NBFC License

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NBFC or Non-Banking Financial Company is that type of financial institution which furnish various financial and non-financial services to individuals, business enterprises, entrepreneurs, etc. They are distinct from the Cooperative and Commercial Banks, They do not require to hold a banking license but must rigorously follow the rules and regulations provided by RBI from time to time.
NBFCs, most regularely , manage in the field of industrial and commercial loans and advances, deposits, leasing, hire-purchasing, investment funds, chit fund business, insurance business, instruments of the capital & money markets such as stocks, debentures, bonds, and many other related projects. India’s financial sector has shown regularly devlopment for the past two decades. The NBFC part of this sector has change tremendously over the past few years. And NBFCs have been at the spearhead in driving new credit disbursals for the country’s underserved retail and MSME market.

NBFC License must be taken from RBI u/s 45-IA of the RBI Act of 1934. The financial institution want to be registered as NBFC must, first, be properly registered either as per the Companies Act of 2013, or earlier Act of 1956. RBI strictly regulates and ensures that the NBFCs are follow with the provisions and regulations provided in Chapter III B of the RBI Act. The principal business activity of NBFCs is to raise capital from the public depositors & investors and lend these further to the borrowers.
NBFCs are the bridges that link the investors or depositors with the borrowers. They have become a better options to the banking and financial sector by providing financial solutions to the unbanked and unorganized section of society.
Principal Business
Principle business has not been signify by the RBI Act. Therefore, RBI, in an attempt to bring simplicity, has signify the financial activity. It has defined that principal business will be taken as financial if the company complete the following conditions:
Its Total Assets contain of more than 50% financial assets.
Income from financial assets compose more than 50% of the gross income.
This is also well known as 50-50 criteria.
But below activities are not taking of being financial in nature:
agricultural activity,
industrial activity,
purchase/sale of any goods and services (excluding securities), and
Sale/purchase/construction of immovable property.

Procedure for registration

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Online Application

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Document Submission

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Document to center Office of RBI

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Certificate Granted

Compliances For NBFCs By RBI

  • Adoption of Fair Practice Code
  • CIC Registration
  • C-KYC Registration
  • CERSAI Registration
  • FIU-IND Registration
  • COSMOS Registration
  • Secretarial compliances
  • Compliance of KYC Anti-money Laundering
  • Filing NBS-9 on COSMOS, the online platform of RBI

Penalty Of Non-Compliance With RBI Regulations

RBI is permit to take strict regulatory action if a company has lending, accepting deposits or making investments as its principal business, but has not acquire a CoR of NBFC. A heavy penalty or fine can get levy on it. Or it can even be punished in a court of law.
RBI invites reporting of any entity which does financial activities but does not appear in the list of authorized NBFCs on RBI website. Accordingly, acceptable action shall be taken for breach of the provisions of the RBI Act, 1934. Moreover, RBI continuously analysis market intelligence reports, complaints, and exception reports from statutory auditors of the companies, information received through State Level Coordination Committee Meetings (SLCC), etc. To find out about companies contravene its provisions. RBI also participates in sharing of this information with all the financial sector regulators and exection agencies in the SLCC meetings

Compliances Required By NBFCs After Cor

There are some agreements to be met after the NBFC License process is complete. The instructions, circulars, and notifications, from the RBI, published in the public domain from time to time, are also compulsory to be followed.

  • Appointing a Statutory Auditor (CA with 5+ years of experience)
  • Statutory Audit
  • Tax Audit
  • Income Tax Returns Filing
  • GST Returns Filing
  • ROC Returns
  • All other Compliances/Returns required by a competent authority

Pre-Conditions Of NBFC Registration

According to Section 45-IA of RBI, below situations must be complete for a company to be registered as an NBFC:
Registration: The financial institution should be recognised as a company under Section 3 of the Companies Act 2013 or the previous Companies Act 1956.
Director’s Qualifications: At least 1/3rd of the Directors must hold minimum 10-year experience in finance. And he/she must be employed as a full-time Director.
Unique Business Plan: A business plan must be detailed and ready for organisations for the next 5-years.
Net Owned Fund (NOF): The Company must have at least Rs. 2 Crore as its NOF. It must contain of only equity paid-up share capital. Preference share capital is not to be included. The premium on shares & reserves, if any, shall be included. But it should not be a borrowed fund. Though, gifts from the spouse can be included in the NOF. The minimum NOF need differs for specialized NBFCs (NBFC-MFIs, NBFC Factors, and CICs).
lean Credit History: The CIBIL score of the company, its Directors and its members must be good. They must not have any write-offs or wilfully defaulted on the repayment of loans to NBFC/Bank.
FDI Compliance: If any foreign investment is expected, the company should be in compliance with the FEMA Act.

Process Of Applying For NBFC License

After your company has been incorporated and has cumulate the minimum NOF, you require to follow the below method to get it registered as an NBFC with RBI:
An application is to be submitted online. With the essential documents. A Company Application Reference Number (CARN) is generated upon successful submission. This reference number is of use during all future query and communications.
The hard copies of the documents and the form as uploaded online, are to be sent to the Regional Office of RBI, under whose jurisdiction your company falls.
Once the submitted documents are found to be ok, the regional office sends the application to the central office of the RBI. There, the application and the documents are certify and a thorough background check is managed.
If the company meets all the terms and conditions specified in Section 45-I A of the RBI Act, the NBFC License shall be permit.

Documents Required

  • Certified Copy of Certificate of incorporation (CoI): Take a Certified Copy of CoI, MoA (Memorandum of Association), and AoA (Article of Association) from the Regional ROC (Registrar of Companies)

  • Updated KYC: Latest KYC details, income proof, credit report, and Net-worth Certificate of Directors and shareholders.

  • Net Worth Certificate: Collect updated net worth certificate of Directors, member/shareholders, and Company

  • Banker’s Report: A report to be obtained from the bank confirming the No Lien remark on the Initial Fixed Deposit of Rs 2 crore.

  • Board Resolution: The board’s resolution approving the formation of NBFC.

  • Underwriting model: A detailed action plan, for the next 5-years, about the loan products, complying with the Fair Practices Code, credit, and risk assessment policy.

  • Organizational Structure: Complete plan of the organization hierarchy and decision-making process. The proposed criteria on which a loan application will get approved or rejected.

  • IT Policy: The planned system and Information technology policy.

  • Copy of Notarised Rental Agreement

  • Copy of NOC from the property owner

RBI Conditions For Granting NBFC License

For NBFC registration, the company shall register in the format as describe by the RBI. Before registering the company as NBFC, RBI may examine the financial & other books to fulfill the following situations :
that the NBFC can pay its present or future investors in full as and when their claims arise.
that its functions are not likely to be take in any way destructive to the interest of its existing or future investors.
the general feature of the management and the Board shall not be detrimental to the interest of the public or depositors.
it have enough capital structure and earning potential.
public interest shall be assist by licensing this company as an NBFC.
the permit of CoR shall not be unfavorable to the performance of the financial sector. And is constant with monetary stability, economic growth and review such other relevant policies of RBI.

How NBFC Are Different From Bank

Because both NBFC and Banks are both involved in financial activities but some attributes are different in them. Some of them are:
Receipt of Deposits.
Cheques were drawn on itself.
Being a part of the payment and settlement system.
Provision of insuring Deposits, accessible with Deposit Insurance and Credit Guarantee
Corporation. Applicable only to bank deposits.

Types Of NBFCs

NBFCs have been mainly classified on the following basis:
Liabilities:
The deposit accepting NBFCs and
Non-Deposit accepting NBFCs,
(Non-deposit taking NBFCs are classified also as per their size:)
systemically important (NBFC-NDSI) and
others
Activities::
Factors
Mortgage Guarantee Companies
Investment Credit Company
Infrastructure Debt Fund
Micro Finance Institution
Non-Operative Financial Holding Company
Systemically Important Core Investment Company,