Non-Banking Financial Companies (NBFCs)

NBFC Registration {Non-Banking Financial Companies (NBFCs)} play a crucial role in the financial sector by providing a wide range of financial services and products, excluding traditional banking services. They contribute significantly to the diversification and development of the financial ecosystem. NBFCs operate as financial intermediaries, catering to the financial needs of various sectors of the economy.

NBFCs are typically into the funding of:

  1. Construction equipments
  2. Commercial vehicles and cars
  3. Gold loans
  4. Microfinance
  5. Consumer durables and two wheelers
  6. Loan against shares etc.

 

Types of NBFCs on the basis of activities

Non-Banking Financial Companies (NBFCs) in India can be categorized based on their liabilities. The categorization is primarily centered around whether an NBFC accepts deposits or not. Here are the main types of NBFCs based on their liabilities:

  1. Deposit-taking NBFCs (NBFC-D):
    • These NBFCs are authorized to accept deposits from the public. They play a role similar to banks in mobilizing funds through deposit-taking activities.
    • Deposit-taking NBFCs are subject to prudential regulations and restrictions to ensure the safety of depositors’ funds.
  2. Non-Deposit Taking NBFCs (NBFC-ND):
    • NBFCs falling under this category are not allowed to accept deposits from the public. They primarily rely on other sources of funding, such as loans, borrowings, and other financial instruments.
    • Non-deposit Taking NBFCs are further categorized based on their core activities. Common categories include NBFC-ND (Asset Finance Company), NBFC-ND (Loan Company), and NBFC-ND (Investment Company).

Types of NBFCs based on activities

  1. Asset Finance Company (AFC): AFCs primarily engage in providing at least 60% finance of its total assets for the acquisition of physical assets to support an economic activity such as machinery, tractors, drilling(lathe) machine, equipment, and vehicles. Example: Shriram Transport Finance Company Limited (STFC), Mahindra & Mahindra Financial Services Limited (MMSFL).
  2. Investment Company (IC): ICs invest in various financial assets like stocks, bonds, and securities. They are not allowed to engage in lending activities. Example: ICICI Prudential Mutual Fund, SBI Mutual Fund.
  3. Loan Company (LC): LCs means any company which is financial institution carrying on its principal place business providing loans or advances for any activity other than its own but does not include Asset Finance Company. They may offer personal loans, business loans, or other types of credit facilities. Example: Muthoot Finance Limited.
  4. Infrastructure Finance Company (IFC): IFCs specifically cater to the funding requirements of infrastructure projects such as roads, bridges, and power plants. Example: IDFC Limited.
  5. Systemically Important Core Investment Company (CIC-ND-SI): These companies are considered systemically important due to their significant role in the financial system. They primarily make long-term investments in the equity of other NBFCs. Example: HDFC Limited.
  6. Microfinance Institution (NBFC-MFI): MFIs focus on providing financial services, particularly small-ticket loans, to low-income individuals and microenterprises. Example: SKS Microfinance (now Bharat Financial Inclusion Limited).
  7. Non-Operative Financial Holding Company (NOFHC): NOFHC is a type of company through which promoter/promoter group will be permitted to set up a new bank and that holds financial subsidiaries and is regulated by the Reserve Bank of India (RBI). Example: Paytm holds Paytm Payments Bank Limited .
  8. Peer-to-Peer Lending Platforms (P2P): P2P platforms act as intermediaries, connecting borrowers with lenders online for unsecured loans. Example: Faircent, Lendingkart, Liquiloans, Bajaj Markets etc.
  9. Account Aggregator (NBFC-AA): Account Aggregator NBFCs are license from RBI to help individuals securely and digitally access and share their financial information from various institutions. Think of it as a central hub for all your financial data, allowing you to easily manage and share it with authorized institutions without going through each one individually. Example: Phone Pay, Paytm, Truecaller etc.

 

nbfc registration

Documents Required for NBFC Registration

The documents required for NBFC registration in India can vary depending on the type of NBFC you want to register as and the specific regulations applicable to that category. However, here’s a general overview of the key documents you’ll need:

Mandatory Documents:

I. Company Incorporation Documents:

  1. Certificate of Incorporation.
  2. Memorandum of Association (MoA) and Articles of Association (AoA).
  3. Proof of registered office address.

II. Business Plan:

  1. Detailed business plan outlining your proposed activities, target market, financial projections, and management team.
    1. Proof of meeting the minimum capital adequacy requirements for your chosen NBFC category.

III. Capital Adequacy:

  1. Audited financial statements of the promoters or group entities for the past 3 years (if applicable).

IV. Management and Promoters:

  1. KYC documents of Promoters and Directors (PAN card, Aadhaar card, address proof, etc.).
  2. Educational qualifications and professional experience of the management team (at least 1/3rd of directors shall have banking experience.
  3. Creditworthiness and track record of promoters and key personnel.

V. Compliance Requirements:

  1. No-objection certificate (NOC) from relevant authorities (if applicable).
  2. Declaration of compliance with applicable laws and regulations.

Additional Documents (may be required depending on the specific NBFC category):

  1. Financial Projections: Detailed financial projections for 3-5 years.
  2. Risk Management Framework: Robust risk management framework outlining risk identification, assessment, and mitigation strategies.
  3. Credit Rating: Credit rating report from a SEBI-registered credit rating agency (for specific categories).
  4. Technology & Operations Infrastructure: Details of your technology infrastructure and operational set-up.
  5. Anti-Money Laundering (AML) and Know Your Customer (KYC) Policies: Comprehensive AML and KYC policies and procedures.

 

Procedure to Register NBFC in India

Registering a Non-Banking Financial Company (NBFC) in India involves a series of steps and compliance with regulations set by the Reserve Bank of India (RBI). Here is a general procedure for registering an NBFC:

Step 1: Company Incorporation:

  • Register a company with the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013.
  • The company must be registered as a Public Company.

Step 2: Minimum Net Owned Fund (NOF):

  • Ensure that the company has a minimum Net Owned Fund (NOF) as per RBI guidelines. NOF is the net amount after deducting outside liabilities from the owned fund.

Step3: Application to RBI:

  • Prepare a detailed business plan and submit an online application to the Regional Office of the RBI through the COSMOS platform.

Step 4: Submission of Documents:

  • Submit the necessary documents along with the application. These may include:
  • Certificate of Incorporation
  • Business plan
  • Information about the promoters and directors
  • Audited financial statements
  • KYC documents of directors and shareholders
  • NOF certificate from a Chartered Accountant

Step 5: Due Diligence:

  • RBI conducts a thorough due diligence process, which may include site inspections and background checks on the promoters and directors.

Step 6: Board Resolution:

  • Pass a board resolution stating the company’s intention to carry on NBFC activities.

Step 7: Minimum Capital Requirement:

  • Ensure that the company has the minimum capital requirement, as specified by the RBI.

Step 8: Compliance with Prudential Norms:

  • Comply with the prudential norms prescribed by the RBI for asset classification, income recognition, and provisioning.

Step 9: Issuance of Certificate of Registration:

  • Once the RBI is satisfied with the application and due diligence, it will issue a Certificate of Registration.

Step 10: Post-Registration Compliance:

  • After registration, comply with ongoing reporting requirements and regulations set by the RBI.

I want to Register an NBFC that can provide Loans for any activity, so which type of NBFC should I Register?

If you wish to register an NBFC that provides loans for any activity and falls under the Non-Banking Financial Company – Non-Deposit Taking (NBFC-ND) category, the specific category you should consider is “NBFC-ND (Loan Company).”

The NBFC-ND (Loan Company) category is suitable for companies that primarily engage in the business of providing loans and advances. This category allows you to focus on lending activities without accepting demand deposits. It’s important to note that within the NBFC-ND category, there are different types such as Asset Finance Company (AFC), Investment Company (IC), and Loan Company (LC).

For your specific purpose of providing loans for any activity, the NBFC-ND (Loan Company) registration would be most applicable.

What is the net owned fund requirements to start NBFC-ND (Loan Company)?

The minimum Net Owned Fund (NOF) requirement for an NBFC-ND (Loan Company) is INR 10 Crores. This figure aligns with the regulatory capital requirement set by the Reserve Bank of India (RBI) for companies engaging in lending activities as Non-Banking Financial Companies.

Why should I choose Vakilkaro to register NBFC?

I. Expertise and Experience:

Vakilkaro’s legal experts in handling NBFC registrations. Look for information about their background, qualifications, and success stories in this specific area.

II. Regulatory Knowledge:

Vakilkaro has a deep understanding of the regulatory framework for NBFC registration in India. This includes compliance with guidelines set by the Reserve Bank of India (RBI).

III. Transparent Processes:

Vakilkaro is one of the service provider that communicates transparently about the registration process, associated costs, and timelines. Understanding the steps involved can help you make informed decisions.

IV. Customer Support:

Vakilkaro have the robust customer support from registration to its legal compliances. A reliable support system is most important factor during the registration process.

V. Cost Structure:

Our Charges are very transparent and there are no hidden fees and that the pricing is competitive.

VI. Comprehensive Services:

Vakilkaro offers a comprehensive range of services related to NBFC registration in Maharashtra, including document preparation, submission, and ongoing compliance support.

VII. Legal Compliance:

Vakilkaro emphasizes legal compliance throughout the registration process and provides guidance on maintaining compliance post-registration.

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