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NBFC License

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NBFC Registration

Name(Required)

Process of Registration

Step 1
Online Application

A company application reference number is generated after submitting an online application in the required format with the necessary information about the required documents and enclosures.

 

Step 2
Documents submission

The aforementioned application is sent in hard copy to the RBI regional office in question, along with all required supporting documentation and attachments.

 

Step 3
Documents to the central office of RBI

The regional office transmits the application to the central office of RBI, which conducts a critical assessment of the stated application and grants the certificate, following the verification and acceptance of the submitted application and the supporting documentation.

 

Step 4
Certificate Granted

The Certificate will be issued if all of the requirements outlined in section 45-1 A of the RBI Act of 1937 are met.

 

What is a NBFC?

NBFCs are organisations that provide banking services and financial aid but lack a banking licence. They are neither the same as "Cooperative and Commercial" banks, nor are they required to have a financial licence, but they must scrupulously adhere to the norms and directives periodically issued by the RBI. NBFCs typically function in the areas of industrial and commercial loans, hire-purchasing, investment funds, deposits, debentures, chit fund business, leasing, insurance business, and capital & money market instruments including "bonds, stocks, and various other similar activities."
If we look back two decades, the financial sector in India has seen consistent growth. This sector's NBFC component has undergone significant shift in recent years. The nation's underserved retail and MSME market has also benefited greatly from fresh loan disbursals that have been spearheaded by NBFCs. In accordance with section 45-IA of the RBI Act, 1934, an NBFC Licence must be obtained from RBI. The budgetary foundation must be properly enrolled under the Companies Act, 2013 or the Companies Act, 1956 if it wants to be listed as an NBFC. The RBI Act's "Chapter III B" contains the arrangements and instructions that the NBFCs must follow, and the RBI carefully directs and ensures that they do so.
The main line of business for NBFCs is to borrow money from open donors and financial experts and then lend it to borrowers. NBFCs serve as the intermediaries that link depositors and investors with borrowers. They serve as a far superior alternative to the banking industry because they offer monetary assistance to the underbanked and underprivileged segments of society.

Principal Business

The RBI Act doesn't explicitly define what a "Principle business" is. In an effort to provide clarity, the RBI has defined financial activity. The primary business will only be regarded as a financial activity if the company satisfies the requirements listed below:

  • More than half of the financial assets are included in its Total Assets.
  • More than half of the gross revenue is established by income from financial resources. The "50-50" standard is another name for this.

However, the following activities are not thought to be of a financial nature:

  • Agricultural activity,
  • Industrial activity,
  • Purchase/sale of any goods and services (excluding securities), and
  • Sale/purchase/construction of the immovable property.

How NBFCs are Different from Bank

Both NBFCs and banks engage in financial activities, although there are certain differences between them, such as:

  • Acceptance of Deposits.
  • Cheques were drawn on itself.
  • Being an element of the settlement and payment system.
  • Deposit Insurance and Credit Guarantee Corporation offers the option to insure deposits. Only applies to bank deposits.

Types of NBFCs

NBFCs have been broadly classified on the following basis:

Liabilities:

Deposit-accepting NBFCs and Non-Deposit Accepting NBFCs (NBFCs that do not accept deposits are further divided based on size) Important in terms of the system (NBFC-NDSI) and others

Activities:

Factors
Mortgage Guarantee Companies
Investment Credit Company
Infrastructure Debt Fund
Micro Finance Institution
Non-Operative Financial Holding Company
Systemically Important Core Investment Company

Any of the following classes may submit an application for an NBFC Licence:

Non-Banking Financial Companies – Factors (NBFC-Factors):

These NBFCs mostly do factoring as their main line of business. A financial transaction is factoring. Anybody can sell their invoices or bills (accounts receivables) to an outsider (NBFC-Factor) at a discount under this type of borrower finance. Typically, it is referred to as invoice financing or bill discounting.

Non-Banking Financial Companies – Mortgage Guarantee Companies (NBFC-MGC):

It is necessary for NBFC-MGC to register with RBI as a Mortgage Guarantee Company. Its main line of work is to offer mortgage guarantees. When a trigger event occurs, this guarantee is offered to repay an outstanding housing loan and interest accumulated on it, up to the guaranteed amount, to a creditor institution. This type of NBFC has various minimum NOF requirements and financial asset requirements.

Non-Banking Financial Companies –

Any financial institution that specialises in asset finance is a member of NBFC-ICC. Loans, advances, and other forms of funding are given for any activity except buying securities and conducting its own business. Its operations must not fall into another RBI-defined category.

Non-Banking Financial Companies –

These businesses invest in infrastructure companies' or public-private partnership projects' debt securities, which have a minimum NOF of Rs. 300 crores. For such NBFCs, the basic business and rating requirements are also exceptional.

Non-Banking Financial Companies –

Microfinance Institution (NBFC-MFI): An NBFC that does not accept deposits and lends money to low-income groups in India on a temporary basis with at least 85% of its assets, according to the following requirements from the borrowers:

  • The loan must be applied for by a debtor whose "Rural Household" earns less than Rs. 60,000 per year or whose "Urban and Semi-Urban Household" earns no more than Rs. 1,20,000 per year.
  • In the initial cycle, no more than Rs. 35,000 should be lent, and Rs. 50,000 in each subsequent cycle.
  • The debtor's total commitment should not be more than Rs. 50,000.
  • If the amount is greater than Rs. 15,000, there must be a two-year minimum advance term with prepayment and no penalties.
  • extending a loan without a mortgage
  • extending a loan without a mortgage
  • The total amount of loans made for income creation cannot be less than 75% of the total credit supplied by the MFI.
  • The debtor should decide on the frequency of payback, whether it be "weekly, fortnightly, or regularly."

Non-Banking Financial Companies – Systemically Important Core Investment Company (NBFC-SI-CIC):

These NBFCs purchase securities, stocks, and shares. The following requirements must be met by the transactions:

  • It invests at least 90% of its total assets in equity or preferred shares, as well as debt and loans to group companies.
  • It should invest a minimum of 60% of its total assets in equity stock or shares, including any instruments that can be converted into equity shares in group firms within ten years of the date of issue.
  • It only trades its investments in group firms through "block sales for dilution or disinvestment"
  • It is not engaged in any financial activity covered by sections "45-I(c) & 45-I(f)" of the RBI Act. With the exception of investments in government securities, money market instruments, loans to group firms, investments in their debt issuances, and guarantees made on their behalf,
  • Its asset size should be at least Rs. 100 crores.
  • It accepts public funds.

Pre-Conditions of NBFC Registration

The following requirements must be met, in accordance with Section 45-IA of the RBI, in order for a business to be registered as an NBFC:

Registration:

The financial institution shall be established as an entity under the Companies Act of 2013's Section 3 or the earlier Companies Act of 1956.

Director’s Qualifications:

A minimum of one-third of the directors must have at least 10 years of financial expertise. Additionally, he or she ought to be employed as a director on a full-time basis.

Unique Business Plan:

A business strategy must be prepared to task for the next 5-years.

Net Owned Fund (NOF):

As a NOF, the Company is required to have a minimum of Rs. 2 crores. Only equity-paid-up share capital may be present. The incorporation of preference share capital is prohibited. If there is one, the premium on shares and reserves will be incorporated. But it shouldn't be money that was borrowed. Gifts from the life partner can, however, be accounted for in the NOF. Different NBFCs (NBFC-MFIs, NBFC Factors, and CICs) have different minimum NOF criteria.

Lean Credit History:

The "company, its Directors, and its individual members" must all have appropriate CIBIL scores. They shouldn't have any write-offs or fail to repay advances made to an NBFC or bank.

FDI Compliance:

The business should be compliant if foreign investment is anticipated.

Process of Applying for NBFC License

Following your firm's incorporation and collection of the required NOF payment, you must follow the procedure outlined below to have RBI register your company as an NBFC:

Online submission of an application is required. with the required paperwork. Upon successful submission, a Company Application Reference Number (CARN) is generated. Every request and correspondence in the future should include this reference number.

To the Regional Office of RBI, under whose authority your company falls, you must provide both the hard copies of the required documentation and the completed online application form.

Once the provided documents are verified to be valid, the regional office forwards the application to the RBI's headquarters. The application and supporting documentation are then checked, and a full background check is made.

The NBFC Licence will be granted if the organisation complies with all the requirements outlined in Section 45-I A of the RBI Act, 1934.

It would be best if you made sure to maintain the required minimal funds in a bank account that is free from all obligations. This amount is stored in an FD, or fixed deposit. The RBI will confirm this amount with the relevant bank before approving your application.

RBI Conditions for Granting NBFC License

The business will submit an application in the format specified by the RBI for NBFC enrollment. RBI may determine from the financial records and other books whether the following conditions are met before enrolling the company as an NBFC:

  • As and when their claims are paid out, the NBFC can fully indemnify any current or prospective investors.
  • Its tasks are not to be communicated to its current or potential financial specialists with a negative attitude.
  • The Board and the general administration must be impartial towards the interests of the general public and investors.
  • Its income potential and capital structure are sufficient.
  • The licencing of this business as an NBFC will be in the public's best interest.
  • The banking sector's operations won't be hindered by the CoR grant. Additionally, it must be in line with the RBI's policy on monetary stability, economic growth, and other pertinent matters.

Compliances Required by NBFCs after CoR

Following the NBFC Licence procedure, there are a few compliances must be met. It is also necessary to abide by the guidelines, circulars, and notifications issued by the RBI, which are periodically published in the public domain:

  • Appointing a Statutory Auditor (CA with 5+ years of experience),
  • Statutory Audit,
  • Tax Audit,
  • Income Tax Returns Filing,
  • GST Returns Filing,
  • ROC Returns,
  • All other Compliances/Returns required by a competent authority.

Compliances for NBFCs by RBI

  • Adoption of Fair Practice Code,
  • CIC Registration,
  • C-KYC Registration,
  • CERSAI Registration,
  • FIU-IND Registration,
  • COSMOS Registration,
  • Secretarial compliances,
  • Compliance of KYC Anti-money Laundering,
  • Filing NBS-9 on COSMOS, the online platform of RBI.

Penalty of Non-Compliance with RBI Regulations

If a company has been "lending, accepting deposits, or making investments" as its primary activity, RBI is authorised to take harsh regulatory action. On it, a severe penalty or fine may be imposed. Any entity that conducts financial transactions but is neither listed on the RBI website's list of authorised NBFCs nor registered there is invited to be detailed. A appropriate action would also be taken to repeal the provisions of the RBI Act of 1934. The RBI also regularly collects data from "insight reports, grievances, special case reports from statutory evaluators of the organisations, data through State Level Coordination Committee Meetings (SLCC), and so forth."
To learn more about how businesses violate their agreements. Additionally, RBI is interested in discussing this information in the SLCC meetings with all of the financial segment controllers and enforcement organisations.

Frequently Asked Questions

What is an NBFC?

NBFCs are organisations that provide banking services and financial aid but lack a banking licence. They differ from "Cooperative and Commercial" banks in that they are exempt from financial licence requirements but are nevertheless required to adhere to certain norms and guidelines periodically provided by the RBI. NBFCs typically function in the areas of industrial and commercial loans, hire-purchasing, investment funds, deposits, debentures, chit fund business, leasing, insurance business, and capital & money market instruments including "bonds, stocks, and various other similar activities."

What is necessary to obtain an RBI NBFC Licence?

Any company that wants to start engaging in non-banking financial activities as described by Section 45-IA of the RBI Act, 1934 must: 1. be formed under Section 3 of the Companies Act, 1956 or 2013,
2. It must have a NOF of at least Rs. 2 crores. For specialised NBFCs such NBFC-MFIs, NBFC-Factors, and CICs, a different minimum NOF requirement applies.

What separates banks from non-bank financial companies?

NBFCs make investments and make loans. These qualities are similar to those of banks. There are some variations, though:
1. NBFCs are not permitted to accept deposits due on demand; 2. They are not a part of the payment and settlement system and are not permitted to issue checks drawn on themselves; and 3. NBFC investors are not permitted to use the "Deposit Insurance and Credit Guarantee Corporation"'s deposit insurance facility.

How can I obtain an NBFC licence?

Depending on how you choose to launch your NBFC, we'll finish gathering the documentation required by RBI. provide you advice on the procedures to be followed and make arrangements for them to be finished. Send them to the regional RBI office. Offer advice on the actions you should take. Respond to all questions on time. and quickly register you.

What type of documentation is needed to register as an NBFC?

• The Company's Certificate of Incorporation.
• The AoA and MoA.
• The Company's administrative documents.
• Evidence of the Company's address.
• Detailed information about the Company's Partners or Directors.
• The Company's accounts, which have undergone a thorough audit, go back at least three years.
• The Board Resolution sanctioning the NBFC's formation.
• A bank account with at least Rs. 2 crore in fully paid-up equity share capital.
Most recent KYC.
• A certificate of net worth.
• A good banker's reference.
• Additional pertinent documents, upon request.

Does RBI oversee all financial institutions?

No, "Merchant Banking Companies," "Stock Exchanges," "Housing Finance Companies," "Venture Capital Fund Companies," "Stock-broking/Sub-broking Companies," "Nidhi Companies," "Insurance Companies," and "Chit Fund Companies" are all considered NBFCs and are exempt from RBI registration as long as they meet certain requirements. They are governed by additional regulators.

What authority does the RBI have over NBFCs?

The RBI has the power to register, establish rules and regulations, give instructions, control, monitor, and exert surveillance over NBFCs that meet the "50-50" criterion of their primary activity. If NBFCs violate the terms of the RBI Act or any directives or decisions made pursuant to it, it may impose penalties. The CoR may also be revoked, and it may be forbidden for them to accept deposits, sell their assets, or file a petition for winding up as a form of punishment.

If financial institutions do not register with the RBI, what happens?

Businesses that primarily engage in "lending, investing, or accepting deposits" are required to register as NBFCs with the RBI.The RBI may impose a penalty or fine on them if they are discovered to be operating without an NBFC licence. They might even face an accusation in court. The local Regional Office of RBI is open to receiving reports on such businesses from members of the general public. Such entities shall be subject to appropriate sanctions for breaking the RBI Act of 1934's rules.

What rules are in place for "ND-NBFCs" with assets under Rs. 500 crores?

These are the provisions:
If they haven't accessed any public funds and don't have a consumer interface, they are exempt from all laws, including prudential and business behaviour requirements. "Fair Practise Code, KYC, etc." are the standards.
b) Even if they are not using public funding, those who have consumer interfaces must abide by these regulations.
NBFCs will be subject to some prudential laws if public funds are utilised, but no business conduct regulations if there is no consumer contact.
d) Companies are subject to both the limited prudential requirements and the conduct of business regulations when they accept public funding and have a consumer interface.

What is Public Fund?Do they have the same value as public deposits?

Public Fund is defined as "public deposits, bank finance, inter-corporate deposits, and all funds received" from external sources, whether directly or indirectly. It might be money raised through the sale of commercial papers, etc.

What regulations must the NBFCs comply with?

A. The NBFC-Deposit Accepting is required to produce the following returns: 1. NBS-1 - Quarterly returns on deposits in the First Schedule.
2. Quarterly returns on prudential norms under NBS-2.
3. NBS-3 - Liquid Assets quarterly results.
4. NBS-4 - Annual returns of important metrics by a corporation holding public deposits that was rejected.
5. NBS-6 - Monthly returns on exposure to institutions in the capital market with assets totaling at least Rs. 100 crore.
6. Companies with public deposits over Rs. 20 crore or asset sizes over Rs. 100 crore must submit half-yearly ALM returns.
7. The Auditor's Report and the Audited Balance Sheet.
B. Returns that NBFCs-ND-SI must submit:
1. Quarterly Statement of Capital Funds, Risk-Weighted Assets, Their Ratio, etc.
2. Quarterly Returns on Key Financial Indicators.
3. ALM returns include the following:
a. Monthly statement of short-term dynamic liquidity in the form of an ALM [NBS-ALM1],
b. Half-yearly statement of structural liquidity in the form of an ALM [NBS-ALM2], and
c. Half-yearly statement of interest rate sensitivity in the form of an ALM [NBS-ALM3].
4. Returns of Branch Info.
5. For NBFC-NDs with assets between Rs. 50 crore and Rs. 100 crore, quarterly returns on key financial figures and basic information including the company's name, address, NOF, and profit & loss statement for the previous three years.

What is RNBC?

A specific kind of NBFC called a Residuary Non-Banking Company (RNBC) specialises in receiving deposits through any "scheme/arrangement/other manner." It is not a "investment company," a "asset financing company," or a "loan company." They must continue to hold investments and liquid assets in accordance with RBI regulations. Regarding how they mobilise deposits and the requirement of deployment of depositors' cash as per RBI Directions, their operation differs significantly from that of NBFCs. Additionally, the Prudential Norms Directions also apply to them.

Can deposits be made at all NBFCs?

Public deposits cannot be accepted by any NBFCs. Public deposits may only be accepted or held by NBFCs that have received explicit authorization from the RBI to do so. They must have an investment-grade rating up to a maximum of 1.5 times of its NOF in order to receive RBI approval.

What rate of interest on deposits may an NBFC offer?

The maximum annual rate of interest for an NBFC is 12.5%, according to the RBI. At intervals of one month or more, the interest may be paid or compounded.

How long may an NBFC accept a deposit for?

For a minimum of 12 months and a maximum of 60 months, NBFCs will accept/renew deposits. Demand deposits cannot be accepted by them.

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