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NBFC Registration

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Process of Registration

Online Application

An online application is made in the prescribed format, with the information regarding the demanded documents and enclosures which in return will generate a company application reference number.

 

Documents submission

A hard copy of the above-mentioned application along with the demanded documents and enclosures is submitted, to the concerned regional office of RBI.

Documents to the central office of RBI

After the verification and the approval of the submitted application and the documents, the regional office sends the application to the central office of RBI, which performs a crucial examination of the said application, to grant the certificate.

Certificate Granted

If the terms and conditions under section 45-1 A of the RBI act, 1937 are fully satisfied, then the Certificate will be granted.

 

What is a NBFC?

NBFCs are institutions that offer financial assistance and various banking services but do not have a banking license. They are not the same as both “Cooperative and Commercial” banks, they are not required to hold a financial permit however, they should carefully follow the standards and guidelines given by RBI from time to time. NBFCs, most usually, work in the field of industrial and commercial loans, hire-purchasing, investment funds, deposits, debentures, chit fund business, leasing, insurance business, instruments of the capital & money markets like “bonds, stocks, and various other similar activities.” India’s financial division has demonstrated steady development if we go as far back as two decades. The NBFC part of this sector has changed immensely in the course of recent years. What’s more, NBFCs have been at the forefront in driving new credit disbursals for the nation’s underserved retail and MSME market. An NBFC License must be taken from RBI under section 45-IA of the RBI Act, 1934. The budgetary foundation wishing to be enlisted as an NBFC must be appropriately enrolled either according to the Companies Act, 2013 of companies Act, 1956. RBI carefully directs and guarantees that the NBFCs are complying with the arrangements and guidelines given in “Chapter III B” of the RBI Act. The principal business activity of NBFCs is to raise capital from the open contributors and financial specialists and lend these further to the borrowers. NBFCs are the scaffolds that connect the investors or depositors with the borrowers. They act as a much better option, in contrast to the banking sector, as they provide giving monetary solutions to the unbanked and backward sections of the society.

Principal Business

The precise meaning of a “Principle business” has not been defined by the RBI Act. Therefore, RBI, in an attempt to bring clarity, has defined financial activity. It has defined that the principle business will be considered as a financial activity only if the company fulfills the following conditions::

  • It’s Total Assets include more than 50% of the financial assets.
  • Income from financial resources establishes more than 50% of the gross income.
    This is also known as the “50-50” criteria.

But the following activities are not considered of being financial in nature:

  • Agricultural activity,
  • Industrial activity,
  • Purchase/sale of any goods and services (excluding securities), and
  • Sale/purchase/construction of the immovable property.

How NBFCs are Different from Bank

Both NBFCs and Banks are involved in financial activities but some features are different among both of them, like:

  • Acceptance of Deposits.
  • Cheques were drawn on itself.
  • Being a part of the payment and settlement system.
  • The facility of insuring Deposits, available with Deposit Insurance and Credit Guarantee Corporation. Applicable only to bank deposits.

Types of NBFCs

NBFCs have been broadly classified on the following basis:

Liabilities:

  • The deposit accepting NBFCs and
  • Non-Deposit accepting NBFCs, (Non-deposit taking NBFCs are classified further as per their size:)
  • systemically important (NBFC-NDSI) and
  • others

Activities:

  • Factors
  • Mortgage Guarantee Companies
  • Investment Credit Company
  • Infrastructure Debt Fund
  • Micro Finance Institution
  • Non-Operative Financial Holding Company
  • Systemically Important Core Investment Company

Application for an NBFC License can be made in any of the following classes:

  • Non-Banking Financial Companies – Factors (NBFC-Factors): These are NBFCs that have factoring as their principle business activity. Factoring is a financial transaction. A sort of borrower finance wherein anyone can sell their invoice or bills (accounts receivables) to an outsider (NBFC-Factor) at a rebate. It is usually known as bill discounting or invoice financing.
  • Non-Banking Financial Companies – Mortgage Guarantee Companies (NBFC-MGC): NBFC-MGC must be enlisted with RBI as a Mortgage Guarantee Company. It’s principle business is that of providing a mortgage guarantee. This guarantee is provided for repaying an outstanding housing loan and interest accrued on it, up to the guaranteed amount to a creditor institution, when a trigger event happens. The minimum NOF requirement and financial asset criteria are different for this kind of NBFC.
  • Non-Banking Financial Companies – Any financial organization whose primary business is- Asset finance belongs to NBFC-ICC. The finance is provided by loans/advances or otherwise, for any activity other than it’s own and acquiring securities. It’s activities must not fall under some other category defined by the RBI.
  • Non-Banking Financial Companies – These kinds of Companies put resources into the debt securities of infrastructure companies or public-private association projects, which have a minimal NOF of Rs.300 crores. The principle business and rating necessities are also extraordinary for such NBFCs.
  • Non-Banking Financial Companies – Microfinance Institution (NBFC-MFI): A non-deposit taking NBFC, lending money on a momentary premise to low-income groups in India, with at least 85% of it’s assets, but the borrowers must fulfill a couple of conditions:
    • The loan provided to a debtor with a “Rural Household” with an annual income of less than Rs.60,000, or in case of an “Urban and Semi-Urban Household”, the annual income must not be more than Rs.1,20,000.
    • The amount of lending should not exceed more than Rs.35,000 in the primary cycle and Rs.50,000 in every consequent cycle.
    • The absolute commitment of the debtor should not exceed Rs. 50,000.
    • In the event that the sum is more than Rs.15,000, then there must be an advance term of at least two years, with prepayment and without any penalty.
    • loan to be extended without any mortgage,
    • The aggregate of loans provided for income generation must not be under 75% of the absolute credit given by the MFI,
    • The frequency of repayment, whether “weekly, fortnightly, or regularly” should be selected by the debtor.
  • Non-Banking Financial Companies – Systemically Important Core Investment Company (NBFC-SI-CIC): These NBFCs acquire shares, stocks, and securities. The transactions must satisfy the underneath conditions:
    • It holds at least 90% of it’s total assets as an investment in equity or preference shares, and debt/loans in group companies,
    • It’s investments in the equity stock/shares (including instruments that are convertible into equity shares within a period of 10-years from the date of issue, in group companies) shouldn’t be less than 60% of it’s total assets,
    • It does not trade it’s investments in stocks, debt, or loans in group companies except by the way of “block sale for dilution or disinvestment”
    • No financial activity, which is listed under the section “45-I(c) & 45-I(f)” of the RBI Act, is being carried out by it. Other than for investments in bank deposit’s, government securities, money market instruments, loans to and investments in debt issuances of group companies or guarantees declared on behalf of group companies,
    • It’s asset size should be Rs.100 crores or above,
    • It accepts public funds.

Pre-Conditions of NBFC Registration

As per the Section 45-IA of RBI, the following conditions must be satisfied for a company to be enrolled as an NBFC:

  • Registration: The financial institution should be built up as an organization under Section 3 of the Companies Act, 2013 or the past Companies Act, 1956.
  • Director’s Qualifications: At least 1/3rd of the Directors must hold a minimum of 10-years of experience in finance. What’s more, is that he/she should be utilized as a full-time Director.
  • Unique Business Plan: A business strategy must be prepared to task for the next 5-years.
  • Net Owned Fund (NOF):The Company must have a minimum of Rs.2 crores as it’s NOF. It must contain only equity paid-up share capital. Preference share capital is not to be incorporated. The premium on shares & reserves, if any, will be incorporated. But it should not be a borrowed fund. However, gifts from the life partner can be included in the NOF. Minimum NOF requirements vary for particular NBFCs (NBFC-MFIs, NBFC Factors, and CICs).
  • Lean Credit History: The CIBIL score of the “company, it’s Directors, and it’s individual members” must be acceptable. They should not have any write-offs or default on the reimbursement of advances to an NBFC/Bank.
  • FDI Compliance: If any foreign investment is anticipated, then the company should be in compliance.

Process of Applying for NBFC License

After your company has been incorporated and has gathered the basic NOF amount, then you have to follow the below-mentioned system to get it registered as an NBFC with RBI:

An application is to be submitted online. With the necessary documents. A Company Application Reference Number (CARN) is generated upon successful submission. This reference number is of use for every single future request and correspondence.

The hard copies of the documents and also the form as uploaded online, both are to be sent to the Regional Office of RBI, under whose jurisdiction your company falls.
The regional office sends the application to the central office of the RBI, once the submitted documents are found to be alright. Then, the application and the documents are verified and thorough background verification is conducted.
In the event that the organization meets all the terms and conditions determined in Section 45-I A of the RBI Act, 1934 the NBFC License will be granted.

It would be ideal if you make sure to keep the necessary minimal capital in a deposit account, liberated from all liabilities. This sum is kept in a Fixed Deposit (FD). RBI shall verify this amount, with the concerned bank and then approve your application.

RBI Conditions for Granting NBFC License

For NBFC enrollment, the company will apply in the format as indicated by the RBI. Before enrolling the company as an NBFC, RBI may assess from the financial & different books to fulfill the accompanying conditions:
  • The NBFC can cover it’s present or future investors in full as and when their claims collect.
  • It’s tasks are not to be conveyed in an adverse enthusiasm to it’s current or future financial specialists.
  • The general character of the administration and the Board shall not be biased to the interest of the public or investors.
  • It has an adequate capital structure and earning potential.
  • The public interest will be served by licensing this company as an NBFC.
  • The grant of CoR shall not be troublesome to the activity of the financial sector. And it must be consistent with the monetary stability, economic growth, and other relevant policies of the RBI.

Compliances Required by NBFCs after CoR

There are certain compliances to be met after the NBFC License process is completed. The guidelines, circulars, and notifications, from the RBI, are published in the public domain from time to time and are also mandatory to be complied with:
  • Appointing a Statutory Auditor (CA with 5+ years of experience),
  • Statutory Audit,
  • Tax Audit,
  • Income Tax Returns Filing,
  • GST Returns Filing,
  • ROC Returns,
  • All other Compliances/Returns required by a competent authority.

Compliances for NBFCs by RBI

  • Adoption of Fair Practice Code,
  • CIC Registration,
  • C-KYC Registration,
  • CERSAI Registration,
  • FIU-IND Registration,
  • COSMOS Registration,
  • Secretarial compliances,
  • Compliance of KYC Anti-money Laundering,
  • Filing NBS-9 on COSMOS, the online platform of RBI.

Penalty of Non-Compliance with RBI Regulations

RBI is approved to make a strict regulatory move if a company has been “lending, accepting deposits, or making investments” as its main business. An overwhelming punishment or fine can be imposed on it. RBI welcomes detailing of any entity which does money related exercises, but is neither present nor register under the list of approved NBFCs on the RBI site. Likewise, a reasonable move will be made for the negation of the arrangements of the RBI Act, 1934. Additionally, RBI continually surveys “insight reports, grievances, special case reports from statutory evaluators of the organizations, data through State Level Coordination Committee Meetings (SLCC), and so forth.” To get some answers concerning organizations damaging their arrangements. RBI additionally takes an interest in sharing this data with all the financial segment controllers and enforcement agencies in the SLCC meetings.

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Frequently Asked Questions

What is an NBFC?
What is required to get an NBFC License from RBI?
What is the difference between NBFCs & banks?
How to get an NBFC License?
What documents are required to get registered as an NBFC?
Does RBI regulate all financial companies?
What are the powers of RBI on NBFCs?
What action is taken, if financial institutions do not register with RBI?
What regulations apply to “ND-NBFCs” with an asset size of less than Rs. 500 crores?
What is Public Fund? Is it the same as Public Deposits?
What compliances are required to be met by the NBFCs?
What is RNBC?
Can all NBFCs accept deposits?
What is the maximum interest an NBFC can pay on deposits?
An NBFC can accept a deposit for how much duration?