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.
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.
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.
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
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
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
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.
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.
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
Powers of RBI on NBFCs
The powers of RBI can impose the following powers on NBFC in India
Necessary Papers Required for NBFC License
The following paperwork has to be submitted in order to receive an NBFC license
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
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
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
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
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
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.
Frequently Asked Questions (FAQs)
Firstly, submit the filled application form with a certificate of company incorporation and MOA/AOA, along with other relevant necessary papers, such as the last audited balance sheet, etc., to the concerned authorities.
The registration process for NBFC will include the following
- A minimum of two crores of net-owned fund.
- A financial background is required for one-third of the company's directors.
- The business must have a decent CIBIL score.
- It is necessary to comply with FEMA standards and capital compliance criteria.
When a company's financial assets are more than 50% of its total assets, and its revenue from financial assets exceeds 50% of its gross income, it is regarded to be involved in financial activity as its major business. If a firm meets both of these requirements, RBI will register it as an NBFC.
Chapter IIIB of the RBI Act states the provisions for non-banking institutions that are receiving deposits.
When applying for a personal loan, NBFCs demand fewer necessary papers than banks do. Personal loans are available from several NBFCs in less than a day.
Yes, in every situation involving the purchase or transfer of stock representing at least 26% of an NBFC's paid-up equity capital, prior permission from RBI would be necessary.
A Nidhi Company can be converted to an NBFC. To complete this conversion, the Nidhi company must get the required licenses from the Reserve Bank of India (RBI) or other regulatory organizations and adhere to the rules for regulating NBFCs.
Core Investment Companies are free from RBI registration if their assets are less than ₹ 100 crore or if their assets exceed ₹ 100 crore, but they do not use public funds.
These firms cannot conduct business as non-banking financial institutions as defined by Section 45-I (a) of the Reserve Bank of India Act, 1934, after their registration certificate has been revoked.
Public deposits may be accepted or renewed by NBFCs for a minimum period of 12 months and a maximum of 60 months. Refundable deposits are not accepted by them.
No, NBFCs cannot accept deposits.
Yes, NBFC is a company registered under the Companies Act 2013 that is involved in the business of loans and advances.
Consumer loans, including house, auto, and personal loans, are offered by NBFCs. These loans are usually approved more quickly than conventional bank loans and are tailored to the borrower's financial needs.
A non-banking financial company incorporated under the Companies Act, 2013 or previous Companies Act is a company.