NBFC Registration

Introduction:

What is NBFC Registration? 

NBFC registration is the process of obtaining a license from the regulatory authority, usually the Reserve Bank of India (RBI), to operate as a Non-Banking Financial Company. NBFCs play a crucial role in the financial sector by providing various financial services and products to individuals and businesses, excluding traditional banking activities.

Non-Banking Financial Company

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 with activities similar to that of a bank, except for the following differences:

• NBFC’s cannot accept demand deposits
• NBFC’s cannot issue cheque drawn on itself
• Bank deposits are insured by the Deposit Insurance and Credit Guarantee Corporation. However, deposits in NBFC’s are not insured.

NBFC’s like banks except for the above differences are engaged in the business of making loans and advances, acquisition and trading of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. Also, a company which is in the principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner is also a non-banking financial company.

Categories of Non-Banking Financial Company (NBFC)

NBFC’s are mainly categorized into deposit taking NBFC’s and non-deposit taking NBFC’s. Deposit-taking NBFC’s and non-deposit taking NBFC’s are further classified based on their size. Within this broad categorization, there are again many types of NBFC’s like Asset Finance Company, Investment Company, Loan Company, Infrastructure Finance Company, Systemically Important Core Investment Company, Infrastructure Debt Fund, Micro Finance Institution and Factors.

Documents Required for NBFC Registration

The following documents should be kept ready:

• Company Incorporation Certificate;
• Detailed information on management along with company brochure;
• Copy of PAN/Corporate Identity Number (CIN) of the company;
• Documents of the location/address;
• A Certified copy of the Memorandum of Association & Articles of Association;
• List of Directors' profiles which should be duly signed;
• Qualification certificate of directors as well as their experience certificate;
• CIBIL/credit reports of the Directors of the Company;
• Board resolution on ‘Fair Practices Code’ and a certified copy of the same;
• Certificate issued from the statutory auditor declaring that the company doesn’t hold any public deposit and does not accept it;
• Certificate specifying owned funds on the date of the application from a Statutory Auditor;
• Shareholder KYC, CIBIL report, ITR and banker report;
• Furnish information on the bank account, balances, loans, credits, etc.;
• Audited balance sheet as well as P&L statement with the directors and auditor’s report of the last three years;
• Self-certified copy of bank statement and ITR;

NBFC Registration Procedure 

The process for the registration of NBFC is given below

Arranging the Documents: - It is important for the applicant to arrange all the relevant documents required to initiate the process of NBFC Registration. 

Filing the Application with RBI: - After arranging the relevant documents, the applicant must file the application with the authority.

Submission of Application and Documents for Verification:-The next step is the submission of the application along with the necessary documents by the applicant for the purpose of verification by the authority.The authority will verify the documents and application to check the accuracy of the submissions made by the applicant. 

Issue of Registration Certificate: -After successfully verifying the application and documents, the authority will issue the registration certificate.  

What is the difference between NBFC’s and Banks? 

There are several key differences between NBFCs (Non-Banking Financial Companies) and banks. While both entities are involved in financial activities and both are regulated by the reserve bank of India, here are the key differences: 

• Regulatory Authority: Banks are regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949. NBFCs, on the other hand, are regulated by the RBI under the Reserve Bank of India Act, 1934 and the guidelines specific to NBFCs. 
• Acceptance of on Demand Deposits: Banks are authorized by the RBI to accept on demand deposits from the public, which can be withdrawn on demand by the depositor. NBFCs are generally not allowed to accept demand deposits, except for certain specific types of NBFCs like NBFC-D (Deposit Accepting). 
• Lending and Borrowing: Both banks and NBFCs engage in lending and borrowing activities. However, banks have a broader range of lending capabilities and can create credit through the process of filtering through personal or corporate banking. NBFCs primarily rely on their own funds, borrowings from financial institutions, or issuance of debt instruments for lending activities.
• Payment and Settlement Systems: Banks have direct access to the payment and settlement systems operated by the RBI, such as Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT). NBFCs typically use the banking channels or other payment systems to facilitate transactions. 
• Deposit Insurance: Bank deposits are typically covered by deposit insurance schemes like the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a certain limit. NBFC deposits are not covered under these deposit insurance schemes. 
• Prudential Norms: Banks have specific prudential norms, such as capital adequacy ratios, asset classification norms, provisioning requirements, and exposure limits that they must adhere to as per RBI regulations. NBFCs also have prudential norms, but they are soft and easy compared with those applicable to banks. 

• Ownership Structure: Banks are typically owned by shareholders, including individuals, corporations, and institutions, while some banks may be government owned. NBFCs can be privately owned or have a combination of ownership structures, including individuals, companies, or LLP or HUF. 

FAQs of NBFC Startup:

What is an NBFC?

An NBFC, or Non-Banking Financial Company, is a financial institution that provides various financial services and products, excluding traditional banking activities such as accepting deposits like a bank. NBFCs can offer services like loans, asset financing, wealth management, microfinance, and more.

Why should I start an NBFC?

Starting an NBFC offers several advantages, such as flexibility in operations, the ability to offer a wide range of financial services, access to capital through various funding options, credibility and trust among customers and investors, and the opportunity to contribute to financial inclusion by serving underserved segments of the population.

What are the regulatory requirements for starting an NBFC?

The regulatory requirements for starting an NBFC vary based on the jurisdiction and the regulatory authority governing NBFCs. In India, for example, the Reserve Bank of India (RBI) is the regulatory authority responsible for NBFCs. The requirements may include minimum capital adequacy norms, fit and proper criteria for directors, registration fees, and compliance with RBI guidelines.

What is the minimum capital requirement for an NBFC?

The minimum capital requirement for an NBFC in India depends on the category of NBFC. For example, for an NBFC engaged in lending and investment activities, the minimum capital requirement is generally Rs. 2 crores.

How long does it take to obtain NBFC registration?

The timeline for obtaining NBFC registration can vary depending on various factors, including the completeness of documentation, the responsiveness of regulatory authorities, and any additional clarifications or queries raised during the registration process. On average, it can take around 4-6 months or more.

What are the documents required for NBFC registration?

The documents required for NBFC registration typically include the company's incorporation documents, business plan, financial projections, KYC documents of directors and shareholders, board resolution, auditor's certificate, and various other supporting documents as per the regulatory authority's guidelines.

Tags regarding NBFC Start up:

Financial products, Regulatory compliance, RBI, Capital adequacy, Fit and proper criteria, Funding options Flexibility in operations, Financial inclusion, Loans and advances, Asset financing, Wealth ,management, Microfinance.

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