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Categories and procedure for NBFC registration

Categories and procedure for NBFC registration

Finance & Accounting

Anil Ganga

Anil Ganga

14 Jul 2020, 15:36 — 10 min read

What is NBFC?

NBFC stands for Non Banking Financial Company. It shall be a registered Company under the Companies Act of India or any other country. Its business is advancing loans, financing assets, mortgage loans, hire purchase, investment in shares and securities, investment in infra projects etc.

But it cannot do certain activities like issue cheques, demand drafts, and cannot accept demand deposits etc like Banks do.

Business Activities

Loans & advances, acquisition of shares/ stocks/bonds/ debentures/ securities that are issued by government or local authority or other marketable securities of similar nature, like leasing, hire-purchase, insurance business, chit business etc

Business activities does not include: Agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services, sale/ purchase/ construction of immovable property.

 

Categories

Deposits Taking – NBFC (NBFC-D)

Non Deposits Taking – NBFC (NBFC-ND)

Sub categories

  1. Asset Finance Company (AFC)

Examples: Automobiles, equipment, tractor, machines, generators etc financing.

 

  1. Investment Company (IC)

Examples: Acquisition of securities, shares etc

 

  1. Loan Company (LC)

Examples: Loans or advances, business loans, personal loans etc

 

  1. Infrastructure Finance Company (IFC)

This type of NBFC shall have a minimum Net Owned Funds of ₹ 300 crore

Examples: Big projects financing like Roads, dams, buildings, bridges etc

 

  1. Systemically Important Core Investment Company (CIC-ND-SI):

Assets size shall be ₹ 100 crore or above, conducting business of acquisition of shares and securities and 90% funds shall be in the form of shares, debentures, deposits etc of the group companies only.

 

Examples: Acquisition of shares and securities the group companies.

 

  1. Infrastructure Debt Fund (IDF)

Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.

 

  1. Micro Finance Institution (MFI)

Examples: Like small loans to small vendors with weekly, fortnightly or monthly installments.

 

  1. Factors (NBFC-Factors)

Example: Factoring business means discounting bills

 

  1. Mortgage Guarantee Companies (MGC)

Example: Financing by mortgaging some asset

 

  1. Non-Operative Financial Holding Company (NOFHC)

Example: it is an NBFC through which one can promote / setup a new Bank

 

Conditions

  1. Should have 2 crore capital
  2. The Directors shall have experience in Finance and Banking (at least one shall have 10 years experience)
  3. Prior Approval from RBI for Management Change in NBFC
  4. Company should be registered under the Companies Act, 2013 / Companies Act, 1956
  5. Directors shall not be in the willful defaulters list of RBI
  6. Shareholders and directors credit history / reports shall be clean
  7. Shareholders and directors legal background shall be clear

 

Steps to Incorporate NBFC

  • Form a company with Minimum Net Owned Fund of INR 2 crore (Equity Share Capital & not Preference Share Capital)
  • Open a Bank Account (Deposit INR 2 crore in a bank’s deposit account which shall be free from all liens)
  • Apply for Certificate of Registration to RBI by the following COSMOS link of RBI 
  • Download the Excel form of application from the above link
  • Fill and upload the application form in the said RBI portal
  • Company Application Reference Number (CARN) is generated
  • Submit physical application and supporting documents to the Regional Office of RBI (Refer to ‘Documents Checklist’)
  • Attend for the queries of the RBI and clarify to their satisfaction
  • Certificate is granted

Note: Further documents/clarifications may be sought from time to time from RBI.

Documents Checklist (for Company Registration)

  • Unique Name of the Company
  • PAN and Aadhaar of all promoters / Directors
  • Bank statement / Electricity bill / phone bill (latest) of all promoters / Directors
  • Paaport / Driving License / Voter ID of all promoters / Directors
  • Rental Agreement of Registered office
  • Electricity Bill (Latest) Registered Office
  • Phone Number and email ID of all Directors
  • Education qualification of all Directors
  • Place of Birth of all Directors who don’t have DIN
  • Occupation of all Directors who don’t have DIN
  • Citizenship of Directors who don’t have DIN
  • Proposed Designations of Directors (like Director/ Executive Director / Managing Director / Whole Time Director / Nominee Director etc)
  • Share capital contribution of each Director / Promoter

 

Documents Checklist (for NBFC License - Submit to RBI)

  1. Certificate of Incorporation
  2. Extract of Main Object Clause in MOA
  3. Board of Resolution stating the following before getting registration from RBI:
  4. Adherence to the “Fair Practices Code (As per RBI Guidelines)
  5. Non-carrying out any NBFC activity
  6. Non-carrying out of acceptance of any public deposit
  7. Audited Balance Sheet & Profit & Loss account along with directors and auditors report (for entire period of company’s existence or last 3 years, whichever is less)
  8. Director’s Highest Educational & Professional Qualification (Copy of certificate)
  9. Director’s experience in Financial Services Sector, including Banking Sector (Copy of certificate)
  10. Details of deposits & loans balances as on date of application & conduct of account (Bankers report)
  11. Others as may be required

 

NBFC Compliance after RBI Approval

  1. Apply membership from all Credit Rating Agencies
  2. Inform borrower’s information regularly
  3. Apply for e-KYC registration
  4. ROC Returns & Income Tax Returns
  5. Tax Audit and statutory audit
  6. Annual & event based compliance with RBI
  7. Financial Intelligence Unit (FIU) Registration
  8. GST Registration and Filings
  9. GST Audit
  10. Other regulatory compliance

 

Frequently Asked Questions (FAQs)

  1. What is difference between Bank & NBFC?

S.No

Banks

NBFCs

 

1

Banks can accept demand deposits

NBFCs cannot accept demand deposits

2

Banks can take part in payments and settlements system

NBFCs cannot take part in payments and settlements system

3

Banks can issue DDs, Cheques

NBFCs cannot issue DDs, Cheques

4

Banks can do all activities of NBFCs

NBFCs cannot do all activities of Banks

 

  1. Whether RBI regulates all financial companies?

Most of the financial companies are regulated by RBI, but certain financial companies which are NBFCs but regulated by separate authorities are not regulated by RBI.

Like as follows:

 

S No

Financial Company / NBFC type

Regulator Name

 

 1

Housing Finance Companies

National Housing Bank

VC Funds, Merchant Bankers, Stock exchanges, depositories, brokers, sub-brokers etc

SEBI

Insurance & Reinsurance Companies

IRDA

Chit Fund

respective State Governments

Nidhi Companies

MCA

 Collective Investment Schemes

SEBI

 

  1. What is RBI compliance for NBFC?

      A. Returns to be submitted by deposit taking NBFCs

  1. NBS-1 Quarterly Returns on deposits in First Schedule.
  1. NBS-2 Quarterly return on Prudential Norms is required to be submitted by NBFC accepting public deposits.
  1. NBS-3 Quarterly return on Liquid Assets by deposit taking NBFC.
  1. NBS-4 Annual return of critical parameters by a rejected company holding public deposits. (NBS-5 stands withdrawn as submission of NBS 1 has been made quarterly.)
  1. NBS-6 Monthly return on exposure to capital market by deposit taking NBFC with total assets of ₹ 100 crore and above.
  1. Half-yearly ALM return by NBFC holding public deposits of more than ₹ 20 crore or asset size of more than ₹ 100 crore
  1. Audited Balance sheet and Auditor’s Report by NBFC accepting public deposits.
  1. Branch Info Return.


    B. Returns to be submitted by NBFCs-ND-SI
  1. NBS-7 A Quarterly statement of capital funds, risk weighted assets, risk asset ratio etc., for NBFC-ND-SI.
  1. Monthly Return on Important Financial Parameters of NBFCs-ND-SI.
  1. ALM returns:
    1. Statement of short term dynamic liquidity in format ALM [NBS-ALM1] -Monthly,
    2. Statement of structural liquidity in format ALM [NBS-ALM2] Half yearly,
    3. Statement of Interest Rate Sensitivity in format ALM -[NBS-ALM3], Half yearly
  1. Branch Info return

 

  1. What is the maximum interest rate that NBFCs can charge?

 

RBI deregulated the interest rates of NBFCs. Therefore there is no cap fixed.

 

  1. Can Proprietorship/Partnership accept deposits?

 

No they cannot accept

 

  1. Can Proprietorship/Partnership firms register as NBFC?

 

No, only Companies registered under Companies Act, 2013 or 1956 or earlier Acts or registered as Company in any other Country can only register as NBFC.

 

  1. Does RBI guarantee the repayment of the deposits collected by NBFCs?

No

  1. Can a customer file a complaint in Consumer Forum under Consumer Protection Act?

 

Yes once can file a complaint in consumer forum for any deficiency in service  by any NBFC.

 

  1. Whom to contact for registering a NBFC?

 

One can contact us NBFC registration or any queries related to NBFC registration and process at https://t.globallinker.com/mviDf and https://t.globallinker.com/xsh0j

 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

Posted by

Anil Kumar Ganga

"Ananya legal LLP" is a full service, dynamic, and trustworthy Corporate Advisory and Legal Consultancy Limited Liability Partnership (LLP) Firm that specializes in a...

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