Non Banking Financial Company

The benefits of an NBFC Registration are as follows:

1. Low Cost and Time: , registering a company as an NBFC is considered an easy task as compared to registering a small Bank. Further, a lot of time and cost are required for opening a Bank.

2. Easy Registration:

   The process of obtaining NBFC Registration is very easy if the applicant has an experienced consultant who is having prior NBFC Registration experience.

3. Industry Growth Ratio:

   Presently, the Fintech industry is rising at a mounting rate as nowadays everyone needs an easy source of funding, so registering a company as an NBFC will be advantageous for aspiring Entrepreneurs in order to earn a good return in Fintech Industry.

4. Easy Recovery of Loans:

   Since NBFCs work systematically and offer considerably less loan amount, therefore, it helps the borrowers to return the said borrowed amount easily, which thus makes it convenient for lenders.

According to Section 45-IA of the RBI Act, 1934[1], the following listed are the conditions that a company must fulfill to be incorporated as an NBFC:

1. Registration:

   The concerned financial institution must already be incorporated as a company under Section 3 of the Companies Act, 2013, or as per the previous Companies Act 1956.

2. Director’s Qualification:

   At least 1/3rd of the total Directors must hold a minimum of 10 years of experience in finance. Further, he or she must be employed as a full-time Director.

3. Unique Business Plan:

   A business plan needs to be detailed in nature and also ready for operations for the next 5 years.

4. Net Owned Fund (NOF):

   The Company needs to have a minimum of Rs. 2 Crore as its Net Owned Fund. Further, the NOF must consist of only the equity paid-up share capital, as Preference share capital is not to be included.

5. Clean Credit History:

   The Credit Information Bureau of India Limited (CIBIL) score of the company, along with its Directors and members, must be good. And the concerned company must not have any write-offs or willful defaults on the repayment of loans to NBFC or Bank.

6. FDI Compliance:

   If in case any kind of foreign investment is expected, then the company must comply with the provisions of the FEMA Act 1999 (Foreign Exchange and Management Act).

Following listed are the different types of NBFCs:

1. On the Basis of Liabilities:

   • Deposit accepting NBFCs;

   • Non-Deposit accepting NBFCs;

2. Non-Deposit accepting NBFCs are further bifurcated on the basis of their size:

   • Systemically important (NBFC-NDSI);

   • Other Non-Deposit holding companies and NBFC-ND;

3. On the basis of Activities:

   • Investment and Credit Company;

   • Infrastructure Finance Company;

   • Systemically Important Core Investment Company;

   • Infrastructure Debt Fund Non Banking Financial Company;

   • Non-Banking Financial Company Micro Finance Institution;

   • Non-Banking Financial Company Factors;

   • Mortgage Guarantee Companies;

   • NBFC- Non-Operative Financial Holding Company (NOFHC).

In India, the entities not considered as an NBFC are as follows:

1. Agriculture Activity;

2. Purchase and Sale of any goods;

3. Industrial Activity; and

4. Purchase/ Sale/ Construction of an Immovable Property.

NBFCs provide loans and make investments. This characteristic is the same as that of banks.

However, there are some differences:

1. NBFCs cannot accept deposits payable on demand,

2. They are not part of the payment and settlement system and cannot issue cheques drawn on itself,

3. The deposit insurance facility of the “Deposit Insurance and Credit Guarantee Corporation” is not available to the investors of NBFCs.

Some of the specific role and functions of an NBFC are listed as follows –

1. Development and Growth of the sectors like Infrastructure;

2. Help in increasing Wealth creation;

3. Substantial Employment Generation;

4. Helps in providing finance to the Economically Weaker Section of the Society;

5. Helps in Economic Development;

6. A Large Contribution towards the State Exchequer;

7. NBFC offers the facility for Long-term Audit and Specialized credit;

8. Assists in the Development and Growth of the Financial Markets.

In India, the powers of the Apex Bank on an NBFC are as follows:

1. It monitors the procedure of NBFC Registration;

2. It lays down the policies, directions and issue guidelines for NBFCs;

3. It supervises NBFCs to verify whether they are adhering to the provisions of the RBI Act 1935 or not;

4. It penalizes NBFC for violating the rules and provisions of the RBI Act 1935, which might result in the cancellation or suspension of the NBFC License as well.

No, the Reserve Bank of India (RBI) does not administer or regulate all kinds of Financial Institutions operating in India. The Financial Institutions that are not governed by the Apex Bank are as follows:

1. Nidhi Companies;

2. Housing Finance Companies (HFC);

3. Insurance Companies;

4. Venture Capital Fund Companies,

5. Merchant Banking Companies;

6. Stock Exchanges;

7. Companies engaged in Stock Broking or Sub Broking;

8. Chit Fund.

Following are the Documents required for obtaining NBFC License in India –

1. Certificate of Company’s Incorporation.

2. Detailed information about the management together with a brochure of the company

3. A copy of the PAN card or the CIN (Corporate Identity Number) of the company.

4. Documents related to the location or address of the Registered office

5. Certified copy of the MOA (Memorandum of Association) and AOA (Articles of Association)

6. List of Directors’ duly signed by each director

7. CIBIL or the credit reports of the Directors of the concerned Company are required

8. A copy of the board resolution declaring that the company has not carried out or has stopped NBFC activity and will not carry out the same until RBI grants NBFC registration to that company

9. A board resolution regarding the ‘Fair Practices Code’ is to be passed in the board meeting and a certified copy of the resolution is to be submitted

10. Certificate issued by any statutory auditor declaring that the concerned company is not holding any public deposit and also do not accept it.

11. Certificate issued by the Statutory Auditor specifying the net owned funds as on the date of the application is required

12. Information concerning the following is to be furnished

    • bank account;

    • loans;

    • credits;

    • balances;

13. If applicable, following listed statements of the previous three years have to be submitted

    • An Audited balance sheet;

    • Profit and loss statement;

    • Directors and Auditor’s report;

14. Self-certified copy of the following is required to be submitted

    • Income Tax Return; and

    • Bank Statement;

15. Information dealing with the company’s future plan, normally for the next three years, together with the projection of the balance sheets, income statement, and cash flow statement.

The Following listed are the compliances that are required to be complied by an NBFC after obtaining Certificate of Registration (COR):

1. Statutory Audit;

2. Income Tax Returns (ITR) Filing;

3. GST Returns Filing;

4. ROC Returns;

5. Tax Audit;

6. And all the other Compliances and Returns prescribed by a competent authority

The amalgamation of new age technological advancements with the financial business functions is providing various sorts of benefits to the economy. The benefits of doing a Fintech based NBFC Model are as follows:

1. Addressing customer problems by using technological advancements;

2. Online loan facility;

3. Working on the financial inclusion app;

4. Creating space for the alternative digital banking system, disrupting conventional business models facing significant legacy issues;

5. Use of Big data, Artificial Intelligence, and Machine learning tools to minimize the risk of fraud.

In India, the situations in which the RBI rejects an application for NBFC Registrations are as follows:

1. Lack of Financial Experience;

2. Improper Profile of the Directors;

3. Improper Profile of the Shareholders;

4. Ambiguous Sources of Raising Capital;

5. Inappropriate Business Plan;

6. Unclear Net Worth of the Promoters;

7. Inexperienced NBFC Consultants; and

8. Unfavorable Area of Operation.

The Reserve Bank of India is the apex authority and has the power to impose a penalty on the prevailing NBFCs for violation of the provisions mentioned in the RBI Act. Such penalties are as follows –

1. Whenever a business is being carried out without getting the certificate of registration, then the RBI can impose a fine of not less than Rs 1 lakh on the defaulting NBFC, which can further extend up to Rs 5 lakh or even twice the amount involved in such contravention, whichever is more;

2. Any business carried out without obtaining the certificate of registration is committing an offense, that is punishable with an imprisonment of not less than 1 year;

3. In case the default is continued by the defaulting company, then the penalty imposed may go up to Rs 25000 per day after the first day of such default;

4. If, in case of any other contravention, a fine of a maximum of Rs 5000 is imposed by the Reserve Bank.

5. If there is any kind of non-compliance with the orders passed by the Company Law Board, then the defaulting company will be punishable with imprisonment up to 3 years along with a fine of not less than Rs 50 every day during which such non-compliance continues

6. If in case any auditor fails to comply with any direction issued by the RBI, then he will be punishable with a fine up to Rs 5000.

Following are the reasons why one should choose Registernbfc for NBFC Registration –

1. 300 + NBFC Clients

2. 55+ Fresh NBFC Registration

3. 240+ Team of CA, CS, Ex-Banker

4. 300+ Cities Served

5. 24X7 Customer Service

6. 9 Customer Score

7. 98% SLA Delivery