Everything you need to know about NBFC Registration

Non-Banking Financial Company, commonly known as NBFC, is a form of Company registered underneath the Companies Act, 2013, which is involved in numerous financial services like providing loans, supporting credit facilities, assets financing, currency exchange, lending, and many more functions.

An NBFC registration in India is done as per the rules and regulations of the RBI Act.

What do you mean by NBFC?

As per Section 45-1 (c) of the Reserve Bank of India Act, 1934, any non-banking company providing any financial services are considered as NBFC. Ministry of Corporate Affairs and RBI governs the NBFCs. Non-Banking Financial Company is a financial institute that suggests banking services, but does not have a banking license. A Non-Banking Institution has the prime business of getting deposits under any scheme or arrangement or in any other prescribed manner. Such deposits and can be attained in one lump sum or installments by way of contribution.

Some NBFCs does not require Registration from the RBI they are-

1. Nidhi company

2. Investment businesses whose assets are less than 100 crores

3. Merchant banking companies

4. Companies engaged in the business of stockbroking

5. Companies involved in venture capital

6. Insurance companies having incorporation certificate

7. Chit fund companies

How can you differentiate between an NBFC and a bank?

NBFC can perform activity just like any normal bank. The activities of banks and NBFCs are moreover similar. The financial intermediaries are regulated by the Companies Act, 2013, and the Banking Regulation Act, 1949. The control is under the Reserve Bank of India. The difference is as follows: -

NBFC cannot receive demand deposits like banks;

NBFC cannot issue cheques on themself;

Does not form part of the settlement or payment scheme;

If the facility of deposit insurance providing by Deposit Insurance and Credit Guarantee Corporation (DICGC)is not available to the depositors of NBFC.

What are the advantages of taking an NBFC Registration in India?

It can easily trade in the money market instruments

It offers loans and credit facilities

It provides wealth management by managing stocks and shares

They are the last resorts for borrowing capital

They are the most substantial back-up for providing finance

It advises the companies for the process of merger and acquisition

It prepares for the industry and market studies for the companies.

The recent methods exercised by the NBFCs have overcome vital challenges

They have made use of technological advancements such as the use of mobile phones, the internet, which has reduced the demand and dependence on the bank branches.

What are the role and functions of NBFC registration in India?

The specific purpose of NBFCs are-

Development of Infrastructure Sector

Increase Wealth Creation

Employment Generation

To Provide Finance to Weaker Section

Economic Development

Contribution to State Treasury

Provides Audit and Specialized Credit

Development of Financial Market

What are the various NBFCs classifications?

Based on Activities-

Investment Credit Company It is known as a loan company, having ICC license you can lend and finance

NBFC-P2P (Peer to Peer Lending) lenders and Borrowers work together and Manages funds

NBFC-AA (Account aggregator) Financial Info regarding service provider

NBFC-MFI Provides credit and loans to the delicate section of the societies

NBFC-ND and CIC Investment in stocks for Debt in the same group of Company

NBFC-IFC Long term debt to Infrastructure companies

NBFC-Factor Receivable Financing or Bill Discounting

Mortgage Guarantee Company Providing Mortgage guarantee services

NBFC-Financial Holding Created for Banking License

Based on Liabilities

NBFC-D Deposit-taking NBFC

NBFC-ND Non-deposit taking NBFC

What are the eligibility criteria for NBFC Registration?

As per Section 45(1A) of the RBI Act, any individual or Company eager to start a loan or investment business in India needs to register a company that meets the requirements prescribed for NBFCs. They are-

Directors Profile The directors should have knowledge and experience regarding finance, credit and banking

NBFC Business Plan The Company should have a detailed business plan for the next five years

Fund Shareholders must have two crores as the Net Owned Fund. Investment should not be borrowed fund

Credit History The directors and shareholders must not have any write-offs

Quality of Capital The Net Owned Fund must be tax paid, and all legal compliance of the management of the Company must be clean and legally up to standard.

What are the documents required for Registration of NBFCs?

The documents required for NBFC registration are-

MOA of the Company

Registration certificate

Income test certificate

Net worth certificate

Clean banker report

Education proof’

Credit report of directors and shareholders

Experience certificate of directors and shareholders

Organization matrix

Various policies

What is the procedure for NBFC registration?

The steps in the NBFC registration process are-

Step 1

Under the Companies Act, 2013, the applicant will have to register itself as a Public Company or a Private Company whichever is relevant. The Company must be registered with the regulations of the Ministry of Corporate Affairs.

Step 2

Application Submission on COSMOS

The applicant should apply to the RBI site that is known as Cluster of Systems of Metadata for Official Statistics (COSMOS).

With the online application, a physical copy of the form along with the required documents is mandatory to be submitted by the applicant to the Regional Office of the Reserve Bank of India.

Step 3

Select for Company Registration

After getting access to the RBI website by the applicant, the login page of the Cluster of Systems of Metadata for Official Statistics application will ask for clicking on the Company Registration tab.

Step 4

Download the Form

A window tab will appear presenting an Excel application form that is available to be downloaded.

The applicant must download the suitable application form, which is an NBFC form.

Step 5

Filing of the Form

In the excel form, the applicant needs to fill the correct name of the Regional Office in the provided filed “C-8” of “Annex-I Identification Particulars.”

Step 6

Allocation of CARN Number

The applicant, after the submission of the form, a Company Application Reference Number (CARN), will be allocated for the Certificate of Recognition.

Step 7

Submission of Application form to the Regional Office

After receiving the CARN number by the applicant, the application with all the supportive documents are required to be submitted to the Regional Office of Reserve Bank of India.

Step 8

Inspection of the Application by RBI

The RBI will examine the application form and the relevant documents and will send it to the head office.

Step 9

Issue of NBFC registration

If the application filed is correct, the required documents are complete, and the records are clean, then the head office of Reserve Bank of India will issue the NBFC Registration.

What are the post-registration compliances?

The post-registration compliances are as follows-

Statutory Audit

Income Tax Return Filing

Tax Audit

GST Return Filing

Registrar of Companies Returns

RBI Compliances

What is NBFC Annual Compliances?

If a company has effectively obtained online NBFC Registration, then it’s obligatory to fulfill all the NBFC annual compliances. Where NBFC is failing to accomplish the contracts, NBFC becomes liable for the hefty penalties. The penalties can even lead to the cancellation of the Registration.

Annual compliance of NBFC has to be filed within six months by any NBFC after attaining the Registration from the RBI. There are mainly two categories of NBFCs-

Deposit-taking NBFC (NBFCs – D)

Non – Deposit NBFCs (NBFCs- ND)

NBFCs play a significant role in the development of the infrastructure, creation of wealth, and economic development. NBFC registration in India is a complex process, and the government has encouraged Registration since they have a vital role in channelizing and mobilizing the financial resources in a precise direction. For incorporating NBFC and getting its certification, the Company should comply with all the guidelines related to the registration process.