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Everything about NBFC Registration Process in India

Everything about NBFC Registration Process in India

A Non–Banking Financial Corporation is a company registered under the Companies Act 2013 or 1956. According to section 45-I (c) of the Reserve Bank of India Act, 1934 (RBI Act), a Non–Banking Company carrying on the business of a financial institution will be an NBFC. It is a financial institution. It is a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner. It also includes other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. This article will help in understanding the NBFC registration process in a better manner. 

ADVANTAGES OF NBFC REGISTRATION

The advantages of NBFC registration are as following:-

  • It provide loans and credit facilities
  • It can trade in money market instruments
  • NBFCs are the entity where people approach when banks are not there. 
  • NBFCs works faster as compared to Banks.

DISADVANTAGES OF NBFC REGISTRATION

The following is the disadvantages related to NBFC registration:-

  • NBFCs cannot accept demand deposits as it is an authorised activity of commercial banks.
  • NBFC cannot issue cheques drawn in its company.
  • Stringent regulatory mechanism for NBFCs 
  • NBFC deposits are not insured by Deposit Insurance and Credit Guarantee Corporation (DICGC).

BUSINESS ELIGIBLE FOR NBFC REGISTRATION PROCESS

It further states that the NBFC must be engaged in the business of any of the following:

  1. By making loans or advances or otherwise in financing.
  2. Acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of similar nature;
  3. Delivery of any goods to a hirer under a hire-purchase agreement 
  4. Conducting any class of insurance business;
  5. Managing, conducting or supervising, as agent or in any other capacity, of chits 

BUSINESS THAT ARE NOT ELIGIBLE FOR NBFC REGISTRATION PROCESS

But it does not include any business which carries on the following as its principal business:

  1. agricultural operations; or
  2. industrial activity; or
  3. the purchase/sale of any goods (except securities), or
  4. the purchase/construction/sale of immovable property, 

DOCUMENTS REQUIRED FOR NBFC REGISTRATION PROCESS

The following are the necessary documents required for the completion of NBFC registration process:-

  1. Copy of Certificate of incorporation (CoI): 
  2. Copy of MoA (Memorandum of Association), and 
  3. Copy of AoA (Articles of Association) 
  4. Net-worth Certificate of Directors and shareholders.
  5. Education & qualification proof of the Directors.
  6. Company’s PAN & GST number. 
  7. Documents in support of the address of the company.
  8. Details of the bank account of the company. It should have at least Rs.2 crores deposited.
  9. Banker’s Report confirming that there is “no Lien” on the Fixed Deposit of Rs.2 crores.
  10. Board report that shows its approval for the formation of NBFC
  11. Business plan for next 5 years
  12. Auditors certificate

REQUIREMENT FOR OBTAINING NBFC LICENSE

The NBFC registration process is complete when the company receives its license. According to Section 45-IA of the RBI Act, 1934[1], no company can commence or carry on the business of a non-banking financial institution without the following:

  1. Obtaining a certificate of registration as NBFC:
    • It should be a company incorporated under Section 3 of the Indian Companies Act, 1956.
  1. Without having a Net Owned Funds of Rs. 2 crores (200 lakhs). 
    • Amount of investment is the investment made in shares of subsidiaries, companies in the same group and all other NBFCs, book value of debentures, bonds, outstanding loans and advances including various hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group. 
    • Owned funds is the aggregate of paid-up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus which are the out of sale proceeds of asset.
  1. One of the director should be having exposure into Financial Industry for the running the institution

NBFC REGISTRATION PROCESS 

Step 1: Register the company under Companies Act, 2013 or Companies Act, 1956.

It should be a company incorporated under Section 3 of the Indian Companies Act,2013.

Step 2: Minimum net owned funds of the company should be Rs.2 crores or more

Net owned funds= Owned Funds-Amount of investment 

Step 3: Open a bank account

The NBFC should open a current bank account in the name of the company and create a fixed deposit of 2 crores with any nationalised banks. The list of nationalised banks is available in the official website of RBI. The members should that this deposit made should be free from all lien. 

Step 4: Prepare documents

The applicant is required to prepare the necessary documents for NBFC registration process mentioned in the official page of RBI.

Step 5: Fill the application by visiting the official page of RBI

The applicant should fill the application online. So the receipt of the FD deposit along with necessary documents should be submitted to the RBI to complete the NBFC registration. When the applicant has submitted the application form, a (CARN) number will be given. This number will be helpful to inquire about the status of the application. 

Step 6: Submission of hardcopy 

Submit the hardcopy of all the documents and applications to the regional office of the RBI.  

Step 7:- Apply for NBFC license

Once all the documents are scrutinised and verified by the concerned authorities, the company will be issued license. The application for NBFC License can be submitted online and offline along with the necessary documents to the nearby office of the Reserve Bank of India.

Conclusion

NBFC registration is one of the toughest approval to be obtained from the RBI. However with in-depth knowledge, one can secure the NBFC registration easily.

Read our article:Minimum Capital Requirement For Non-Banking Financial Company (NBFC)

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