Comprehensive Guide on NBFC Registration in India

1. Introduction to NBFCs

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 NBFCs 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 NBFCs

NBFCs are categorized based on their activities:

3.1 Deposit-Taking and Non-Deposit-Taking NBFCs

• 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

1. Infrastructure Finance Company (IFC-NBFC): Provides finance for infrastructure projects.
2. Asset Finance Company (AFC-NBFC): Deals in hire purchase and leasing of physical assets.
3. Infrastructure Debt Fund (IDF-NBFC): Invests in Public-Private Partnership (PPP) infrastructure projects.
4. NBFC-Factors: Engages in factoring business of bill receivables.
5. Mortgage Guarantee Company (MGC-NBFC): Provides guarantees on housing finance mortgages.
6. Micro Finance Institution (MFI-NBFC): Lends to small borrowers with limited collateral.
7. Investment Company (IC-NBFC): Primarily invests in shares, securities, and bonds.
8. 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. NBFCs 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 NBFCs

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.

10. Additional Resources

For further reading, explore:

• Statutory returns and annual compliances for NBFC
• Understanding step-by-step guidelines on Small Finance Bank Licence
• Detailed understanding on Housing Finance Company Registration
• Step-by-step guideline on Housing Co-operative Society Registration

Frequently Asked Questions (FAQs) on NBFC Registration in India

A. General Information about NBFCs

1. What is a Non-Banking Financial Company (NBFC)?

An NBFC is a company registered under the Companies Act, 2013, that engages in the business of loans and advances, investments in shares, stocks, bonds, debentures, and other financial instruments. However, it cannot accept demand deposits like a bank.

2. What are the different types of NBFCs?

NBFCs are classified based on their activities, including:

2. • Asset Finance Company (AFC): Finances physical assets like vehicles and equipment.
   • Loan Company (LC): Provides various types of loans.
   • Investment Company (IC): Invests in securities.
   • Infrastructure Finance Company (IFC): Finances infrastructure projects.
   • Microfinance Institution (MFI): Provides microloans.
   • Housing Finance Company (HFC): Provides housing finance.
3. What are the key characteristics of an NBFC?

Key features include:

3. • Registered under the Companies Act.
   • Engages in financial activities (loans, investments, etc.).
   • Cannot accept demand deposits.
   • Regulated by the Reserve Bank of India (RBI).
   • Subject to specific capital adequacy requirements.
4. What are the advantages of registering as an NBFC?

Advantages include:

4. • Formal structure for conducting financial business.
   • Access to funding and borrowing opportunities.
   • Enhanced credibility and trust.
   • Regulatory framework for operations.

B. Registration Process and Requirements

5. Who regulates NBFCs in India?
   The Reserve Bank of India (RBI) is the primary regulator for NBFCs.
6. What is the process for NBFC registration?

The process involves:

6. • Incorporating a company under the Companies Act.
   • Meeting the minimum Net Owned Funds (NOF) requirement.
   • Applying to the RBI for a Certificate of Registration (CoR).
   • Submitting required documents and information.
7. What are the eligibility criteria for NBFC registration?

Key criteria include:

7. • The company must be incorporated in India.
   • It must have the required NOF.
   • Its directors must be fit and proper.
   • It must have a sound business plan.
8. What documents are required for NBFC registration?

Typical documents include:

8. • Certificate of Incorporation.
   • Memorandum and Articles of Association (MoA and AoA).
   • Details of directors and shareholders.
   • Business plan.
   • Financial statements.
   • Proof of NOF.
9. What is the minimum Net Owned Funds (NOF) requirement for NBFCs?

The NOF requirement varies depending on the type of NBFC. Check the latest RBI circulars for the specific requirements.

10. How long does the NBFC registration process take?

The RBI’s processing time can vary and may take several months.

C. Operations and Compliance

11. What are the compliance requirements for NBFCs?

Compliance is stringent and includes:

11. • Maintaining proper books of accounts.
    • Filing regular returns with the RBI.
    • Adhering to prudential norms related to capital adequacy, asset classification, and provisioning.
    • Complying with KYC/AML guidelines.
12. Can NBFCs accept deposits from the public?

Certain types of NBFCs are allowed to accept public deposits, subject to specific regulations and limits. Other NBFCs are restricted from accepting public deposits.

13. What are the restrictions on the activities of NBFCs?

NBFCs cannot accept demand deposits, and they are subject to restrictions on lending and investment activities.

14. Can an NBFC engage in insurance business?

Generally, no. NBFCs cannot engage in insurance business directly.

D. Other Aspects

15. What is the difference between a bank and an NBFC?

The key difference is that banks can accept demand deposits, while NBFCs cannot. Banks also provide a wider range of services.

16. How do I choose the right type of NBFC for my business?

The choice depends on the specific financial activities you plan to undertake.

17. What are the challenges faced by NBFCs?

Challenges include regulatory compliance, competition, funding constraints, and managing asset quality.

E. Other generally asked questions related to NBFC registration:

            18.   How do I register an NBFC in India?

             Covered in the registration process details.

19. What are the RBI guidelines for NBFCs?

Refer to the RBI’s master circulars and notifications on NBFCs.

20. How do I apply for an NBFC license?

Online application shall be made through the RBI portal.

21. What are the compliance requirements for NBFCs?

Regular returns, adherence to prudential norms, KYC/AML compliance.

22. What are the penalties for non-compliance with NBFC regulations?

RBI can impose penalties, including fines and cancellation of CoR.

23. Can an NBFC accept deposits?

Some NBFCs can, subject to restrictions.

24. What are the different types of NBFC licenses?

AFC, LC, IC, IFC, MFI, HFC, etc.

25. How do I manage an NBFC effectively?

Strong governance, risk management, and compliance are crucial.