What is NBFC Registration & How to apply for it?

Overview

Non-Banking Financial Companies(NBFC) are financial establishments that offer financial services and facilities that a bank usually provides. Registered under the Companies Act, 1956, some of its major business activities are the acquisition of shares, stocks, bonds, debentures, securities issued by the Government and it also offers loans and advances.

The first major step in carrying out activities as a Non-Banking Financial Company is NBFC Registration. Without timely registration, the company will not be able to start operating.

Let’s get into the details on how to register for NBFC,

Criteria for NBFC Registration

·         The applicant must be a registered company according to the provisions of Companies Act 2016 or Companies Act, 1956.

·         The applicant must engage in financial activities as per the provisions mentioned in the Act. If the financial flow of the registered company increases to more than 50% of the total capital assets that the company owns, the company then receives NBFC Registration.

·         The applicant company at the time of making an application for NBFC registration must hold a minimum of a Paid-up capital fund of Rs 2 Crores. On the other hand, the Foreign Company and the Foreign Investors who are planning to start an NBFC shall maintain a paid-up equity capital of Rs 5 Crores.

How to apply for NBFC Registration

Following are points to apply for Register NBFC:

·         Hire NBFC Registration Consultants

An NBFC Consultant firm must be contacted and a team of members of at least 100 to 150 must be hired that contains professional individuals such as CA, CS, Lawyers, and Senior Level Bankers.

·         Create a detailed Business Plan

The business plan must include the following important elements-

1.      Founders and Executive Summary

2.      Loan Product

3.      SWOT Analysis

4.      Credit & Risk Model

5.      Competitors Analysis

6.      Lending Model

7.      Financial Forecast 

·         File an application for Certificate of Registration(COR)

Before filing an application for a Certificate of Incorporation, certain important factors must be fulfilled. The first one is including a middle name in the company name, the name of the company must have any one of the mentioned words: Finance, Finserv, Final, Investment, Capital, Fintech, and Leasing, etc.  A fixed deposit of Rs 2 Crores must be created at a commercial bank. Lastly, the application form must be submitted to the regional department with RBI.

Steps to follow to obtain NBFC License

·         Establish a Public/Private Limited Company

·         Create a business plan and Documentation

·         Submit the application on COSMOS

·         Send a hard copy of all the documents to the RBI

·         Track the status of the application

Documents Required for NBFC License in India

Following are the Documents required for NBFC License in India:

·         A verified copy of Memorandum of Association(MOA) and Articles of Association(AOA)

·         Verified Copy of Registration Certificate

·         A copy of the company’s Certificate of Incorporation

·         Latest and updated KYC of all the directors and shareholders

·         Financial Statements of the company

·         Clean banker’s report with no lien remark on the Fixed Deposit of Rs 2 crores

·         Education Proof of all the Directors

·         Credit report of Directors and Shareholders

·         Prior experience in the Financial Sector

·         Underwriting Model

·         Organization Matrix

·         System and IT Policy

Eligibility Criteria of NBFC incorporation

·         The company must be registered under Section 3 of the Companies Act.

·         It must acquire a minimum net owned fund of Rs.2 crores. Also, the funds should not be borrowed.

·         At least 1/3 of the Directors must have relevant experience in the Finance Field.

·         An inclusive plan for the five years must be created.

Benefits of NBFC Registration

·         NBFC serves all kinds of investors and business persons, irrespective of their size.

·         NBFC is created by keeping the customers in mind, which is why they are considered as customer-oriented.

·         NBFC priorities the customers and their preferences.

·         The main focus of NBFC’s are the expansion and growth of industrial, commercial, institutional, and service sectors.

·         NBFC’s have the freedom to decide the rate of interest at which they sanction loans. This allows them to avail various benefits and charge short-term lending at a high rate of interest that contains no cap on the interests charged.

Types of Non–Banking Financial Companies

NBFC’s are categorized into two major types: Deposits basis and Activity basis-

Deposits basis

·         Non-Banking Financial Corporations that accept deposits

·         Non-Banking Financial Corporations that do not accept deposits

Activity basis

·         NBFC Investment and Credit Company

·         Infrastructure Debt Fund

·         Infrastructure Finance Company

·         Core Investment Company

·         Micro Finance Institution

·         Mortgage Guarantee Companies

·         Chit fund Company

·         Housing Finance Company

·         Peer to Peer Lending marketplace

·         Mutual Benefit Finance Company

 

a) NBFC Investment and Credit Company (NBFC ICC)

The NBFC Investment and Credit Company is further divided into three types-

·         Asset Finance Company

·         Investment Company

·         Loan Company

b) Asset Finance Company

A company that lends burrowers any kind of asset on a temporary basis, for a limited amount of time.

c) Investment Company

An Investment company is established for the purpose of the acquisition of securities.

d) Loan Company

A loan company is a Non–Banking Financial Company that functions with the major objective of providing finance in the form of loans and advances to the public.

e) Infrastructure Finance Company (IFC)

An Infrastructure Finance Company contains net-owned funds of a minimum of 300 crores out of which at least 75 percent of its total assets is utilized in infrastructure loans.

f) Core Investment Company

A company that owns assets of 100 crores and above out of which 90% of the assets are utilized and invested in the form of loans in different companies.

The one condition that differentiates it from the other types is that- out of 90%, 60% has to be invested in equity shares.

g) Infrastructure Debt Fund

Infrastructure Debt Fund orIDF is meant to fulfill the requirements of the infrastructure industry.  The funds invested in such companies are used for construction purposes of buildings, roads, bridges, etc.

h) Micro Finance Institution- NBFC

Also known as a small finance bank, these institutions are established with the aim to provide baking services to the less privileged sections of society.

i) Non-Banking Financial Company – Factors

This type of company is involved in the factoring business. It means that the financial assets in the business should be at least 50% of the total assets and the total income should be more than 50% of the gross income.

j) Mortgage Guarantee Companies

A company in which a minimum of 90% of the revenue must be derived from the mortgage guarantee company and the net owned fund should be Rs. 100 Crores.