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Shalini Singh
| Updated: 28 Nov, 2019 | Category: NBFC

NBFC Registration – Know the Entire Incorporation Procedure

NBFC Registration-corpbiz

In the much-occupied work schedule of everyone, if someone falls short of money, We believe that Bank is the only source of loan and advances. The lending and borrowing procedure of the banks is very time-consuming and quite hectic and hence as an alternative we can opt for other lending sources like NBFC. Not all NBFCs accepts a deposit, another one being “Non-accepting deposits” does not accept deposits. Here, we will have a look at the detailed overview of the NBFC Registration procedure.

What is NBFC?

Non-Banking Financial Companies also popularly known as NBFC are engaged in various financial services such as providing loans, assisting credit facilities, assets financing, currency exchange, P2P lending and many more. Same as the banks, NBFC is the financial institutions which are registered under the Companies Act, 2013[1]. But the only difference between banks and NBFC is that NBFC does not require any license from RBI.

Banks are the mode of the traditional banking system where one can lend and borrow money on the same platform, but the entire process is time-consuming here. Through NBFC, you can avail these services without meeting the legal definition of a financial institution.

What are the types of NBFCs?

As per the Section 45-1 (c) of the RBI Act, a Non-Banking Company carrying on the business of a financial institution are considered as NBFC. The NBFCs are governed by the MCA (Ministry of Corporate Affairs) and RBI (Reserve Bank of India).

While some of the NBFCs do not require any registration form the RBI. These are listed below:

  • Nidhi Companies
  • Core Investment Companies whose assets are less than 100 Crore.
  • Merchant Banking Companies
  • Companies engaged in the business of stock-broking
  • Housing Finance Companies
  • Companies which are involved in the transaction of Venture Capital.
  • Insurance companies are having a certificate of registration issued by IRDAI (Insurance and Regulatory Development Authority of India).
  • Chit Fund Companies ( Section 2 clause (b) of the Chit Fund Act, 1982).

What are the different types of NBFC?

NBFCS are divided based on two parameters:

Nature of activity

  • Investment & Credit Company (NBFC-ICC)
  • Infrastructure Finance Company
  • Core Investment company
  • Micro Finance company
  • Housing Finance Company
  • Mortgage Guarantee Company

Basis of Deposits

  • Deposit accepting NBFCs
  • Non-Deposit accepting NBFCs.

What are the guidelines followed by NBFC?

The guidelines which an NBFC must follow are as follow:

  • Any NBFC cannot accept deposits which are payable on demand.
  • The public Deposits which can be taken by the NBFC can be for a minimum period of 12 months or one year and a maximum period of 60 months or five years.
  • The NBFC can not charge interest rate more than the ceiling period decided by the RBI.
  • The RBI does not guarantee the repayment of any amount so taken by the company.
  • Any change in the MOA of the company must be furnished to the Reserve Bank of India (RBI).
  • The NBFC needs to file the Form NBS-1 every year stating the statutory return on the deposits taken by the company.
  • The liquid assets of the company need to be furnished every quarter.
  • You need a certificate from the auditor stating that the company can pay back all the deposits or money accepted from the public.
  • The NBFC needs to provide the half-yearly ALM (Asset Liability Management) return on a Public Deposit of Rs. 20 Crore and above or assets worth Rs. 100 Crore and above.
  • The credit rating needs to be submitted after every six months to the RBI.
  • A minimum level of 15% of the Public Deposits has to be maintained by the Company in Liquid Assets.

Read our article:How Following NBFC Compliances Can Save You From Prison

What are the NBFC Registration Requirements?

Before the NBFC filing there are specific pre-registration requirements for registration of NBFC:

  • Register the Company as per Companies Act 2013
  • Arrange Capital of Rs. 2 Crore (Minimum capital requirement for an NBFC)
  • Create a Fixed Deposit of Rs 2 CR
  • FDI Compliance as per FEMA Act – In the case of foreign investment
  • Complete documentation for an NBFC license
  • Submission of necessary documents with FD receipt before RBI

Checklist of  Documents Required for NBFC Registration

  • Certified Copy of Registration Certificate

At first, you need to obtain a certified copy of Certificate of Incorporation (COI), MOA & AOA from the Regional ROC (Registrar of companies).

  • KYC (Know Your Customer)

You need to provide the updated KYC & Income proof of the Directors and Shareholders of the company that is to be registered.

  • Submit the Net worth Certificate

You need to submit the updated net worth certificate of the Directors, Shareholders of the Company that is to be registered.

  • Bank Report

Need to Obtain a Banker report about the no Lien remark on the Initial Fixed deposit of Rs 2 Cr.

  • Education Proof

Proof of educational/professional qualification of the directors of the Applicant company.

  • Credit report of Directors and Shareholders

Provide the latest credit reports of Directors and shareholders.

  • Experience in the Financial sector

Submit at least one Director’s profile with 10+ years’ experience in the financial services sector

  • Underwriting model

Submit a detail action plan about the loan products, fair practice code, credit and risk assessment policy.

  • Organisation Matrix

Need to provide organisations structure and decision-making process for approval/rejection of a loan application

  • System and IT Policy

Submit Information technology policy

Procedure for the Incorporation of NBFC

Step 1: Registration of the Company (Private Limited or Public Limited Company)

The first step while incorporating a company is to get it registered and getting the NBFC License.

Step 2 Business Plan and Documentation

Along with the documents, a detailed business plan consisting of various parameters of business such as capital induction, products, costing, expansion etc. shall be prepared

Step 3: Submit the application form

Submit the application form on the COSMOS (‘Cluster Of Systems of Metadata for Official Statistics’)

Step 4: Send the documents in physical form to the RBI

After the above procedures, the applicant has to send the hard copy of the documents and application form to the RBI. Furthermore, the applicant should also provide the Online Application Reference Number (ARN).

Step 7: Check the status of the application

You can track the application’s status by entering the company application reference number (ARN) on the COSMOS’ website.

Step 8: Issuance of the NBFC license

After performing all the above procedures, the RBI will issue the NBFC license, and the applicant can track their application status by entering the Acknowledgement number.

Final words

The NBFC Registration is a challenging procedure and requires the assistance of some professionals who has years of expertise. Also, the compliances of the NBFC also needs to be performed on a timely basis.

For any assistance regarding the NBFC registration, reach us at Corpbiz.

Read our article:Internal and Statutory Audits in Non-Banking Financial Companies: All You Need To Know

Shalini Singh

Shalini is a B.tech graduate but her keen interest in writing impelled her to continue as a content writer. Further, She has a rich experience in Companies Act and Ammendment related topics.

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