NBFC Registration in India

Overview of NBFC Registration

Providing financial facilities for business activity is the main goal of banking. The Indian financial system consists of an incredible network of banks and other investment and financial institutions that work together to provide a broad range of goods and services within a reasonably developed capital and money market. The banking industry in India is renowned for its attempts to liberalize the capital, money, and financial markets as well as for its forays into international commerce in reaction to changes in the world economy.

If a financial institution refrains from doing banking operations, it is known as a non-banking financial institution (NBFI). If financial institutions adopt a corporate structure as company registration. They are categorized as Non-Banking Finance Companies (NBFCs). Insurance companies and loan companies are also examples of residuary non-banking companies.

There are significant differences between banks and non-bank checking companies (NBFCs) when it comes to accepting demand deposits and issuing checks.

A Non-Banking Financial Company (NBFC) is defined as "A company registered under the Companies Act of 2013 or 1956 that is involved in the activity of loans and advances, acquisition of shares, bonds, stocks, securities, or debentures issued by Government or local authority or other marketable securities of a like kind, leasing, hire-purchase, insurance business, and chit business but does not include any institution whose main business is not in lending or financial services."

What is the NBFC Registration?

NBFC Registration can be obtained under the RBI Act of 1934 and the Companies Act of 2013. NBFCs are essential in executing the financial functions of our economy. Additionally, this corporate structure satisfies the banking industry's needs in the event that banks are unable to grant advances and loans but do not require a banking license.

Furthermore, accepting deposits in accordance with a set plan and arrangement is an NBFC's main operation. Through the donations, the same may be provided in one single payment or over time in instalments.

Additionally, the RBI regulates and oversees the activities of NBFCs in accordance with the guidelines outlined in the RBI Act of 1934. No NBFC may begin or continue its commercial activity without first obtaining an NBFC Registration Certificate, according to Section 45-IA of the RBI Act.

The certificate of registration issued by the RBI office gives the company the power to initiate its operations as NBFC. Additionally, the Apex Bank has streamlined the NBFC laws, making it far simpler than ever to get an NBFC license. An NBFC cannot accept demand deposits.

Advantages of NBFC Registration in India

The following are just a few of the many benefits of NBFC Registration

Offers credit options to those in need

NBFC provides a range of services to NBFC depositors, including credit and lending facilities, underwriting, retirement planning, currency exchange, and money market operations.

Provide wealth management services

NBFCs are able to provide wealth management services, such as stock and share portfolio management, as a part of NBFC regulation.

Underwriting-related services

NBFCs are able to underwrite stocks, shares, income from financial assets and associated liabilities. Additionally, NBFC offers its clients a simple way to apply for a fast loan.

Last Option for Borrowing

NBFCs provides services that banks do not. Because of their lower expenses, NBFCs are more lucrative, which lets them provide loans to customers at lower rates.

Trading in money market instruments

NBFCs provide the advantages of money market trading.

Fast functioning

The NBFC distinguishes itself from banks with its lightning-fast performance. NBFCs make it simpler to obtain a loan than banks do. Compared to NBFCs, banks have more paperwork and more restrictions.

Offers a variety of options for contacting the audience

As a result of technology advancements, NBFCs are able to offer a greater number of options for a speedier audience reach. NBFC offers a range of options for obtaining credit facilities, catering to the needs of both small and big businesses.

Robust rules and compliance

The strongest authenticity and trust in society are facilitated by the robust regulations and compliance framework.

Permitted FDI

One of the many wonderful advantages of NBFC registration is that it allows for up to 100% Foreign Direct Investment. The biggest forces behind the nation's financial inception are NBFCs. In addition, compared to banks, the funding procedure is simpler and speedier.

Low operating cost

It is clear that there is a lot of space for expansion after having particularly developed creative and economical business models that are powered by a technological foundation and low operating costs.

Legal protection for loan recovery

NBFCs are permitted to apply the SARFAESI statute, which sets a minimum loan size for debt recovery from its current level.

Loans to borrowers with bad credit

Before extending loans, banks often run credit checks. The bank denies the loan application if the applicant has a low credit score. NBFCs does, however, provide loans to those with lower credit scores.

Eligibility Criteria for NBFC Registration

With the exception of those specified by RBI rules, everyone wishing to create a non-banking financial organization must register with the Reserve Bank of India (RBI). Therefore, please review the following list of eligibility requirements before completing the NBFC registration process

• According to the Company Act of 2013, you have to register your business, whether it is a private or public limited company. Additionally, firms registered in accordance with the Companies Act 1956 regulations are also qualified.
• The company has to have its financial plans in place for at least five years.
• A high credit score, also known as a Credit Information Bureau (India) Limited or CIBIL score, is necessary.
• A company must fulfil the prerequisites for a net-owned fund (NOF).
• A company must have the bare minimum of assets.
• The company must abide by all FEMA (Foreign Exchange Management Act of 1999) regulations.

What are the Different Types of NBFCs?

Types of NBFCs based on their activity

Investment and Credit Company (IC): An organization that does finance, investment, asset financing, conventional lending, and digital lending. It is a finance firm that is officially registered with RBI as an NBFC (Non-financial corporation). Applying for an NBFC license in the category ICC allows you to carry several items, including personal loans, pay later, GST-based finance, and MSME financing.

Mortgage Guarantee Company: Licensed by the Reserve Bank of India, a Mortgage Guarantee Company (MC) is a subset of non-banking financial institutions that offers mortgage guarantee services to lenders, including banks, other NBFC categories, and housing finance firms. An MGC's main purpose is to reduce the credit risk connected with mortgage loans by offering the lender a guarantee for the loans' repayment in exchange for a fee.

Infrastructure Finance Company: Based largely on funding and promoting infrastructure projects in India, the Infrastructure Finance Company (IFC) is a specialist non-banking financial company. These businesses are essential to the growth and development of the nation's infrastructure industry, which encompasses industries like energy, telecommunications, urban planning, and transportation.

Non-Operative Financial Holding Company (NOFHC): It is a financial company that facilitates the establishment of a new bank by a promoter group of promoters. It is a fully owned NOFHC that, to the degree permitted by the relevant regulatory prescription, holds banks and other financial services firms subject to regulation by the Reserve Bank or other regulators of the financial sector.

Micro-Finance Company: The main objectives of microfinance are to encourage financial inclusion and provide economically disadvantaged people more power. An important component of India's financial inclusion initiative is microfinance. Interest rates are restricted by MI, and other loan-related fees are likewise subject to regulation.

Housing Finance Company: HFCs, or Housing Finance Companies, are a subset of NBFCs that are subject to National Housing Bank (NHB) oversight and Reserve Bank of India regulation. As a specialized regulatory body for housing finance companies, the NHB creates rules, policies, and prudential standards to guarantee the stability and safety of their clients and the ethical lending practices of these organizations.

Types of NBFCs based on their liabilities

NBFCs that accept deposits: At present time, the RBI is not accepting new licenses in this category.

Non-Deposit Taking NBFCs: There are two varieties: Type 1 (which does not have a customer interface) and Type 2 (which has a customer interface).

Entities not Considered as NBFC

The following entities are not regarded as NBFCs in India

• Agriculture Activity
• Purchase and Sale of any goods
• Industrial Activity, and
• Purchase/ Sale/ Construction of an Immovable Property

What is the difference between Banks and NBFCs?

Between banks and NBFCs (Non-Banking Financial Companies), there are a number of significant distinctions. Despite the fact that both organizations engage in financial activity and are subject to Reserve Bank of India regulation, the following are the main variations

Regulatory Authority

The Banking Regulation Act of 1949 establishes the Reserve Bank of India's (RBI) regulatory framework for banks. On the other hand, NBFCs are subject to RBI regulation under the Reserve Bank of India Act, 1934, as well as NBFC-specific standards.

Acceptance of On-Demand Deposits

The RBI has given banks permission to take public deposits that can be withdrawn at any time by the depositor. Demand deposits are often not accepted by NBFCs, with a few exceptions, such as NBFC-D (Deposit Accepting).

Lending and Borrowing

Lending and borrowing are operations that are undertaken by both banks and NBFCs. Nevertheless, banks may generate credit by filtering via personal or business banking, and they have a wider variety of lending options. For lending activities, NBFCs mostly rely on their own money, loans from financial institutions, or the issue of debt instruments.

Payment and Settlement Systems

Banks can directly use the National Electronic Funds Transfer (NET) and Real-Time Gross Settlement (RTGS) payment and settlement systems run by the RBI. To facilitate transactions, NBFCs usually leverage other payment systems or banking channels.

Deposit Insurance

Up to a certain amount, bank savings are normally protected by deposit insurance programs such as the Deposit Insurance and Credit Guarantee Corporation (DICGC). These deposit insurance plans do not protect NBFC deposits.

Prudential standards

Under RBI rules, banks are required to abide by a set of specified prudential standards, which include capital adequacy ratios, asset categorization criteria, provisioning requirements, and exposure limitations. Prudential standards apply to NBFCs as well, but they are less stringent than those that apply to banks.

Role and Function of NBFC in India

The following is a list of some of the specific roles and responsibilities of an NBFC

• Infrastructure development and growth
• Assistance in generating wealth
• Creation of significant employment
• Provision of financial support to the social segments of the population who are less fortunate financially
• Aids in economic growth and makes a significant contribution to the state coffers
• Long-term audit and specialized loan facilities are provided by NBFC, which also supports the expansion and development of the financial markets

Powers of RBI on NBFCs

The powers of RBI can impose the following powers on NBFC in India

• It oversees the NBFC process of registration, establishes the rules, regulations, and directives for NBFCs
• It oversees NBFCs to make sure they're following the RBI Act 1935's requirements
• It penalizes the NBFC for breaking the RBI Act 1935's rules and regulations, which may also lead to the NBFC License being revoked, suspended or stopped. NBFC activity can also be the result

Documents Required for NBFC License

The following paperwork has to be submitted in order to receive an NBFC license

• Information pertaining to management
• Certified copies of the Certificate of Commencement of Business and Certificate of Incorporation in the case of public limited companies
• Certified copy of the most recent articles of association and memorandum for the firm
• Information about the MoU's financial business provisions
• A copy of PAN/CIN for the business
• Each director's director profile has to be completed and signed
• A certification from the NBFC or NBFCs that the Directors worked with
• CIBIL data pertaining to the directors of the firm
• Board resolution declaring that without the Reserve Bank of India's prior written approval, the firm will not take any public deposits in the future and has not accepted any public deposits in the past (specify period) or as of the date
• An officially certified copy of the board decision that created the "Fair Practices Code"
• Statutory Auditors Certificate certifying that the business has or does not retain public deposits
• Statutory Auditors Certificate confirming the business's lack of involvement in NBFC activities
• Certificate from Statutory Auditors confirming the amount of money possessed as of the application date
• Information on the authorized capital of the business and the most current shareholding arrangement, including percentages
• Information on the authorized capital of the business and the most current shareholding arrangement, including percentages
• A copy of the receipt for the fixed deposit and a certificate from the bank stating that there is no lien on the funds that support the net owned funds
• Information on loan and credit facilities, bank balances, accounts, and the branch's complete mailing address, among other things
• The auditors' and directors' reports from the previous three years, an audited profit and loss statement and balance sheet, or for the shortest period of time (for organizations that are already established)
• A three-year business plan that outlines the company's (a) business strategy, (b) market sector, and (c) expected cash flow, asset/income pattern, and balance sheets without mentioning public deposits
• Supporting Documents for the company's original funding source
• Self Attestation of IT returns, bank statements, and so on

What is the process of getting an NBFC License with RBI?

The process of obtaining NBFC registration online as per the provisions of the RBI Act is mentioned below

• The most important first step is to incorporate as a company as per the Companies Act 2013
• The applicant must now arrange the Rs. 2 crore Minimum Capital Requirement in order to obtain an NBFC License
• Next, the applicant must open a Rs. 2 crore Fixed Deposit (FD) with any Nationalized Bank. Finally, if the applicant makes any foreign investments, they must comply with the Foreign Exchange Management Act, 1999 (FEMA)'s FDI Compliance provisions
• The applicant must next gather all the paperwork that NBFC needs to submit for getting a license
• Present the FD receipt together with all supporting paper works to the Reserve Bank of India, the Apex Bank
• The applicant must next proceed to the RBI's official website, cosmos.rbi.org.in, to complete the online application for NBFC Registration
• After that, download and complete the completed NBFC e-form from the website
• To monitor and follow the progress of the application form, the applicant must take note of the ARN (Application Reference Number) provided by the RBI
• Keeping a physical copy of the electronic form with the Application Reference Number on it is always advised
• The applicant must provide all of the Documentwork to the RBI Central office as the last step

NBFC Registration Requirements

In India, NBFC is registered with the RBI. Except for NBFCs that are not subject to RBI regulation, an NBFC is not permitted to do non-banking financial activities if it does not

• Possess Net Owned Funds of Rs. 2 crore
• Possess a certificate of registration from a bank

When starting a non-banking finance company, an NBFC that was formed under the Companies Act of 1956 or the Companies Act of 2013 must adhere to the following RBI guidelines for NBFC Registration

• It has to be registered in accordance with Section 3 of the Companies Act of 2013 or previous company law, stating that the company shall be formed in accordance with this section.
• It must satisfy the minimum criteria of Rs. 2 crores in net owned funds (NBFC-MFIs, NBFC-Factors, and CIC excluded).

The company's most recent audited balance sheet may be used to compute minimum net owned funds. The Total Owned Funds will be made up of Free Reserves, Paid-Up Equity Capital, Share Premium Account Balance, and Capital Reserve. In order to get Net Owned Funds, subtract Revaluation Reserves, Accumulated Loss Balance, and Intangible Asset Book Value from Total Owned Funds. The Net Owned Funds shall be reduced if any investment in shares of other NBFCs, debentures, subsidiaries, or group companies exceeds 10% of the owned funds.

Compliances for an NBFC after obtaining a Certificate of Registration

After receiving a Certificate of Registration (COR), an NBFC must comply with the following stated compliances.

Statutory audits, tax audits, income tax returns (ITRs), GST returns, ROC returns, and any further compliances and returns mandated by an appropriate body.

Rejection of Application for NBFC Registration

A NBFC is regulated by the RBI In India. Therefore, the following circumstances result in an application for NBFC Registrations being rejected by the RBI

The factors that contribute to this situation include

• Insufficient experience in finance
• Inappropriate director and shareholder profiles
• Unclear sources of funding
• Inexperienced NBFC consultants
• Unfavorable area of operation.

Penalty for the Non-Compliance as per RBI Regulations

The supreme authority, the Reserve Bank of India, has the right to fine operating NBFCs for breaking the terms outlined in the RBI Act. These sanctions include the following

• When a firm operates without a certificate of registration, the RBI has the authority to punish the defaulting NBFC up to Rs. 5 lakh, or even double the amount involved in the violation, whichever is more; the fine cannot be reduced to Rs. 1 lakh.
• Any commercial operations conducted without obtaining the certificate of registration constitute a criminal violation that carries a minimum one-year sentence.
• If the defaulting corporation continues to default, the penalty might be up to Rs 2,5000 each day from the first day of the default; if there is any other violation, the Reserve Bank could impose a fine of up to Rs 5,000.
• If the corporation violates any of the directives issued by the corporation Law Board, it will be fined at least Rs. 50 every day for the duration that the non-compliance persists, and it may get up to three years imprisonment.
• Failure to comply with any directive issued by the RBI by an auditor may result in a fine of up to Rs 5,000.

NBFC Registration Fees

Non-Banking Financial Companies (NBFCs) in India are required to pay registration costs that consist of many elements. The application fees for registering an NBFC generally vary depending on the kind of NBFC and the intended activities.

In addition, the overall costs paid throughout the registration procedure may include incidentals like stamp duty, compliance fees, legal consultations, and paperwork charges. It is important to remember that these costs might change in response to regulatory revisions. To ensure you get the most recent and correct information, it is recommended that you consult with NBFC experts at Corpbiz.

Why Corpbiz for NBFC Registration?

One of the platforms that works to meet all of your financial and legal needs and put you in touch with reliable specialists is Corpbiz. We can assist you with processing because we have years of experience in this area. We aim to make registering an NBFC as easy as possible since we are dedicated to giving you the best service possible. Additionally, our clients are always able to monitor the status of their registration on our platform. Our friendly team is available on call if you have any queries regarding the NBFC registration procedure. Corpbiz will make sure that you communicate with experts in a smooth and efficient manner.