Table of Contents

NBFC Registration in India: Types, RBI Guidelines & Compliance Requirements

1. Introduction to NBFC's

A Non-Banking Financial Company (NBFC) is a financial institution that provides banking services without meeting the legal definition of a bank. NBFCs are incorporated under the Companies Act, 2013, and their operations are governed by the Reserve Bank of India (RBI) as per Section 45-IA of the RBI Act, 1934.

2. Key Differences Between NBFC's and Banks

• NBFCs cannot accept demand deposits (savings and current accounts).

• NBFCs cannot issue cheques drawn on themselves.

• Bank deposits are insured, whereas NBFC deposits are not covered under the Deposit Insurance and Credit Guarantee Corporation.

3. Types of NBFC's

NBFCs are categorized based on their activities:

3.1 Deposit-Taking and Non-Deposit-Taking NBFC's

• Deposit-Taking NBFCs (NBFC-D): Can accept term deposits under RBI authorization.

• Non-Deposit Taking NBFCs (NBFC-ND): Cannot accept public deposits.

3.2 Classification Based on Activities

a. Infrastructure Finance Company (IFC-NBFC): Provides finance for infrastructure projects.

b. Asset Finance Company (AFC-NBFC): Deals in hire purchase and leasing of physical assets.

c. Infrastructure Debt Fund (IDF-NBFC): Invests in Public-Private Partnership (PPP) infrastructure projects.

d. NBFC-Factors: Engages in factoring business of bill receivables.

e. Mortgage Guarantee Company (MGC-NBFC): Provides guarantees on housing finance mortgages.

f. Micro Finance Institution (MFI-NBFC): Lends to small borrowers with limited collateral.

g. Investment Company (IC-NBFC): Primarily invests in shares, securities, and bonds.

h. Systemically Important Core Investment Company (CIC-ND-SI-NBFC): Invests 90% of its total assets in shares and securities with net owned funds of at least INR 100 crores.

4. Criteria for NBFC Registration

To register as an NBFC, a company must fulfill the following requirements:

• Registered as a company under the Companies Act, 2013.

• Minimum net owned funds (NOF) of INR 2 crores (varies for different types of NBFCs).

• At least 1/3rd of directors must have 10+ years of finance experience.

• Business plan for at least five years must be submitted.

• Directors must have a good credit history (CIBIL score).

5. NBFC Registration Process

Step 1: Incorporation of Company

Register a Private Limited Company or Public Limited Company under the Companies Act, 2013.

Step 2: Arrange Capital Funds

Ensure the minimum net owned fund (NOF) requirement is met.

Step 3: Open a Bank Account

Deposit the entire NOF in a fixed deposit account with a lien in favor of RBI.

Step 4: Prepare Necessary Documents

Key documents include:

• Memorandum and Articles of Association.

• Business plan for the next five years.

• Board resolution for NBFC registration.

• Banker’s certificate of no lien for NOF deposit.

• Director’s profile and credit report.

• Statutory auditor’s certificate verifying NOF.

Step 5: File Online Application with RBI

Submit an application through the RBI’s COSMOS portal.

Step 6: Submit Physical Application

Send a hard copy of the application along with supporting documents to the RBI’s regional office.

Step 7: RBI Verification and Approval

RBI reviews the application and, if satisfied, grants the Certificate of Registration (CoR).

6. NBFC's Not Regulated by RBI

Certain financial institutions are regulated by other authorities and do not require NBFC registration:

• Insurance Companies – Regulated by IRDA.

• Stockbroking Firms & Mutual Funds – Regulated by SEBI.

• Housing Finance Companies – Regulated by NHB.

• Chit Fund Companies – Regulated by State Governments.

7. Compliance Requirements for NBFC's

Once registered, an NBFC must comply with RBI guidelines:

• File annual returns and financial statements.

• Maintain a minimum Capital to Risk-Weighted Assets Ratio (CRAR).

• Follow fair lending practices and anti-money laundering norms.

• Submit quarterly reports on deposits and financial health.

8. Penalties for Non-Compliance

If an NBFC accepts deposits without authorization or fails to comply with RBI guidelines, it may face:

• Monetary fines.

• Cancellation of its license.

• Criminal prosecution in severe cases.

9. Conclusion

NBFC registration in India is a stringent but rewarding process for financial institutions looking to provide credit services. By adhering to RBI guidelines, NBFCs can play a crucial role in financial inclusion and economic growth.

With expert assistance from Return Filings, you can ensure a smooth registration and compliance process for your Non-Bank Finance Company (NBFC) registration. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.

frequently asked questions (faq's) related to NBFC Registration

Q What is a Non-Banking Financial Company (NBFC)?+

Q What are the different types of NBFCs?+

Q What are the key characteristics of an NBFC?+

Q What are the advantages of registering as an NBFC?+

Q Who regulates NBFCs in India?+

Q What is the process for NBFC registration?+

Q What are the eligibility criteria for NBFC registration?+

Q What documents are required for NBFC registration?+

Q What is the minimum Net Owned Funds (NOF) requirement for NBFCs?+

Q How long does the NBFC registration process take?+

Q What are the compliance requirements for NBFCs?+

Q Can NBFCs accept deposits from the public?+

Q What are the restrictions on the activities of NBFCs?+

Q Can an NBFC engage in insurance business?+

Q What is the difference between a bank and an NBFC?+

Q How do I choose the right type of NBFC for my business?+

Q What are the challenges faced by NBFCs?+

Q How do I register an NBFC in India?+

Q What are the RBI guidelines for NBFCs?+

Q How do I apply for an NBFC license?+

Q What are the compliance requirements for NBFCs?+

Q What are the penalties for non-compliance with NBFC regulations?+

Q Can an NBFC accept deposits?+

Q What are the different types of NBFC licenses?+

Q How do I manage an NBFC effectively?+