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NBFC Registration In India - Overview

NBFC or Non-Banking Financial Company is the kind of institution which is eligible to provide various financial services to individuals, Business Enterprises, Entrepreneurs etc. NBFC doesn't need to hold any bank licence to operate their services like Cooperative and Commercial Banks. Registration of NBFC is as per the Companies Act, 2013 but the process of NBFC Registration in India is regulated by RBI. The licence of NBFC needs to be taken from RBI (U/s 45-IA of the RBI Act, 1934) and after that, any NBFC can primarily engage in the business of providing loans, advances, acquisition of shares & stocks and other investible securities.

In India, there are many consultancy agencies but TAX SEVA KENDRA is one of the professional NBFC registration consultants in India where you will be guided by our expert team members. Our team will make you understand the entire procedure of incorporation of the NBFC company. We will execute the process smoothly as we have done more than 50+ NBFC registration in India.

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NBFC Registration Package

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  • Reserve Unique Name (RUN) from RBI and MCA
  • Certificate of Incorporation (CIN)
  • Permanent Account Number (PAN)
  • Memorandum of Association (eMOA)
  • Articles of Association (eAOA)
  • Director’s Identification Number (DIN No)
  • Digital Signature (DSC)
  • GST Registration
  • Certificate of Recognition (COR) i.e NBFC license
  • PF Registration
  • ESIC Registration
  • Help to Open Bank account
  • Required four names of the Company (Name should be included Finance word)
  • Office Address Proof (Rent Agreement, Receipt, Electrical Bill, Owner Property tax)
  • List of Directors should be minimum 4 Persons
  • Director's PAN, Aadhar, Voter Card
  • Director's Electrical Bill or Last 1 month Bank statement
  • Director's Photo
  • Director's Email and Mobile

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Different Types of NBFCs in India

The NBFC companies are classified in terms of liability and kind of activity. Let’s discuss the types of NBFCs in India.

1. Investment & Credit Company:
The principal business of this financial institutions involve asset finance, the provision of finance either by making loans or advances, for any activity except for its own, and the acquisition of its securities.

(a) Asset Finance Company
Asset Finance Company provides services for financing various assets for individuals as well as businesses which include machinery, heavy industrial equipment, manufacturing and farming equipment, power generators etc.

The income earned from there should not be less than 60% of the value of its total asset. UTI AMC, BIRLA SUN LIFE AMC, ICICI AMC are some of the asset finance companies.

(b) Loan Company
Loan Company offers loans for various purposes other than that of the AMCs which also includes Housing Finance Firms.

PNB Housing Finance Firm, HDFC, LIC Housing Finance are some instances of this type.

(c) Investment Company
The primary and principal business of this company is the acquisition of securities which means it takes money from the public which has invested in securities and financial products.

The company thereafter deducts its operational cost earned from the profits and the rest amount is distributed among the shareholders.

IDFC, HDFC Mutual Fund, Bajaj Alliance General Insurance Company etc are some of the Investment Companies.

  • 2. Infrastructure Finance company:
    It is an NBFC which:
    • Makes use of 3/4th of its total assets in infrastructure loans
    • Has at least Net Owned Fund of Rs. 300 Crores
    • Has a minimum ‘A’ Credit Rating or equivalent
    • CRAR of at least 15%
    Some examples are Hindustan Construction Company, GMR Infrastructure LTD.
  • 3. Systematically Important Core Investment Company
    It is an NBFC which-
    • 1. Makes use of 90% of its total assets in the form of investment in shares, stocks, debt or loan group company.
    • 2. Out of 90%, 60% should be invested in equity shares or those which are mandatorily converted later in equity shares.
    • 3. Does not involve any activity referred to in Section 45 (c) or 45 (f) of the RBI Act of 1934
    • 4. The asset size is Rs. 100 Crore or more.
    • 5. Accepts public funds.

4. Infrastructure Debt Fund:
It raises resources through bonds for long-term infrastructure projects. The bonds are issued in multiple currencies with a minimum 5 years maturity for investors.

5. Microfinance Company:
As the name suggests, this type of company provides small or microloans to people who seek financial help for personal or business purposes but cannot go to the bank due to the formalities that are needed to be fulfilled to get the required money. The people from rural, semi-urban areas of India are most benefitted from this.

Bandhan Financial Service Ltd, Ujjivan Financial Service Ltd are few examples that help these underprivileged people.

6. NBFC Factors
Such companies normally buy loans or advances at a much-discounted rate from lenders and then adjust the repayment table of the debtor to ensure easy settlement adding small profit. In India, this type of NBFC is quite rare.

  • 7. Mortgage Company:
    It is a financial institution which-
    • Has minimum 90% of the business turnover of mortgage guarantee or
    • Has minimum 90% of the gross income from mortgage guarantee businesses or
    • The Net Owned Fund is Rs.100 Crores

8. Non-Operative Financial Holding Company:
It is a separate category of NBFCs; a wholly-owned non-operative financial holding company that is permitted by the RBI under applicable regulatory prescription to hold or set up the bank as well as other financial services.

NBFC Registration Process in India

The NBFC Registration process is done in accordance with the provisions of the Companies Act, 2013 and RBI Act, 1934. To obtain an NBFC license, it is mandatory to comply with all the conditions under section 45-IA of the RBI Act, 1934.

The steps to obtain an NBFC are mentioned below:

  • 1. Hire an professional and experienced NBFC Registration consultant having a minimum 10 years of experience who has a team of experienced CA, CS, lawyers and senior bankers.
  • 2. The proposed name must include Finance, FinServ, Capital, FinTech, Leasing etc.
  • 3. Get your company registered as Private or Public Limited.
  • 4. Finalize your registered office, City, Area of Operations.
  • 5. The Certificate of Incorporation is to be obtained from the Registrar of Companies.
  • 6. Deposit Net Owned Funds in the bank account opened in the name of the company.
  • 7. Submit documents to obtain the license.
  • 8. Draft a Business Plan for the next 5 years.
  • 9. Apply for registration with RBI.
  • 10. An online application has to be filed with the RBI on its official website.
  • 11. After this, the applicant company will receive a reference number (CARN) to ease inquiry in the future.
  • 12. Thereafter the duplicate hard copies are to be submitted to the concerned regional office of RBI.
  • 13. The regional office shall check the authenticity of the documents.
  • 14. The regional office shall send the NBFC registration to the central office for verification.
  • 15. The central office grants NBFC registration after verifying the applicant’s complete compliance with the Section 45-IA requirements.
  • 16. NBFC must start its business within 6 months from the date of Certificate of Registration.

NBFC Registration Criteria

The criteria for NBFC registration with RBI are as follows:

  • 1. Must be registered under Section 3 of Companies Act, 1956.
  • 2. Must have a minimum net owned fund of Rs.300 lakhs.
  • 3. 1/3rd Directors of the applicant company must have experience in the finance field.
  • 4. Detailed Business Plan for the next five years.
  • 5. CIBIL score of the company and directors/ shareholders of the company must be good with no defaulter record.
  • 6. The company must have adhered to the mandatory compliances.

NBFC Registration Fees in India

An approximate of Rs.3,50,000 as a fee to the government is required to register a company as NBFC and Consultant charge will be extra as per their profile.

Time Frame of NBFC

The time taken for issuing certificate of Registration for NBFC is approximately 2 to 6 months.

Documents Required For NBFC

  • The Certified copy of the Certificate of Incorporation, MOA and AOA.
  • KYC documents of the directors & the shareholders of the applicant company.
  • Highest educational and professional qualification certificate of the directors of the applicant company.
  • Net worth certificates of the directors and the shareholders of the company.
  • Bankers Report on details of deposits and loan balances, and conduct of the account.
  • Credit Report of directors & shareholders.
  • Detailed action plan of the proposed NBFC along with the structure of the organisation.
  • • The financial statements (Balance Sheet, Profit and Loss Statement) of the applicant company along with the directors' report & auditor's report.

Benefits of NBFC Registration in India

NBFCs are significant especially in a developing country like India as most of its population is from the rural segment. NBFCs are needed as the commercial banks are not remotely available. The benefits of NBFC are classified as below:

  • It provides loans and credit facilities
  • Can invest in money market instruments
  • Do wealth management by involving activities like managing portfolios of shares and stocks
  • It finances private education
  • It supports investment in properties
  • It helps in retirement planning
  • It guides companies in acquisition and merging
  • It serves as an option for borrowing money where banks are not available
  • NBFCs are faster in comparison to banks

NBFC- Role and Function

NBFCs concentrate on business-related loans & advances, stock acquisition, debentures, shares, securities, bonds and securities issued by the Indian Government or local authority or other securities of marketable nature, hire-purchase, chit business, leasing, and insurance business. However, they cannot provide finance in case of any agricultural activity, industrial activity, sale, purchase, or construction of the immovable property.

Let us look at the roles and functions of NBFCs,

1. Retail Financing
Companies that offer short-term funds for loans against gold, shares, property, majorly for consumption purposes.

2. Infrastructural Funding:
This is the most significant section where most Non-Banking Financial Companies indulge in. This mainstream includes Railways or Metros, Real Estate, Ports, Flyovers, Airports, etc.

3. Hire Purchase Services:
It is a process through which the seller provides the products or goods to the buyer without transferring the goods’ ownership. The payment is made in instalments. Once the buyer pays all the instalments of the goods or products, the ownership of the good is transferred to the buyer.

4. Trade Finance:
Companies indulging in distributor or dealer finance so that they can finance for working capital requirements, other business loans.

5. Asset Management Companies:
Asset Management Companies (AMCs) are those companies that include fund managers who invest the funds pooled by small investors & actively manage it.

6. Venture Capital Services:
The companies that invest in small businesses are at their starting stage, but their accomplishment rate is high and is capable enough for adequate return in the coming period.

7. Leasing Services:
The companies that deal in leasing or renting in which the contracts are made for a fixed period.

FAQ On NBFC Registration

How do NBFCs raise money?

They borrow from other financial institutions. They accept non-chequable deposits, mostly term deposits.

Can NBFC borrow from RBI?

. RBI has now allowed banks to co-lend with all registered NBFCs, where banks have to take their part of the individual loans on a back-to-back basis while NBFCs are required to retain at least 20% share of the individual loans.

What are NBFC examples?

Example of NBFCs in India are- mortgage lenders, Investment banks, Money market funds, Insurance companies, Private equity funds, Hedge funds, Chit funds and P2P lenders are some examples of NBFCs.

Who controls NBFC?

The execution and operations of NBFCs are regulated and controlled by the RBI within the frame of the Reserve Bank of India Act, 1934.

What are the types of NBFC?

The different types of NBFCs:

  • - Asset Finance Company
  • - Loan Company
  • - Mortgage Guarantee Company
  • - Investment Company
  • - Infrastructure Finance Company
  • - Micro Finance Company
  • - Housing Finance Company

What is the importance of NBFC?

NBFCs play an important role in contributing towards economic development by providing financial services to transportation, employment generation, wealth creation, bank credit in rural areas and to support financially weaker sections of the society.

What is the difference between banks & NBFCs?

NBFCs carry out banking services without carrying a bank license. NBFC is registered under the Businesses Act whereas banks are registered under the Banking Regulation Act, 1949.

The deposits that are repayable on demand are not accepted by NBFCs whereas banks accept demand deposits.

They do not have the payment and settlement system and thus cannot issue cheques.
The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not accessible to NBFCs, unlike in the case of the banks.

Can NBFC open Casa?

NBFCs are Non-Banking Financial Companies, which means that many of them do not support CASA facilities, neither do they rely on CASA deposits for raising funds. CASA deposits are meant for banks only.

Can NBFC create credit?

NBFCs do not create credit.

What is Type 1 and Type 2 NBFC?

Type 1 NBFCs do not accept public funds and/or do not accept funds from the public in the future and do not have a customer interface. Whereas Type 2 NBFCs are those who accept public funds and/or expect to accept public funds in the future and/or have a customer interface or plan to have a customer interface in the future.

Which NBFC is regulated by RBI?

What are NBFC activities?

The activities of NBFCs include providing loans and advances, credit facilities, saving and investment plans, acquisition of shares, stock, bonds hire-purchase, insurance business or chit business and money transfer service.

It also caters to private education funding, retirement planning, underwriting stocks and shares, trading in money markets, TFCs (Term Finance Certificate).

In India NBFCs also facilitate wealth management services like handling portfolios of stocks and shares, discounting services etc.

Which is the best NBFC in India?

The Top 10 NBFCs in India are-

  • Power Finance Corporation Ltd.
  • Shriram Transport Finance Company Ltd.
  • Bajaj Finance Ltd.
  • Mahindra & Mahindra Financial Services Ltd.
  • Muthoot Finance Ltd.
  • HDB Finance Services.
  • Cholamandalam
  • Tata Capital Financial Services Ltd.
  • L & T Infotech
  • Aditya Birla Finance Ltd.

Can NBFC issue Cheques?

As NBFCs do not form part of the payment and settlement curriculum, they are not entitled to issue cheques drawn on themselves.

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