NBFC Registration

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Overview of the NBFC

NBFCs are considered companies registered as per the Companies Act 2013 and necessitate RBI approval before they can offer financial services. This is amid the fastest-rising business.

NBFC refers to Non-Banking Financial Company. It has a wide range of financial activities, including lending (secured & unsecured), marketplace loans, investments, service providers, and information services. NBFCs differ from Commercial & Cooperative Banks. It is not necessary to obtain a Bank License. But they are required to comply with the Rules & Regulations of Reserve Bank of India.

Reserve Bank of India (RBI) controls the Non-Banking Financial Companies in India. It ensures that these companies comply with Section 3 B of the RBI Act of 1935. Non-Banking Financial Companies raise funds from lenders & depositors and then lend it out to their customers. Also, keep in mind the lengthy registration procedure for NBFCs.

Non-Banking Financial Companies are companies that connect investors, or depositors, with borrowers. By offering financial services in the unorganized segment of the populace, these companies are considered a viable alternate to traditional banks.

The main purpose of an NBFC is to provide financial services. These include lending, stocks and bonds investments, debentures (bonds), leases, purchase of hire-purchases or rentals, marketplace loan businesses, insurance, financial information providers such as NBFCAA, chits business, and deposit receiving. Before an NBFC's license can be extended, the NBFC must fulfil certain requirements:

The financial sector accounts for over 50% of total assets
Financial assets should generate more than half of gross income

Restricted Activities

Agriculture Activities
Industrial Activity
The sale besides the purchase of goods in addition to services
Sales or purchases of movable properties

A second option is to take over existing NBFCs. It is best to purchase a newly registered NBFC.

Market size of NBFCs (Non-Bank Financial Companies) in India

NBFCs have been a fast-growing industry. In India, there are many banks. However, certain areas are not banked. This increased the demand for NBFC loans and ultimately led to more NBFC registration. NBFC incorporation has boomed in the last few years. It plays a vital role in the growth of the Financial Sector. This is due to the availability of customized loan products and policies, quicker processing time, digital reach, improved technology, and a more customer-friendly approach.

Non-Banking Financial Companies – NBFCs – hold a large share of the banking market and have other products related to it. They are similar in business to banks but don’t provide as many services. NBFCs have the option to borrow from either public or indirect sources, and they can lend freely. We are confident that NBFCs will grow despite slow growth due to the advanced technology used by these financial companies.

Points	NBFCs	Banks
Meaning	NBFCs provide banking services to people without holding a Bank license	A bank is a government-authorized financial intermediary that aims to provide banking services to the public.
Regulated Authority	Companies Act 2013 & RBI Act, 1934	Banking Regulation Act 1949
Demand Deposit	NBFCs cannot accept demand deposits	Banks can accept demand deposits
Foreign Investment	In the case of NBFCs, foreign investment is 100% allowed	Foreign investment is allowed up to 74% for private sector banks
Payment & Settlement System	Not a part of the system	An integral part of the system
Maintenance of Reserve Ratios	Not required in case of NBFCs	Banks have to maintain reserve ratios
Deposit Insurance Facility	Not Available	Available
Credit Creation	NBFCs do not create credit.	Banks create credit

Types NBFC

There are two types of NBFCs:

Basis of Liability

All NBFCs ND whose assets total at least Rs. 500 crores and above as per last audited account is considered as a Systemically important NBFC.
The assets collective of the group companies
NBFC-ND-SI is required to follow the RBI's policies but are relieved from Credit Concentration Norms.
NBFC-ND-Non SI is exempted from observing Prudential Norms, 2015 (except Annual Certificate)

On the Basis of Activities:

NBFC Investment and Credit Company (NBFC ICC)

It's a sort of NBFC which is involved in both lending activities and investment activities. Three categories existed previously, but they have been merged for greater flexibility. Investment and Credit Company [Asset Finance Company plus Loan Company + Investment Company]

NBFC Infrastructure Finance Company

A private company should have at least two directors. Only individuals can be appointed as directors. If a new company is registered by two or more existing companies or LLPs, individuals can be nominated as directors by the promoter company or LLP. To become a director, an individual must have a valid Director Identification Number (DIN). It is important to note that GST registration is mandatory for any private company in India if the annual turnover exceeds Rs. 20 lakhs.

NBFC Infrastructure Finance Company

This type of institution is primarily involved in lending for infrastructure.

Systemically Important Core Investment Company

Ses primary activities include debt, loans and equity investments.

Infrastructure Debt Fund - NBFC (IDF - NBFC)

The primary focus of NBFC IDF's activities is the facilitation and flow of long-term credit to infrastructure.

NBFC Micro Finance Institution

NBFC MFI is a credit institution that was established primarily in order to provide loans to groups who are economically disadvantaged.

NBFC-Factor

Assignors are one of their main business activities. You can extend discounted loan on the basis that the receivables are secured.

Non-Operative Financial Holding Company

Promoters/ promoters' groups will be assisted in setting up new banks

Mortgage Guarantee Company

Mortgage Business Guarantee

The NBFC account aggregator (NBFCAA)

Gathering information and presenting it to the customer in a structured, organized manner that allows the customer and others specified by him/her.

NBFC-Peer To Peer Lending Platform (NBFC-P2P)

The platform allows online lenders and borrowers to communicate to mobilise funds

Non-Banking Financial Companies

NBFC Registration is important if you want to do finance in India. The NBFCs are able to contribute to India's economic growth in this manner by providing loans with both to rural and urban areas. They can also set the interest rate for any loans. They can do this by following RBI guidelines.

The Functions of NBFC are As follows:

Offering customized loans
The digital platform will provide advanced loans
Loans processed faster
Employment generation
Wealth creation
Infrastructure development
In order to boost economic growth, financial assistance should be provided to those who are economically disadvantaged.

NBFC Registration: Benefits

You will benefit from NBFC Registration in these ways:

Gives Needy Access to Credit Facilities

NBFC provide a wide range of services including loan and credit facilities, Retirement Planning and Planning, Currency Exchange and Money Markets, Underwriting as well as many others.

Offer Wealth Management Services

You can offer services such as managing portfolios of stocks and shares.

Services related to Underwriting

They can also guarantee obligations related to stock and share transactions. NBFCs provide a flexible option to customers who want a quick loan.

Borrowing Last Resort

NBFCs can provide services not offered by banks. A lower rate of interest is possible because NBFCs have lower costs.

Trading In the Money Market

Trading Money Market Instruments Through NBFCs: Benefits

Quick In Functioning

NBFCs operate so fast that they are able to separate themselves from banks. NBFCs make loans easier than Banks. The banks require more paperwork and are more rigid than the NBFCs.

Offers Different Options for Reaching Audience

The technology has allowed NBFCs to reach a larger audience quicker through the use of multiple communication channels. NBFCs provide credit options to large companies and smaller businesses.

Compliance with Stringent Regulations

Because of the strict regulation and the compliance system it is possible to maintain the trustworthiness and the authenticity amongst the public.

Allowed FDI

As an added benefit, NBFCs can offer 100% Foreign Direct investment. NBFCs play a major role in initiating financing into the country. Banks offer a faster, simpler and more rapid financing process.

High Operating Cost

Growth opportunities are abundant.

Recovery Of Loans Under Law

SARFAESI provides NBFCs with the option to determine a debt minimum that can be recovered by cutting their current loans.

Loans on Credit Cards for People With Low Scores

With banks, the usual practice is to verify your score. A bank can reject loan requests if they have low credit scores. Credit ratings are not a problem for NBFCs.

Registration of NBFCs: Pre-requisites

Section 45 IA (of RBI Act, 1934) states that in order for an NBFC to be registered they must comply with certain conditions.

Registrar of Company

Companies Act of 1956, or Companies Act 2013, must be used to register a business.

Director Experience

If you want to be licensed as a NBFC, your directors should have some experience with financial matters.

A five-year business plan

It must cover five years and be comprehensive.

Minimum requirement of net owned fund (NOF)

The company requesting the grant should have at least Rs. It must also be taxed. According to an increased price for goods, the real GDP and the regulator's opinion, entry-point standards are proposed to be raised up from Rs2 Crores to Rs20 Crores. Appropriate instantly for new registration though, present may be given time, say 5 years.

Qualifying Capital Test

The RBI performs quality checks on capital to make sure that it does not break any laws.

Card Information

The credit score of each party is equally important. Included in this are directors, company shareholders and other parties.

Quality Of Capital

If a company is seeking a licence, it must adhere to the licensing requirements.

FEMA conformances

If a company is seeking to invest in foreign capital, it must be compliant with the FEMA Act. FATF countries can invest in foreign capital at 100%.

Checklist Documents Required to Register an NBFC

Certificate of Incorporation (COI), MOA, and AOA
Certificates of Director, Shareholders’ & Company's Net Worth
Qualification Documents for Proposed Directors
The Higher Experience Certificate
Directors and shareholders: a look at their business profiles
Credit Report to Directors and Shareholders
KYC, including the PAN number and GST number of the business, are required for the identification of the company.
2 Cr must have been deposited as NOF. The deposit of 2 crores must be made as NOF
Examined balance sheet of preceding 3 years or since the date of incorporation
Related Party Disclosure
What is the Income Tax return?
Banker's Report affirming that no lien exists on fixed deposits
How to format the resolution of the NBFC Board on registration
The Underwriting Model - A detailed action plan for the next five years, including Fair Practice Codes and a risk assessment policy
The Business Structure and Loan Structure
IT Policy

Registration Process for Non-Bank Financial Companies

To register your NBFC, please follow the steps below:

An experienced NBFC Registration consultant, with at minimum 10 years experience, is a wise choice. A team of professionals, including CAs or CSs as well as senior bankers and lawyers should be assembled.
List a Private Limited or else Public company
The registered office of your business and the area in which you operate
Contact the Registrar of Companies for a certificate of incorporation
You can open a business account at a local bank and deposit your own net money.
Documentation necessary to file for NBFC licensure
Creating a Business Plan for the Next Five years consisting: 1. The Executive Summary , 2. Planned Products, 3. Loan Model, 4. Risk Model, 5. Peer Analysis, 6. SWOT Analysis, 7. Financial Projections
Registration with RBI is required under the RBI Act of 1934.
The applicant company must submit an online request to RBI through its website
A CARN number is given to the applicant.
You will then need to deliver the two hardcopies to your local RBI office.
Regional offices must verify the accuracy of documents.
The regional offices will send the registration form to the central office.
RBI only grants NBFC registration when the applicant meets Section 45 IA requirements.
NBFC must wait six months to start operations after receiving the Certificate of Registration

Provisions for Penalties in the Case of Non-Compliance with RBI Regulations

There are penalties if RBI Regulations have not been followed.

NBFCs Cannot Carry Out Activities Without An RBI Certificate Of Registration Fines between Rs. Between Rs.
Non-Compliance Of RBI Directions Maximum 3 year prison sentence
Failure to answer or provide any documentation - The maximum fine is Rs. In the case of a continuous violation, a further fine may be imposed up to Rs. A daily fine up to Rs.
Acceptance of deposits - You could face up to 3 years imprisonment and fines that are two times the amount.

FDI in NBFC

If they participate in one or more of the following, then NBFCs will be eligible to receive 100% Foreign Direct investments under this automatic route. But the capitalization criteria must still be met.

1. Merchant Banking, 2. Underwriting, 3. Portfolio Management Services, 4. Investment Advisory Services, 5. Financial Consultancy, 6. Stock Brokerage, 7. Asset Management, 8. Venture Capital, 9. Custodian Services, 10. A Factoring, 11. Credit Rating Agency, 12. Licensing Financial Leases, 13. House Finance, 14. Forex Banking, 15. Credit Card Business, 16. Cash Changing Businesses, 17. Micro Credit, 18. Rural Credit

NBFC License Cancellation Cases

RBI can cancel NBFC licence on following grounds:

NBFC licenses can be revoked if there is insufficient experience with finance.
Unsatisfied with Directors' & Shareholders' business profile
It's not a good business plan
Investments arranged through prohibited sources
NBFC consultants are not experienced
It can be hard to find a place for NBFC operation.

Mandatory Compliances Following NBFC License from RBI Before the start of business

After registration, and before any business activities begin, certain types of compliances must be met.

NBFC is required to apply:

Registration with four credit agencies CIBIL Equifax Experian Equifax ICRA
Central KYC
Registration for CERSAI
FIU-IND Registration
Fair Practice Code: Adoption
National E-Governance Register
Adoption of IT Policy and Anti Money Laundering Policy
Information Utilities: Financial Information Submission

NBFC Annual Compliance

Following registration as per above, the NBFCs will need to adhere to these regulations each year.

Annual return filing with the RBI
Annual Returns, Financial Statements
Tax File - Income Tax returns and GST Returns

RBI Proposes a Scale Based Approach to Regulating

The NBFCs shall be divided in four distinct layers including Base, Mid and Upper. This will depend on the different criteria (such as the size, the interconnectedness of the NBFC to the whole system, etc.). The scale based method can be visualised as a pyramid by the base layer being exposed to the least regulation and the highest layer facing the greatest stringent regulations.

According to the system based on scale, NBFCs are classified into four layers: Base Layers(BL), Middle Layers(ML), Upper Layers(UL), and Top Layers.

Base Layer - This layer would consist of 97% NBFCs. They would also comprise P2P Lenders as well as Account Aggregators, NOFHCs then Type 1 NBFCs.
Middle Layer NBFCs - would be NBFCs whose assets are greater than Rs. 1000 crores. HFCs IFCs IDFs SPDs CICs.
The Top Ten NBFCs - would be included in the Upper Layer, as well as any other NBFCs selected based upon criteria like size, leverage and assets/liabilities of financial system.
RBI believes - that the Top Layer should be empty. This layer could be populated by RBI if it believes the risk of spillovers to the Systemic Layer from specific NBFCs has increased in an unsustainable manner. These NBFCs will be encouraged to the Top Layer. Capital charges in addition Capital Conservation Buffers would be augmented for these NBFCs.

RBI2021, A Change of Base Level

Current regulations demand that assets exceeding 180 DPDs are classified as NPAs. In line with other regulatory requirements applicable to NBFCs it was proposed that this be reduced to 90 DPDs.

The board must have a minimum of -

1. Minimum experience and qualification

2. A director must be able to demonstrate retail lending expertise with a bank, NBFC or other financial institution.

Risk Management Committee

1. Current Asset Value of Rs. 100 crores

2. The board can determine the composition of its executive and/or advisory boards.

3. After guidelines are approved all banks will follow the exact same regulations when it comes to selling distressed assets.

4. Additional disclosures regarding types of risk, parties concerned, complaints by customers, and other matters related shall be required

Fintech Fintech-based Non-Bank Financial Companies: A Business model that Benefits

This integration will have a positive affect on the system. There are many advantages to this.

You can get online loans.
Artificial Intelligence and Machine Learning reduces fraud.
Financial Inclusion App
Solving customer problems with technology
By disrupting the conventional business model and its legal issues, we can create space for a new online banking alternative.

NBFCs Must Register to Use Our Services

Please use the following steps to safely and legally integrate a NBFC and gain the benefit of better quality sales and satisfied customers. Our specialists are here to guide you through the NBFC Licensing process in India. We will ensure your company runs smoothly. As experts, we will ensure that you can plan efficiently at the least cost.

A lawyer with experience in NBFCs is highly recommended to assist you. To begin, you will need to provide the necessary information. After you've paid and provided all necessary information, the attorney who will handle your case will be in touch.

Why Choose Us?

You can find all the services you require at our platform. Professionals in law and finance are available to help you. It is! Clients have consistently rated us well because of our focus on simplifying legal requirements. The firm also provides regular updates.

Our platform allows clients to track their progress live. No matter what questions you may have about the NBFC's registration process, we can help. Communication between you and professionals is smooth.