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Minimum Capital Requirement For Non-Banking Financial Company (NBFC)

Minimum Capital Requirement For Non-Banking Financial Company (NBFC)

A Non-Banking Financial Company is a type of company, perform functions similar to a banking institution but is not categorized as a bank. NBFCs engaged in the principal business of receiving deposits under any scheme either in one lump amount or in installations. Such companies are registered under the Companies Act, 2013 and are governed by The Reserve Bank of India. This article will focus on the minimum Capital requirement for NBFC introduced by the Reserve Bank of India.

As per section 45-IC(1), every non-banking financial company shall create a reserve fund and transfer therein a sum not less than twenty percent. of its net profit, every year as disclosed in the profit and loss account and before any dividend is declared.

However, such companies do not include institutions whose principal business is agricultural activities, industrial activities, purchase and sale of goods( except securities) or in any way involved in providing any services relating to immovable property.

Difference between NBFCs and Banks

NBFCS Banks
Cannot accept demand  deposits.Can accept demand  deposits .
They cannot issue cheques drawn on themselves. Banks can issue such cheques.
Depositors cannot avail the deposit insurance facility Such facilities are available in a bank.
No availability of Credit Guarantee Corporation Available in banking institutions in India.
They do not form a part of the payment and settlement system. Banking institutions are an important part of such a system.

Registration of NBFCs

Every Non- banking financial company has to obtain a certificate of registration from the RBI[1], and only then they can commence their business.  However, there are certain exceptions. Certain categories of NBFCs, regulated by other regulators, are exempted from the requirement of compulsory registration under the Reserve Bank of India.

Following are such categories of NBFC:

NBFCsRegulator
Nidhi CompanyDepartment of Company Affairs
Chit Fund Company Registrar of Chits of the state in which such a company is located.
Micro financial company Department of Company Affairs
Insurance Companies Insurance regulatory and development authorities
Stock broking companies SEBI( Securities and exchange board of India)
Merchant banking companies SEBI( Securities and exchange board of India)
Housing finances companies National housing bank

The requirements of registration of NBFCs are provided in Section 45 I (a) of the Reserve Bank of India Act, 1934. Following are the requirements for an NBFC:

  • An NBFC should be a company registered under section 3 of the Companies Act, 2013.
  • It should have a minimum net owned fund of Rs 200 lakhs. 
  • A minimum of one-third of the total number of directors of the company should have experience of 10 years in the finance sector.
  • The company and the director of such a company shall have a clear credit history, i.e. either of them should not have any write-offs or any wilful defaulters.
  • The provisions of the FEMA Act,1999 should be complied with if such a company is involved in any FDI( Foreign direct investment) or has a plan to get involved in FDIs in future.
  • Before commencing the operational stage of NBFCs, such a company should have a comprehensive business plan ready for at least five years. It shall include the vision of the company, its goals and objectives etc. 

Procedure of NBFC Registration 

Following are the steps for registration of an NBFC:

Step 1: Go to the official and secured Reserve Bank of India’s website ( https://cosmos.rbi.org.in) 

Step 2: The applicant can click on the “CLICK ” on the login page of the COSMOS application for company registration. It is not necessary for the applicant to log on to the COSMOS application, and no user ids are required.

Step 3: The applicant can download the application form ( NBFC or SC/RC) from the window displaying the excel application form available for download.

Step 4: Fill in the required information and upload the application form.

Step 5: The applicant shall indicate the correct name of the Regional office in the field C-8 of the “Annex -Identification particulars”. in the form.

Step 6: The applicant will be able to get a Company Reference Number for the certificate of the registration application. 

Step 7: The applicant company has to apply for registration through the online mode and submit the hard copy of the document with the required documents to the regional office of the Reserve bank of India. 

Step 8: The applicant company can check the status of the application on the same website as mentioned above by putting in the company reference number provided to them at the time of registration. 

Documents required for NBFC Registration 

Following are the documents required for registration of an NBFC:

  • Copy of MOA and AOA of the company. 
  • Residential proof of all the directors and the company. 
  • Details of the Board of Directors.
  • Brochure of the Company.
  • Credit reports of every director duly signed by the Credit Bureau.
  • Copy of Fair practises code, duly signed by Board of Directors.
  •  Bank account details of the Directors and the credit history of such directors.
  • Auditor’s report of all the directors for the preceding three financial years.
  • Certificate of the Statutory audit

Minimum Capital Requirement for NBFC

The Reserve Bank of India has laid down strict requirements for the minimum Capital requirement of NBFC. These stringent requirements will ensure the liquidity of the company and keep in mind the market growth and interest of the customer.

As per the RBI Act, the minimum net owned fund is Rs 200 lakhs.  Earlier, the minimum requirement was Rs 25 lakhs, but with the latest amendment in 1999, the capital amount has been increased to Rs 2 crores.

However, this rule has certain exceptions, like Microfinance institutions have a minimum requirement of Rs 5 crore, and in cases of northeastern areas, the limit is Rs 2 crore.

ConclusionMinimum Capital Requirement for NBFC

Non-banking financial institutions are fulfilling the financial requirements of a large section of society. They are simplifying the procedure for access to financial assistance and covering huge market areas, overall contributing to the economic development of society and, in turn, the country. However, such NBFC can only commence its operation upon registration under the Reserve bank of India. The Reserve Bank of India introduced a minimum Capital requirement for NBFC very recently, and this has to be complied with by every NBFC in India. 

Read our article:Compliances And Rules For Private Limited Companies In India

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