How to get NBFC License in India?

Non-Banking Financial Company, popularly known as NBFC, is a company registered under the Companies Act, 2013, which is engaged in several financial services like providing loans, supporting credit facilities, assets financing, currency exchange, lending, and many more functions.

An NBFC License in India is done as per the rules and regulations of the RBI Act.

What is NBFC?

Under Section 45-1 (c) of the Reserve Bank of India Act, 1934, any non-banking company providing any financial services are considered as NBFC. Ministry Of Corporate Affairs and RBI governs the NBFCs. Non-Banking Financial Company is the financial institution that offers banking services but does not hold any banking license. A Non-Banking Institution has the principal business of receiving deposits underneath any scheme or arrangement or in any other prescribed manner. Such deposits and can be obtained in one lump sum or installments by way of contribution.

Some NBFCs do not require registration from the RBI they are-

•      Nidhi company
•      Investment businesses whose assets are less than 100 crores
•      Merchant banking companies
•      Companies engaged in the business of stockbroking
•      Companies involved in venture capital
•      Insurance companies having incorporation certificate
•      Chit fund companies

How can you differentiate between an NBFC and a bank?

NBFC can give and invest money, just like any traditional bank. The actions of banks and NBFCs are furthermore similar. The financial mediators are regulated by the Companies Act, 2013, and the Banking Regulation Act, 1949. The control of both the monetary intermediaries is under the Reserve Bank of India. The difference is as follows:

• NBFC cannot accept demand deposits like banks;
• NBFC cannot issue cheques on themself and does not form part of the settlement and payment scheme;
• If the facility of deposit insurance provided by Deposit Insurance and Credit Guarantee Corporation (DICGC)is not available to the depositors of NBFC.

What are the advantages of taking an NBFC License in India?

•   It can easily trade in the money market instruments
•   It offers loans and credit facilities
•  It provides wealth management by managing stocks and shares
•  They are are the last resorts for borrowing capital
• They are the most substantial back-up for providing finance
• It advises the companies for the process of merger and acquisition
• It prepares for the industry and market studies for the companies.
• The recent methods exercised by the NBFCs have overcome vital challenges
• They have made use of technological advancements such as the use of mobile phones, the internet, which has reduced the demand and dependence on the bank branches.

What are the role and functions of NBFC License in India?

The specific purpose of NBFCs are-

What is the classification of NBFCs?

Based on Activities-

•      Investment Credit Company

Also known as a loan company, with ICC license you can lend and invest

•     NBFC-P2P (Peer to Peer Lending)

 Collaborates lenders and Borrowers and Manage funds online

•      NBFC-AA (Account aggregator)

 Financial Information service provider

•      NBFC-MFI

Provides credit and loans to the fragile section of the society

•      NBFC-ND and CIC

 Investment in shares for Debt in the same group of companies

•      NBFC-IFC

 Long term debt to Infrastructure companies

•      NBFC-Factor

 Receivable Financing or Bill Discounting

•      Mortgage Guarantee Company

 Providing Mortgage guarantee services

•       NBFC-Financial Holding

 Created for Banking License

Based on Liabilities

•      NBFC-D

Deposit-taking NBFC

•     NBFC-ND

Non-deposit taking NBFC

What are the eligibility criteria for NBFC License?

As per Section 45(1A) of the RBI Act, any individual or Company eager to start a loan or investment business in India needs to register a company that meets the requirements prescribed for NBFCs. They are-

Ø  Directors Profile

The directors should have knowledge and experience regarding finance, credit and banking

    Ø  NBFC Business Plan

The Company should have a detailed business plan for the next five years

    Ø  Fund

Shareholders must have two crores as the Net Owned Fund. Investment should not be borrowed fund

    Ø  Credit History

The directors and shareholders must not have any write-offs

    Ø  Quality Of Capital

The Net Owned Fund must be tax paid, and all legal compliance of the management of the Company must be clean and legally up to standard.

What are the documents required for registration of NBFCs?

The documents required for NBFC License are-

Ø  MOA of the Company

Ø  Registration certificate

Ø  Income test certificate

Ø  Net worth certificate

Ø  Clean banker report

Ø  Education proof’

Ø  Credit report of directors and shareholders

Ø  Experience certificate of directors and shareholders

Ø  Organization matrix

Ø  Various policies

What is the procedure for NBFC License?

The steps in the NBFC License process are-

Step 1

Apply for Registration of the Company

Under the Companies Act, 2013,the applicant will have to register itself as a Public Company or a Private Companywhichever is relevant. The Company must be registered with the regulations of the Ministry of Corporate Affairs.

Step 2

Application Submission on COSMOS

The applicant should apply to the RBI site that is known as Cluster of Systems of Metadata for Official Statistics(COSMOS).

With the online application, a physical copy of the form along with the required documents is mandatory to be submitted by the applicant to the Regional Office of the Reserve Bank of India.

Step 3

Select for Company Registration

After getting access to the RBI website by the applicant, the login page of the Cluster of Systems of Metadata for Official Statistics application will ask for clicking on the Company Registration tab.

Step 4

Download the Form

A window tab will appear presenting an Excel application form that is available to be downloaded.

The applicant must download the suitable application form, which is an NBFC form.

  

Step 5

Filing of the Form

In the excel form, the applicant needs to fill the correct name of the Regional Office in the provided filed “C-8” of “Annex-I Identification Particulars.”

Step 6

Allocation of CARN Number

The applicant,after the submission of the form, a Company Application Reference Number (CARN), will be allocated for the Certificate of Recognition.

Step 7

Submission of Application form to the Regional Office

After receiving the CARN number by the applicant, the application with all the supportive documents are required to be submitted to the Regional Office of Reserve Bank of India.

Step 8

Inspection of the Application by RBI

The RBI will examine the application form and the relevant documents and will send it to the head office.

Step 9

Issue of NBFC License

If the application filed is correct, the required documents are complete, and the records are clean, then the head office of Reserve Bank of India will issue the NBFC License.

What are the post-registration compliances?

The post-registration compliances are as follows-

What do you mean by NBFC Annual Compliances?

If a company has effectively gotten its online NBFC license, then it’s obligatory to fulfill all the NBFC annual compliances. Where NBFC is failing to accomplish the agreements, NBFC becomes liable for the hefty penalties. The penalties could be even cancellation of the NBFC License.

NBFC annual compliance has to be filed by any NBFC within six months after attaining the registration from the RBI. There are mainly two categories of NBFCs-

v  Deposit-taking NBFC(NBFCs – D)

v  Non – Deposit NBFCs (NBFCs- ND)

 

Conclusion

NBFCs play a significant role in the development of the infrastructure, creation of wealth, and economic development. NBFC License in India is a complex process, and the government has encouraged registration since they have a vital role in channelizing and mobilizing the financial resources in a precise direction. For incorporating NBFC and getting its certification, the Company should comply with all the guidelines related to the registration process. In case of any query, contact Corpbiz.