NBFC Registration Procedure with Reserve Bank of India

In today’s topic, we will cover end to end procedure to Register NBFC Online with RBI. NBFC is a Non-Banking Financial Company and the principal business of which is as below.

lending money or

investing in shares/stocks/bonds/debentures or

leasing hire purchase, or

doing insurance business, chit business or

Receiving deposits under any scheme or arrangement.

Note: NBFC Registration is regulated by Reserve Bank of India (RBI).

The Following Business cannot be Registered as NBFC:

Any institution whose principal business is of agriculture.

Or any business who is engaged in industrial activity.

Or any institution which is engaged in the purchase or sale of any goods (other than securities).

Or which is providing any services.

Or which is engaged in sale/purchase/construction of the immovable property.

Or NBFC whose main business is receiving deposits under any scheme or arrangement in one lump-sum or any other arrangements by way of contributions or in any other manner.

Types of Non-Banking Financial Company

There are 2 types of NBFC’s and they are-

Deposit-taking NBFC’s.

Non- Deposit-taking NBFC’s.

1. Deposits Taking NBFC

There are mainly three types of deposit accepted under NBFC’s they are Loan companies, investment companies, asset finance companies.

There are some criteria’s which are required to be fulfilled by deposit-taking NBFC’s:

They should have a net owned fund of Rs. 2 Crore.

They should mandatorily get investment credit rating for being eligible to accept deposits.

2. Non- Deposit taking NBFC

These are the NBFC’s which cannot accept the deposit. They can only lend but cannot accept deposits from public other than paying back of the borrowed money. These types of NBFC depends on Banks, Corporate Houses, and Private Equity Firms for taking deposits.

Non-Banking Companies are further classified on the basis of their size

Non-Banking Financial Company

NBFC Registration Procedure

As per the Reserve Bank of India Act, 1934, no company can commence the business of NBFC unless it has obtained the certificate of registration and having a net owned fund of Rs. 2 Crore.

For NBFC registration with RBI , an application to Regional Office of Reserve Bank of India should be made along with the required documentation.

Note: Net Owned Fund = Owned Fund – Investment in subsidiaries or other NBFC.

Minimum Period and a Maximum Period of Public Deposits

A time period has been provided regarding the maximum and minimum time limit for which NBFC can accept the deposit.

Minimum time period: 12 months.

Maximum time period: 60 months.

It is discretionary upon The NBFC that it can pay back the deposit amount before the maturity period but such deposit cannot be paid back before 3 months of its acceptance.

If the deposit is paid back after 3 months but before 6 months no interest will be paid.

But if the deposit is paid back after 6 months but before the maturity period then interest shall be paid but lower than 2% of the contracted rate.

Brokerage

The Reserve Bank of India has laid down some limits on Brokerage that can be paid to brokers for sourcing deposits from the clients.

The maximum rate of brokerage that can be paid to the agent is 2% of the deposits so collected. The expenses incurred by the brokers shall also be reimbursed if supporting bills are provided for the same, but such expenses should not amount to more than 0.50% of the amount collected.

Penalties for Deposit Taking without Authorization

If any NBFC without being authorized to take deposit is accepting deposit it shall be liable for the criminal.

Also, if NBFC’s associate themselves with own or other proprietorship/partnership firms directly or indirectly accepting deposits in contravention of the RBI Act, they are also liable to be prosecuted under criminal law.

Procedure for Making Application for NBFC Registration with RBI

The applicant company is required to apply online and submit a physical copy of the application to the application along with the necessary documents to the Regional Office of the Reserve Bank of India. The application can be submitted online by accessing the Reserve Bank of India secure website.

Non-Banking Financial Company v/s Banks

An NBFC is incorporated or registered under the Companies Act 2013 or Companies Act 1956. An NBFC is similar to a bank but with some basic difference. The difference between an NBFC and a Bank is:

Bank NBFC A Bank can accept a demand deposit. NBFC’s cannot accept demand deposit. A Bank can issue drawn a cheque on itself. NBFC’s cannot issue drawn a cheque on itself. Deposits done in Banks are insured by Deposit Insurance and Credit Guarantee Corporation. Deposits done with NBFC’s are not insured.

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