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NBFC Registration

An NBFC or a Non-Banking Financial Company is a quasi-banking entity. It is not a bank but has some characteristics similar to the banking structure. It is a form of financial institution which provides various financial and non-financial services to individuals, business enterprises, entrepreneurs, etc. They are different from the Cooperative and Commercial Banks, they need not hold a banking license but must strictly follow the rules and regulations provided by RBI from time to time. NBFC License must be taken from RBI pursuant to the provisions of Section 45-IA of the RBI Act of 1934. A financial institution wishing to be registered as an NBFC must, be first be duly registered as per the Companies Act of 2013.

RBI strictly regulates and ensures that the NBFCs are complying with the provisions and regulations provided in Chapter III B of the RBI Act. The principal business activity of an NBFCs is to raise capital from the public depositors & investors and lend these further to the borrower

Minimum Requirement for NBFC registration:

 A company incorporated under the Companies Act, 2013/1956 .

 It should have a minimum net owned fund of ₹ 200 lakh.

 Finance related object.

 At least 1/3rd of the Directors must hold a minimum 10-year experience in finance. And he/she must be employed as a full-time Director.

 A business plan must be detailed and ready for operations for the next 5-years.

 The CIBIL score of the “company, it’s Directors, and it’s members” must be good. They must not have any write-offs or default on the repayment of loans to an NBFC/Bank.

Difference between Banks and NBFCs:

As per RBI, NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

 NBFC cannot accept demand deposits.

 NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.

 Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Advantages of NBFC Registration

Separate Legal Entity

An NBFC is an entity having separate legal identity and it may own property on its own name and can sue and be sued through its own name

Finance Activities

A general private limited company cannot do any finance business, but a NBFC having a valid certificate of registration issued by the RBI can do all finance related business.

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Documents required to register an NBFC

Documents from Promoters and Directors

Identity Proof

 Permanent Account Number (PAN) Card

 Aadhaar Card / Passport / Driving License / Voter Identity Card

Address Proof

 Telephone Bill / Mobile Bill/ Electricity Bill / Water Bill/ Bank Statement /Bank Passbook with latest transaction

*(Any one of the Document not older than 2 months)

Passport size Photographs

Notes:

 All the Copies of documents must be Self-Attested by the applicant.

 Telephone Bill / Mobile Bill/Electricity Bill / Bank Account Statement must be in the name of applicant and should not be older than 2 months.

 In case of NRI or Foreign National, documents of director (s) must be apostilled.

Registered Office – Address

 No-Objection letter from the Owner of Address to use the address of the registered office of the Company.

 Address Proof – In the name of the Owner:
Electricity Bill, Telephone Bill (Fixed Line Only), Gas Bill or Water Bill (Not older than 2 months);- To be signed by the of the Owner of Premises.

 Rent Agreement (if rented)

For obtaining NBFC License- From RBI

Certified Copy of Certificate of incorporation (CoI)

Take a Certified Copy of CoI, MoA (Memorandum of Association), and AoA (Articles of Association) from the Regional ROC (Registrar of Companies).

KYC

Latest KYC details, income proof, credit report, and Net-worth Certificate of Directors and shareholders.

Net Worth Certificate

Collect updated net worth certificate of Directors, member/shareholders, and Company.

Education

Education & qualification proof of the Directors.

Company’s Details

Company’s PAN & GST number. Documents in support of the address of the company.

Bank Account

Details of the bank account of the company. This account must have at least Rs.2 crores deposited as the minimum NOF requirement. And it must be well audited for the last 3-years.

Banker’s Report

A report to be obtained from the bank confirming the No Lien remark on the Initial Fixed Deposit of Rs.2 crores.

Board Resolution

The board’s resolution must include, “approving the formation of the NBFC”.

Underwriting model

A detailed action plan, for the next 5-years, about the loan products, complying with the Fair Practices Code, credit, and risk assessment policy must be present.

Organizational Structure

Complete plan of the organization hierarchy and decision-making process. The proposed criteria on which a loan application will get approved or rejected.

IT Policy

The planned system and Information technology policy.

Steps for registration of a Company:

Preliminary Requirements

 Select a suitable package.

 Provide basic details & documents required for Incorporation.

 Make Payment through Secured Payment Gateway

Registration

 Application for DSC.

 Application for Name approval

 Drafting of documents (MOA, AOA, DIR-2, Declarations, Projections, etc.)

 Issuance of COI, PAN, TAN by MCA

 Application of hard copy to the Central office of the RBI

 After scrutiny of submitted documentation at the RBI office, the RBI grants the Certificate of Registration (COR)

*NBFC will be registered within 4-6 months working days subject to the MCA processing and approval

Process for registration of Public Company:

Day 1-3:

 Provide basic details & documents required for registration.

 Application for DSCs.

 Name approval application through Spice part A.

Day 4-6:

 Drafting of Documents

Day 7:

 Filing company registration application

Day 8-15:

 MCA processing time

 Issuance of PAN, TAN and COI

Day 15 onwards:

 Collation of documents and preparation

 Submission to RBI

 RBI Reviews

 RBI issues COR

Types of NBFCs

NBFCs are categorized

 In terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs.

 non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and

 by the kind of activity they conduct.

Within this broad categorization the different types of NBFCs are as follows:

 Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.

 Investment Company (IC) : IC means any company which is a financial institution carrying on as its principal business the acquisition of securities.

 Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.

 Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of ₹ 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.

 Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions.

a) it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies.

b) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets.

c) it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment

d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

e) Its asset size is ₹ 100 crore or above and.

f) It accepts public funds

 Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.

 Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria

a) loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding 1,00,000 or urban and semi-urban household income not exceeding 1,60,000.

b) loan amount does not exceed 50,000 in the first cycle and 1,00,000 in subsequent cycles.

c) total indebtedness of the borrower does not exceed 1,00,000.

d) tenure of the loan not to be less than 24 months for loan amount in excess of 15,000 with prepayment without penalty.

e) loan to be extended without collateral

f) aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs.

g) loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

 Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income.

 Mortgage Guarantee Companies (MGC) - MGC are financial institutions for which at least 90% of the business turnover is mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business and net owned fund is 100 crore.

 NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution through which promoter / promoter groups will be permitted to set up a new bank .It’s a wholly-owned Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.