NBFC Company Registration

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NBFC Company Registration

NBFC stands for Non-Banking Financial Company. NBFC, in simple words, means a Company which is engaged in the business of accepting deposits as its principal business activity. An NBFC is a company registered under the Companies Act 1956 or Companies Act 2013 which is engaged in the business of financial institution i.e it is engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/ securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institutions which carry on its principal business as agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing of any services or purchase, construction or sale of immovable properties.

NBFC’s are the mobilizers of savings of the household sector and the corporate sector has to channelize the same into productive activities of the manufacturing industry and the services sector. Although in India, the NBFCs have been around since many decades, still their growth really started off in the 1990’s and now it is governed with lot of regulations. The Government of India and Reserve Bank of India took various initiatives so as to promote easy availability of finance to public. The Reserve Bank of India has framed certain rules and regulations for NBFC’s for protecting the interest of the depositors.

As per Section 45-1A of the RBI Act,1934, NBFCs are required to obtain a Certificate of Registration (CoR) from the Reserve Bank of India to commence/carry on business of NBFI in terms of Section 45-1A of the RBI Act,1934. The said section also prescribes the minimum Net Owned Fund (NOF) requirement to be fulfilled by the Companies applying for NBFC License to commence business.

PRINCIPAL BUSINESS (50-50) CRITERIA FOR REGISTRATION AS NBFC:

To be registered as NBFC, the company has to fulfill the following criteria (both the conditions together) for determining the principality of business:

The term “principal business” is not defined by the Reserve Bank of India Act. The Reserve Bank has defined it so as to ensure that only companies predominantly engaged in financial activity get registered with it and are regulated and supervised by it. This test is popularly known as 50-50 Test and is applied to determine whether or not a company is into financial business.

Documents Required for NBFC Company Registration

One must keep the following documents ready to obtain NBFC License from RBI. Following are the broad list of documents:

  • Certified Copies of Certificate of Incorporation of the Company
  • Certified Copies of Memorandum and Articles of Association of the Company. Extract of MOA containing clauses relating to financial business activity.
  • Details of the Management of the Company
  • Certified copy of PAN Allotted to the Company
  • Certified copy of Board Resolution stating that the company is not carrying on any NBFC activity/stopped NBFC activity and will not carry on/commence the same before getting registration from RBI
  • Certified copy of Board Resolution for formulation of Fair Practices Code as per RBI Guidelines
  • Certified copy of Board Resolution to the effect that the company has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the approval of Reserve Bank of India
  • Certified copy of Board Resolution stating the Unincorporated Bodies in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past /does not hold any public deposit as on the date and will not accept the same in future
  • Copy of Fixed Deposit receipt & Bankers certificate of no lien indicating balances in support of Net Owned Fund
  • Brief profile of the Directors of the Company and signed by each Director
  • CIBIL Data pertaining to Directors of the Company
  • Details of Authorised Share Capital and latest shareholding pattern of the company including the percentages.
  • Details of the bank balances/bank accounts/complete postal address of the branch/bank loan/credit facilities etc. availed
  • Self-attested Bank Statement/IT Returns etc.
  • Source of the startup capital of the company substantiated with documentary evidence
  • Statutory Auditors Certificate certifying that the Company is/does not accept/is not holding Public Deposit/is not carrying on any NBFC activity/Net Owned Fund as on the date of application
  • Last three years Audited Balance Sheet and Profit & Loss account along with directors & auditors report or for such shorter period as are available (for companies already in existence.
  • Business plan of the company for the next three years giving details of its (a) thrust of business, (b) market segment, and (c) projected balance sheets, cash flow statement, asset/income pattern statement without any element of public deposits.
  • Banker’s report in respect of applicant company, its group/subsidiary/associate/holding company/related parties, directors of the applicant company having substantial interest in other companies. The Banker’s report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing entity.
  • Note: Please provide bankers report from all the bankers of each of these entities and provide the report for all the entities. The details of deposits and loans balances as on the date of application and the conduct of the account should be specified.
  • Any other documents as may be required by RBI

What are the Benefits of NBFC Company Registration?

NBFC Company Registration Certification (Medical Devices: Quality Management Standard) has many benefits:

  • NBFC grant loans at lower Interest Rates as compared to Banks
  • NBFC process Loan Applications quickly as compared to Banks
  • Rules and regulations applicable to NBFCs are less stringent as compared to Banks
  • NBFC can grant loans to Individuals with Poor Credit Rating
  • NBFC cannot accept demand deposits
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself
  • NBFCs do not provide deposit insurance facility of Deposit Insurance & Credit Guarantee Corporation to depositors of NBFCs as in case of banks.

Frequently Asked Questions

Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions to avoid dual regulation.

A Limited Liability Partnership (LLP) is not allowed as an NBFC as company form of organization is a prerequisite for obtaining RBI approval and an LLP is not a company or a corporation.

NBFCs are categorized on the basis of liabilities (Deposit and Non-Deposit accepting NBFCs), size (Systematically Important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND), and by the kind of activity they conduct. With this broad categorization, the different types of NBFCs are as follows:

  • Asset Finance Company
  • Investment Company
  • Loan Company
  • Infrastructure Finance Company
  • Systematically Important Core Investment Company
  • Infrastructure Debt Fund
  • Micro-Finance Institution
  • NBFC Factors
  • Mortgage Guarantee Companies
  • Non-Operative Financial Holding Company

The list of registered NBFCs is available on the web site of Reserve Bank of India and can be viewed at www.rbi.org.in → Sitemap → NBFC List. The instructions issued to NBFCs from time to time are also hosted at www.rbi.org.in → Notifications → Master Circulars → Non-banking, besides, being issued through Official Gazette notifications and press releases.

The Reserve Bank has been given the powers under the RBI Act 1934 to register, lay down policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs that meet the 50-50 criteria of principal business. The Reserve Bank can penalize NBFCs for violating the provisions of the RBI Act or the directions or orders issued by RBI under RBI Act. The penal action can also result in RBI cancelling the Certificate of Registration issued to the NBFC, or prohibiting them from accepting deposits and alienating their assets or filing a winding up petition.

ROLE OF COMPLIANCE CALENDAR LLP

The first and foremost step towards attaining NBFC License is to form a private or public company with financial objectives. A company is required to be incorporated with main object clause /ancillary clause for carrying out NBFI activities. To obtain an NBFC License, one needs to have the necessary documents as documentation plays a significant role in the process of NBFC registration. We the team of experienced professionals at Compliance Calendar LLP can provide you services with respect to NBFC Company Registration and obtaining NBFC License in an efficient and timely manner. If you are looking to register your Non-Banking Financial Company (NBFC), you are welcome to connect with us at info@ccoffice.in or call us at +91-9988424211 to book your one-time free consultation and we will be more than happy to help you out.