business at least 90% of the gross income comes from.
NBFC- Non-Operative Financial Holding Company (NOFHC):
- NOFHC will allow promoters or promoter groups to establish a new bank. To an extent which is permitted by the relevant regulatory prescriptions, the bank and all other financial services businesses governed by the RBI or other financial sector authorities will be held by the wholly-owned Non-Operative Financial Holding Company (NOFHC).
(NBFC-MFI):
- At least 85% of the assets held by NBFC-MFI, a non-deposit accepting NBFC, are qualifying assets that satisfy a number of criteria. To be eligible for a loan from an NBFC-MFI, a borrower must meet certain conditions, such as having an annual family income in rural areas of no more than ₹1,00,000 or an income in urban or semi-urban areas of no more than ₹1,60,000. Furthermore, the maximum loan amount in the first cycle is ₹50,000, and in the subsequent cycles, it is ₹1,00,000. In addition, the borrower’s total debt cannot be more than ₹1,00,000, and the loan period cannot be shortened to less than 24 months without incurring penalties for early repayment if the loan amount exceeds ₹15,000. Furthermore, the loan must be issued without collateral and must account for at least 50% of the total loans made by MFIs in order to be granted for the purpose of generating revenue. It is important to remember that the borrower may choose to return the loan in weekly, fortnightly, or monthly installments.
Benefits of NBFCs
NBFC has gained a great spike in growth graph in the past few decades owing to the wide range of benefits it offers as a business. Few of such benefits can be observed below:
Easy Loan
- Private non-bank financial institutions provide a simplified loan application process for individuals with low credit scores, informal income sources, or unconventional collateral. Unlike traditional banks, these NBFCs have lenient eligibility criteria and minimal documentation requirements, making approval quick and easy. They offer a practical solution for individuals seeking credit without extensive hurdles, particularly beneficial for entrepreneurs needing capital promptly.
Solutions in Budget
- Non-bank private financial institutions leverage streamlined operations and reduced regulatory obligations to offer competitive interest rates surpassing those of traditional banks. This allows them to transmit savings to customers through lower rates on business loans and deposits. Moreover, private sector NBFCs provide enhanced flexibility in repayment schedules and personalized loan options, catering to individual preferences. By harnessing operational efficiencies and regulatory advantages, private sector NBFCs foster an environment conducive to borrowers seeking cost-effective and flexible financing solutions.
Wide horizon of specialization
- Private sector NBFCs serve diverse market segments including MSME loans, housing finance, and vehicle financing, possessing deeper expertise and experience in these domains compared to banks. This expertise renders them more reliable partners in achieving your financial objectives. Furthermore, private sector NBFCs can deliver innovative and tailored solutions like peer-to-peer lending, digital platforms, and alternative credit scoring models, enhancing their ability to address unique financial needs effectively.
Confidentiality & Privacy
- Private NBFC companies often excel in providing enhanced privacy and confidentiality compared to traditional banks. They tend to serve a more select clientele and place a premium on discretion in their operations. This aspect can be especially advantageous for individuals who value the confidentiality of their financial matters. Smaller banks are known for prioritizing the protection of private information and offering heightened security for financial transactions and data.
Financial Inclusivity
- NBFC companies are enhancing their service accessibility and convenience for individuals, bridging gaps by catering to those often marginalized within the formal banking sector. Leveraging technology, they offer user-friendly solutions like web applications, mobile payments, and instant verification, simplifying financial transactions and broadening access to financial services. This technological advancement facilitates easier access for a wider spectrum of users, improving overall user experience and extending their reach to a diverse customer base. Consequently, private sector NBFCs play a pivotal role in enhancing financial access and convenience, particularly in underserved regions and for technologically adept applicants.
Challenges faced in NBFC Registration
There are certain challenges that entrepreneurs face in the NBFC business starting from the NBFC registration to NBFC Operation, few of which are as follows:
Extensive CompliancesThe compliances for the NFBC registration and operation is quite of an extensive list which becomes a challenge in the smooth sailing. The compliances part oftenly experience exhaustion in the Company which further slows down the operations.
Complex documentationThe documentation process for the NBFC Registration is a multi faceted process which asks for the delicate attention and efforts. As any fault in the documentation might make the registration process a bit challenging, and can also lead to non-compliance penalties.
Fervent Taxation regimeThe taxation system is quite fervent and complex when it comes to NBFC which becomes a challenge as the missing on Taxes leads to Income Tax Notice and therefore penalties. Therefore, professional services are required at many stages which are quite expensive.
Lack of FlexibilityThe NBFC is governed by rigid statutes which brings little or no space for flexibility whether it be in terms of taxes, compliances, etc. Therefore, the NBFC faces a series of challenges in terms of operation in comparison to other businesses.
Prerequisites for NBFC Registration
In order to register your company as an NBFC under the RBI Act 1934, there are following prerequisites to be fulfilled for the successful incorporation:
1:The company must be registered in accordance with the Company Act of 1956 defining that it satisfies all the requisites of that of a company.
2:The minimum net owned fund of the company shall be at least Rs 2,00,00,000. However, the minimum requirement for the specialized category like NBFC-MFIs, NBFC-Factors, CICs is different.
3:The minimum net asset owned under the company’s name must be at least Rs 200 Crores.
4:A five-year detailed plan to be drafted for the respective Company deemed to be registered as NBFC
5:Directors of the applicant organization must possess the necessary experience in banking and NBFC domains.
6:The company’s directors and shareholders must have good credit, and they must not have purposefully defaulted on loan payments to banks or NBFCs.
7:If an applicant company has received foreign investment, it must have conformed with the FEMA Act. All FDI from FATF member nations is permitted.
Documents required for NBFC Registration
For proceeding with the successful NBFC Registration Process, one must need following documents get prepared:
1:Company Incorporation Certificate under the Companies Act.
2:Detailed Brochure of the Company inclusive of management details
3:Company’s PAN and CIN [Corporate Identification Number]
4:Address Proof [electricity bill, Utility Bill, Lease Agreement (for rented property)]
5:Certified copy of Articles of Association (AoA) and Memorandum of Association (MoA)
6:Each Director’s Profile details along with affidavits.
7:All Directors’ credit score report
8:A copy of the board resolution certifying that the business has not engaged in or stopped conducting NBFC activity and won’t till the RBI grants registration.
9:Certified copy of the Board Resolution passed on the “Fair Practices Code”.
10:A certificate from the statutory auditor attesting to the fact that the business neither accepted nor holds the public deposit.
11:1. A certificate from the Statutory Auditor stating the amount of funds owned as of the application date is necessary.
12:Financial Documents pertaining to bank accounts, balances, loans, credits, bank statements, Income Tax Return Filing, etc.
13:An audited balance sheet, profit and loss statement, and the directors’ and auditors’ report for the three years prior [If applicable].
14:Information that includes projections for the balance sheets, cash flow statement, and income statement as well as the company’s future goal, usually for the next three years.
Note: the list can be extensive depending upon the type of NBFC chosen for registration
Process for NBFC Registration
Step 1:
The applicant may visit the RBI’s secured website for online application of NBFC Registration. The applicant need not to login into the COSMOS application at this stage, as the user ID is certainly not required.
Step 2:
You may now check on “CLICK” visible on the login page (of COSMOS Application). Download the suitable Form [NBFC or SC/RC] available on the side in the Excel Application. (i.e. from the above website, key in the data and upload the application form.
Step 3:
Now you must fill the form with correct information such as regional office name and address in the C-8 column of annexure for Identification Particulars. This will assist you in obtaining the CARN or Company Application Reference Number for COR Application filed.
Step 4:
Now you must also submit the Hard copy of the form filled with the CARN Details and other supporting documents to the regional office address.
Step 5:
The application will be subject to scrutiny and then will be granted the approval. Once the approval is being given, you will receive the certificate of incorporation.
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FAQs
How do I register as an NBFC?
You may register the NBFC through the official website of the RBI. First and foremost, you will have to register your company under the Companies Act, and then you can move forward with the application through the RBI Portal.
What is the cost of NBFC registration?
NBFC Registration costs fall between the slab of Rs 3,50,000 to Rs. 15,00,000 depending upon the nature of the company, and the professional fee charged to register.
What is the minimum capital for NBFC?
The minimum capital for the NBFC is required to be minimum Rs 2 Crores under the company’s name.
What is the eligibility of NBFC?
For being eligible for the NBFC Registration, you must have a board with one third of directors possessing the expertise in the said domain, at least Rs 2 Crore of capital under the company’s name.
Is it easy to start NBFC?
The process of NBFC to begin is not easy if one is doing everything on his own. However, the process does become easier with the help of professionals or experts dealing in the same market.
What are the types of NBFC?
On the base level, there are NBFCs categorized on the basis of Size, Liabilities, and activities. One the basis of Activities, there are two forms of NBFCs called NBFC-SI & NBFC-ND. On the basis of Liabilities, there are two types: Deposit Taking NBFCs & Non-Deposit Taking NBFCs. At last, on the basis of size, there are eight types of NBFCs such as Asset Finance Company (AFC), Investment Company (IC), Loan Company (LC), Systemically Important Core Investment Company (CIC-ND-SI), Infrastructure Debt Fund: Non- Banking Financial Company, Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI), Infrastructure Finance Company (IFC), and Non-Banking Financial Company – Factors (NBFC-Factors).
What are the documents required for NBFC Registration?
The list of documents includes MoA, AoA, Directors’ details like PAN, TAN, Affidavits, Company PAN & Tan, Utility Bills, Board Resolution, Bank statements, Tax Return Filing documents, financial documents like balance sheets, etc.