Securing NBFC registration in India is a process undertaken by companies registered under the Companies Act, 2013, overseen by the RBI as per the RBI Act, 1934. NBFCs hold a crucial position in the Indian economy, facilitating financial operations and stepping in to fulfil banking needs when traditional banks fall short in extending loans and advances.
Moreover, non-banking financial corporation (NBFC) banks are predominantly involved in accepting deposits as per the prescribed schemes and arrangements. Depositors have the option to contribute either in a lump sum or through instalments.
Further, the operations of NBFCs are regulated and overseen by the RBI in accordance with the provisions outlined in the RBI Act of 1934. As per Section 45-IA, no NBFC in India is permitted to commence or conduct business operations without obtaining an NBFC Registration Certificate.
The RBI is the sole authority in India that is entrusted with issuing NBFC registration certificates. Over recent years, the RBI has streamlined policies and regulations for NBFCs, making the process of obtaining a registration certificate easier than in the past.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956/2013 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, 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.
How NBFC are different from Bank?
NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
NBFC cannot accept demand deposits;
NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
Regulated Authority for NBFC:
The Reserve Bank of India (RBI) formulates rules & regulations for NBFCs, therefore license from RBI is required for starting NBFC in India as per Section 45-IA of the RBI Act, 1934. The RBI is authorized to regulate NBFCs by ensuring that they are complying with the prescribed rules & regulations.
NBFC Registration Eligibility Criteria in India
The Reserve Bank of India is the regulator of NBFCs in India. A particular company can be identified as NBFC if it satisfies the principal business criteria, that is to say, the company will be treated as an NBFC if:
- The company’s financial assets comprise more than 50% of the company’s total assets (netted off by the intangible assets) and
- The income from financial assets comprises more than 50% of the gross income of the company.
A company that satisfies both the above criteria shall be qualified as a Non-Banking Financial Company and thus it would be required to obtain NBFC registration with RBI.
However, the NBFC License requirements of RBI do not end here. As per Section 45-IA of the Reserve Bank of India (Amendment) Act, 1997, no NBFC shall be allowed to commence or carry on the business of a non-banking financial institution if –
- It does not obtain a certificate of registration issued by the RBI
- It does not have net-owned funds of Rs. 2 crores. However, it may vary depending on the type of NBFC.
Thus, the company is also required to satisfy the NBFC registration limit. Further, as per RBI notification, the net owned fund requirements for certain categories of NBFCs shall be increased to Rs. 10 crores for which a glide path has been provided. Following is the glide path for net owned funds requirements:
Type of NBFC | Current Net Owned Funds Required | Net Owned Funds to be Achieved Till 31st March 2025 | Net Owned Funds to be Achieved Till 31st March 2027 |
NBFC – Investment and Credit Company | Rs. 2 crores | Rs. 5 crores | Rs. 10 crores |
NBFC – Micro Finance Institution | Rs. 5 crores (Rs. 2 crores in North Eastern Region) | Rs. 7 crores (Rs. 5 crores in North Eastern Region) | Rs. 10 crores |
NBFC – Factors | Rs. 5 crores | Rs. 7 crores | Rs. 10 crores |
The company desirous of obtaining NBFC registration with the RBI shall make an application to the RBI in the prescribed form along with all the necessary documents. The RBI will issue the Certificate of Registration if it is satisfied that the entity satisfies all the conditions as prescribed under Section 45-IA of the RBI Act, 1934.
Different types/categories of NBFCs:
NBFCs are categorized:
- in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs,
- non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and
- by the kind of activity they conduct.
Within this broad categorization the different types of NBFCs are as follows:
- Asset Finance Company
- Loan and Investment 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
Pre Requisites for NBFC Registration
For NBFC registration, below mentioned conditions must be fulfilled as per Section 45-IA of the RBI Act, 1934:
- Director’s Experience:-Directors of the applicant company must possess requisite experience in NBFC/Banking areas in order to apply for NBFC license.
- Five Year Business Plan:- An applicant company needs to draft detailed business plan for the next five years.
- Credit History:- The credit score of the company, directors & its shareholders must be fine and they must have not defaulted loan re-payment deliberately to banks or to NBFCs.
- FEMA Compliances:-In case of involvement of foreign investment, an applicant company must have complied with the FEMA Act. 100% FDI is allowed from FATF member countries.
NBFC Registration Procedure
Following steps to be taken for NBFC Registration:
- Register a Private Limited or Public company
- The proposed name of the company must include Finance, FinServ, Fin, Investment, Capital, Fintech, and Leasing etc.
- Minimum NOF (Net Owned Fund) Requirement: The applicant company must possess minimum NOF of Rs. 2 Cr.
- Deposit Net Owned Funds in bank account opened for company
- Applicant Company has to file an online application with the RBI on its official website.
Documents required to be submitted (Illustrative list):
- Fully filled application form
- Certified copy of COI (Certificate of Incorporation) / MOA / AOA
- Latest audited annual accounts
- Statutory auditor certificate
- Net Worth Certificate of Directors, Shareholders & Company
- Educational qualification documents of the proposed directors
- Highest Experience certificates
- Directors & Shareholders business profile
- Credit report (CIBIL) of directors & shareholders
- KYC details, PAN of the company, address proof of the company
- Bank account details of the company [Rs. 2 Cr must have deposited as NOF]
- Audited balance sheet of last 3 years or from the date of incorporation
- Income tax Returns
- Banker’s Report confirming no lien on fixed deposit
- Format of board resolution regarding NBFC registration
- Business Structure
- Business Plan for the next 5 years consisting
- After this, an applicant will get a reference number to facilitate inquiry in the future.
- After this, it is required to submit the physical application copies to the concerned regional office of RBI.
- The regional office shall check the accuracy of all submitted documents.
- The regional office will send the application for NBFC registration to the central office.
- The central office of RBI grants NBFC registration only when applicant company fulfills prescribed requirements under section 45-IA.
- RBI may seeks clarification / further information as deemed fit.
RBI Conditions for Granting NBFC License
- After filing application for NBFC registration, RBI will scrutinize the file and grant license only after satisfying the below mentioned conditions:
- Ability of NBFC to repay its dues to investors and Business Plan of the company must fulfill the larger interest of the society
- Capability to Infuse Sufficient capital
- Earning capability of the Proposed Business
- Activities shall be carried out in such a manner that it shall be in the public interest
- Board shall act in the interest of public or depositors
- Granting license will contribute to the economic growth of the country
- Proposed NBFC shall comply with the RBI regulations
The licenses once granted by RBI is permanent unless surrender by applicant/cancelled by RBI.
Advantages of NBFC Registration in India
- Provides loans and other credit options
- NBFCs are more profitable than private and public sector banks because of less investment
- Registration process is simpler than other banks or lending institutions
- Loan processing feature takes lesser time as compared to banks
- NBFCs helps in managing portfolios of stock and shares
- Helps to trade in money market instruments
- CIBIL or credit score does not become hindrance in getting loan
FAQs
What compliances are required to be fulfilled once the firm is registered?
Certain guidelines have been laid down by RBI that has to be complied with. Submission of Income Tax Returns, ROC Returns, Statutory Audit, Tax Audit, various NBS returns for Deposit accepting and non-deposit accepting companies are some of the most important statutory compliances.
Are NBFC’s allowed to accept deposits?
Only NBFC’s which have special authorization from the Bank and have an investment-grade are allowed to accept and hold deposits up to 1.5 times of their Net Owned Funds. However, all NBFC’s are barred from accepting demand deposits that include savings and current account deposits.
What is the significance of the 50-50 test for NBFC’s?
50/50 test means that a firm’s financial assets constitute more than 50% of the total assets and income from financial assets constitute more than 50% of the gross income. A firm which fulfills both these criteria will be registered with the RBI as an NBFC. If, after registration, a firm violates the 50/50 criteria then RBI has the authority to penalize the NBFC.
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