NBFC Company Registration

Professional assistance is provided from start to finish with NBFC registration, from the moment you file the application until you get the registration certificate from Dobizindia.

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Basic overview
Registration Process

NBFC Registration: An Overview

Non-Banking Financial Company, or NBFC, is a firm incorporated under the Companies Act of 2013, involved in the provision of loans and advances as well as the acquisition of shares, stocks, bonds, debentures, and other securities issued by the government or the local authority or other marketable securities of similar nature, leasing, hire-purchase, insurance business, and chit business. However, those institutions whose principal business is agriculture activity, industrial activity, the purchase or sale of goods (other than securities), or providing any services, as well as the sale, purchase, or construction of immovable NBFCs, are not included in the definition of property. Additionally, the term "non-banking financial company" also refers to a business that has the primary business of making deposits in any type of arrangement, whether in an instalment or in lump sums by means of contributions or any other method; it is a non-banking finance company (like a residuary non-banking company). So any non-banking entity that wants to be capable of pursuing such actions should apply for NBFC registration.

Types of NBFCs

  • Based on their activity
  • Based on obligations

NBFCs, based upon their activities Investment and Credit Company A business that provides its primary business-asset financing by providing financing is referred to as an "investment and credit company.

Mortgage Guarantee Company

Mortgage Guarantee Company is a term used to describe financial organizations whose mortgage guarantee business accounts for at least 90% of their total revenue. Comes from mortgage guarantee businesses, and the net-owned funds amount to 100 crore rupees.

Infrastructure Finance Company

An NBFC uses a minimum of 70% of its assets for infrastructure loans. They also have the minimum net owned funds (NOF) in the amount of $300 crore as well as a CRAR of 15%.

Non-Operative Financial Holding Company (NOFHC):

It is a kind of financial institution that allows promoters to create an entirely new bank. It is an entirely owned NOFHC that holds banks as well as other financial services firms that are regulated by the Reserve Bank or other financial sector regulators, to the extent permitted by the regulations in force.

Micro Finance Company:

A microfinance company performs the same functions that banks do. They offer loans to small businesses that are not served or are not eligible to get loans.

Housing Finance Company

HFCs, also known as housing finance companies, are NBFCs, and their primary business is financing the purchase or construction of houses.

NBFCs, based upon their liability

Non-deposit-taking NNBFCs are further divided into

Role of NBFCs in India

In simple terms, they have made an enormous contribution to the growth of Indian industry in various ways.

Cancellation of NBFC Registration

The business owner should be aware of the various reasons that could lead to NBFC registration being cancelled. A few of the reasons are listed below:

  • If an NBFC does not continue to conduct its business activities,
  • If the NBFC is not able to satisfy the requirements or terms stipulated in the law or any other compliance stipulated by the RBI, similar to capital requirements,
  • In the event that an NBFC does not meet or follow the guidelines given by the RBI at any time.
  • If an NBFC is not able to keep records of records or accounts as required by the RBI Act 1934 and fails to submit a book of accounts or records and other relevant documentation to the RBI for inspection purposes, the RBI may take action.
  • If the NBFC cannot repay its deposits, the registration could be cancelled, but the RBI will provide the NBFC with the opportunity to resolve its position before making the NBFC registration cancellation, since there could be a situation in which it is determined that the NBFC is in a bad financial position to repay its deposits.

Documents needed for NBFC registration

These papers ought to be kept in a secure location.

  • Company Incorporation Certificate;
  • Management information in detail and company brochures;
  • a copy of the PAN or corporate identification number (CIN) that belongs to the business;
  • Documents indicating the address or location;
  • A certified copy of the Memorandum of Association and Articles of Association;
  • Director's profiles on the list, which must be properly signed by the director;
  • Director's qualification certificate and their experience certificate
  • CIBIL/credit report of the directors of the company;
  • Board resolution on the fair practices code with a certified copy of the identical resolution;
  • Certificate issued by the auditor statutory declaring that the firm doesn't have any deposits in the public market and will not accept public deposits;
  • Certificate indicating the amount of funds owned on the date of request from a statutory auditor;
  • Shareholder KYC, CIBIL report, ITR, and banker's report;
  • Inform the bank about its account and balances, loans, credits, and more.
  • Balance sheet with audited balance along with P&L statement with auditor's report and directors' report for the three most recent years;
  • Self-certified copy of the bank statement as well as the ITR;

What NBFC can be exempt from registration with the RBI?

Not all NBFCs must register under the RBI; however, they have to be registered with the regulators they are controlled by. For instance, Nidhi, Chit, the National Housing Bank, and insurance companies are all NBFCs but are controlled by different laws.

What's the process for appealing NBFC registration cancellations from the RBI?

RBI has the power to terminate the registration certificate in case an NBFC violates the requirements of the RBI Act or fails to comply with the minimum standards set by RBI. There is, however, an appeal procedure in the event that an NBFC is not satisfied with the RBI's decision. It can be appealed within a 30-day period from the date of the cancellation registration certificate.

Existing businesses can apply for an NBFC license.

A company that meets the requirements to be granted NBFC registration is able to submit an application for the NBFC license. This includes the requirement that a company must get registered with respect to the Companies Act 2013 and have an initial capital requirement of 2 crore rupees.

What makes an NBFC different from a bank?

As opposed to banks, NBFCs are not permitted to take deposits that can be repaid on demand. Banks are an integral component of the settlement and payment cycle, whereas NBFCs are not components of this system.

What power does the RBI hold over an NBFC?

The RBI was granted authority in the RBI Act of 1934 to register, lay down policies, issue directions, examine, regulate, supervise, and conduct surveillance on banks that are in compliance with the 50-50 guidelines of their principal business. The Reserve Bank can also penalize banks for breaking the rules that are in the RBI Act or the directives issued by the RBI.

What are the latest regulations for NBFCs?

The new rules for NBFCs include a revised NOF and IPO limit on funding, an ICAAP for NBFCs, the constitution of the RMC and board-approved policies, disclosure requirements, the appointment of a Chief Compliance Officer, and the introduction of a core banking solution, among others.

Prerequisites for NBFC Registration

The following conditions must be met prior to an NBFC being approved for registration:

  • The first step is that the financial institution in search of NBFC registration must be registered as a corporation pursuant to the Companies Act 1956/2013;
  • Second, a minimum of 1/3 of directors must have a minimum of 10 years of financial experience and be employed full-time as directors.
  • The company that is applying for the grant must have a comprehensive company plan of operation for the upcoming five years.
  • The company must maintain the net-owned fund to be eligible for registration. At present, the business must have two net-owned funds of crores of rupees. However, minor changes have been implemented following the RBI's implementation of the scalar-based regulations. (Note that you can see the updated net-owned fund requirements in the following.)
  • The CIBIL score of the business director, the company's directors, and its members must be satisfactory, which means that they have no record of insolvency when it comes to loans;
  • The clause on objects in the Memorandum of Association must be compatible with the company's business plans.
  • Directors should meet the necessary and appropriate requirements.

NBFC Registration Procedure

The procedure for registering an NBFC is described below:

Arranging the Documents

It is crucial for the applicant to prepare all relevant documents before the procedure starts. NBFC Registration.

Filling out the application using RBI

After arranging the necessary documentation, applicants have to make the application in front of an authority.

Submission of Applications and Documents for Verification

The next step is the submission of the application with all the required documents by the applicant to be used for the purpose of being verified by the authorities. The authority will review the application and documents to ensure the accuracy of the information submitted by the applicants.

Issue of a Registration Certificate

After verifying the completed application and the documents, the authority issues the certificate of registration.

Revised categorization of NBFCs

In accordance with the updated structure, RBI has notified four scale-based layers that regulate NBFCs, i.e., the base layer, middle layer, upper layer, and top layer.

Scalar-Based Regulatory Framework for NBFCs, 2021

On October 22, 2021, the Reserve Bank of India announced an updated regulatory framework that is scale-based for NBFCs in order to have strong surveillance of the sector. According to the scale-based regulation system in place for non-banking financial companies, there will be more types of NBFCs according to their business activities and strict regulations.

The most significant aspects of the new version are:

NBFCs Present NOF By March 2025 By March 2027
NBFC-ICC 2 crore rupees 5 crore rupees 10 crore rupees.
NBFC-MFI 5 crore rupees 7 crore rupees 10 crore rupees.
NBFC-Factors 5 crore rupees 7 crore rupees 10 crore rupees

  • • In the event of NBFC P2P, NBFC AA, and NBFCs with no public funds and without an interface with customers, the net owned fund will be at least 2 crore rupees.
  • • In the event of NBFC P2P, NBFC AA, or NBFCs that do not have public funds or a user interface for customers, their net-owned fund will be at least 2 crore rupees.
  • • The NBFCs will have to recognize loans that are due for longer than 90 days as non-performing loans until March 2026. They will also be required to recognize loans over 150 days by March 2024.

Note: The guidelines will be in effect as of October 1, 2022. Additionally, the rules pertaining to the limit on IPO financing will come into effect on April 1, 2022.

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