A Non-Banking Financial Company or NBFC is a financial institution that operates without a banking licence but is authorised to provide a range of financial products and services to customers. The registration process for an NBFC is primarily focused on activities such as granting loans and advances, share acquisitions, hire-purchase, finance leasing, and chit fund operations. In this blog, we shall see the procedure of NBFC registration in India.
Difference Between NBFCs and Banks
It’s important to differentiate NBFCs from banks based on certain key aspects, including:
1. Deposit Acceptance:
Unlike banks, NBFCs are prohibited from accepting savings and current account deposits from the public.
2. Cheque Issuance:
NBFCs are not allowed to issue cheques drawn on themselves, which is a common banking feature.
3. Deposit Insurance and Credit Guarantee:
Customers or depositors of an NBFC do not receive deposit insurance and credit guarantee coverage, a protective measure typically provided to bank depositors.
Advantages of NBFC Registration in India
There are many benefits of following the procedure of NBFC registration in India, including:
1. Low Cost and Time Efficiency
NBFC registration is notably quicker and more cost-effective compared to establishing a small bank. The process involves less time and financial resources.
2. Easy Registration Process
The registration procedure for an NBFC is straightforward and uncomplicated, facilitating a smoother initiation into the financial market.
3. Capitalising on Fintech Industry Growth
The fintech industry is currently witnessing substantial growth, driven by a demand for easily accessible funding sources. NBFC registration can prove advantageous for aspiring entrepreneurs, allowing them to tap into this expansion and generate promising returns.
4. Efficient Loan Recovery
Due to their organised operations and provision of relatively smaller loan amounts, NBFCs experience efficient loan recovery. Borrowers can easily repay the borrowed amount, streamlining the repayment process and enhancing convenience for lenders.
Basic Requirements for Procedure of NBFC Registration in India
Non-Banking Financial Companies in India operate under the regulatory framework established by the Reserve Bank of India. To follow the procedure of NBFC registration, an NBFC must adhere to the following registration requirements according to RBI guidelines:
1. Incorporation under Companies Act, 2013:
The NBFC must be incorporated and registered under Section 3 of the Companies Act, 2013.
2. Meet Minimum Net Owned Funds Requirement:
The NBFC is mandated to have a minimum of Rs. 2 crores in Net Owned Funds, except for specific categories like NBFC-MFIs, NBFC-Factors, and CIC.
3. Calculation of Net Owned Funds:
The Net Owned Funds can be calculated based on the last audited balance sheet of the firm. It includes Paid-up Equity Capital, Share Premium Account Balance, Free Reserves, and Capital Reserve as Total Owned Funds.
To determine Net Owned Funds, deduct the Balance of Accumulated Loss, reserves for revaluation, and book value of Intangible Assets from the Total Owned Funds. Additionally, if the investment in shares of other NBFCs or in debentures and shares of the subsidiaries as well as group companies exceeds 10% of the owned funds, it should be subtracted from the Net Owned Funds.
Documents Required for Procedure of NBFC Registration
To initiate the procedure of NBFC registration, the following set of documents must be furnished in accordance of Reserve Bank of India:
1. Certificate of Company Incorporation:
Provide the certificate demonstrating the incorporation of the company.
2. Detailed Management Information and Company Brochure:
Present comprehensive information about the management team, including a company brochure.
3. Copy of PAN or Corporate Identity Number:
Submit a copy of the PAN card or Corporate Identity Number of the company.
4. Office Location/Address Documents:
Include documents verifying the office location and address of the company.
5. Certified Copy of Articles of Association and Memorandum of Association:
Furnish a certified copy of the Articles of Association and Memorandum of Association.
6. Directors’ Profile and CIBIL/Credit Reports:
Provide a signed list of Directors’ profiles along with CIBIL or credit reports for each Director.
7. Board Resolution Certifying NBFC Activity Status:
Include a copy of the board resolution certifying the company’s NBFC activity status, affirming compliance until registration from RBI is obtained.
8. Board Resolution on ‘Fair Practices Code’:
Submit a board resolution related to the ‘Fair Practices Code,’ along with a certified copy of the same.
9. Certificate from Statutory Auditor Regarding Public Deposits:
Obtain a certificate from the statutory auditor confirming that the company neither holds nor accepts public deposits.
10. Certificate Specifying Owned Funds from Statutory Auditor:
Include a certificate from the Statutory Auditor specifying owned funds as of the application date.
11. Banking and Financial Information:
Provide details regarding the company’s bank account, loans, balances, credits, etc.
12. Audited Financial Statements:
If applicable, submit audited balance sheets, profit and loss statements, along with directors’ and auditor’s reports for the preceding three years.
13. Self-Certified Bank Statement and Income Tax Returns:
Include a self-certified copy of a recent bank statement and Income Tax Returns.
14. Future Plans and Financial Projections:
Present information outlining the company’s future plans for the next three years, including projections of balance sheets, cash flow statements, and income statements.
What is the Procedure of NBFC Registration in India?
The procedure of NBFC registration in India is as follows:
Step 1: Company Incorporation under the Companies Act 2013
Begin by registering a company under the provisions of the Companies Act 2013.
Step 2: Attain Minimum Net Owned Funds of Rs. 2 Crores
Ensure that the company possesses a minimum net owned fund of Rs. 2 crores or more.
Step 3: Nominate a Director with Relevant Background
Appoint at least one director with a background appropriate for the intended operations of the NBFC.
Step 4: Obtain a Good CIBIL Score
Acquire a favourable CIBIL score, which is a prerequisite for NBFC registration.
Step 5: Fill Out RBI Application Form
Visit the official website of the Reserve Bank of India and complete the designated application form.
Step 6: Submission of Application and Required Documents
Submit the completed application form along with all necessary documents as per the RBI guidelines.
Step 7: Generation of CARN Number
Upon submission of the application, a CARN (Company Application Reference Number) will be generated.
Step 8: Send Hard Copy of Application to RBI Regional Branch
Dispatch a hard copy of the application, including all supporting documents, to the appropriate regional branch of the RBI.
Step 9: Application Verification and Licence Approval
After thorough verification and scrutiny of the application, the RBI will grant the necessary licence to the company for operation as an NBFC.
NBFC Registration Fees Structure
The procedure of NBFC registration involves several fee components, which are classified as follows:
1. Ministry of Corporate Affairs Fees for Company Registration:
Fee based on the company’s authorised capital is payable to the Ministry of Corporate Affairs during the company registration process.
2. Fees for Memorandum of Association and Articles of Association:
Fees based on the authorised capital and other relevant factors are to be paid for the preparation and submission of the MOA and AOA of the company.
3. Fees for Simplified Performa for Incorporating Company electronically (SPICe+):
The filing of SPICe+ for incorporating the company electronically may necessitate the payment of specific fees.
4. Director Identification Number Fees:
A predetermined fee is required to be paid to the Ministry of Corporate Affairs for obtaining Director Identification Numbers for the directors associated with the NBFC.
5. Digital Signature Certificate Fees:
Fees are applicable for the generation and issuance of Digital Signature Certificates, a requirement for each director involved in the NBFC.
6. Additional Registrar Fees:
Additional fees are necessary and must be paid while submitting applications to the registrar during the NBFC registration process.
The fees associated with the procedure of NBFC registration may vary based on the specific circumstances of the company, including its authorised capital, the number of directors, and other factors. It is essential to adhere to the fee structure provided by the respective authorities for a successful NBFC registration.
Final Thoughts
Establishing a Non-Banking Financial Company in India involves a systematic procedure of NBFC registration governed by the Reserve Bank of India and the Ministry of Corporate Affairs. Complying with RBI guidelines, the company must meet the minimum Net Owned Funds requirement of Rs. 2 crores and meticulously submit a set of essential documents, detailing its financial standing, management profiles, and future business plans.
Moreover, the procedure of NBFC registration entails several fee components, such as charges for incorporation, MOA and AOA preparation, Director Identification Numbers, Digital Signature Certificates, and additional registrar fees. Adhering to these regulatory requisites is vital for a successful procedure of NBFC registration, paving the way for a legitimate and operational non-banking financial entity within the Indian financial system.
