NBFC License and Registration with RBI in India

Non-Banking Financial Company (NBFC) is a financial institution engaged in the business of receiving loans and advances, acquisition of stocks or shares, leasing, hire-purchase, insurance business, chit business under Companies Act. The Reserve Bank of India, regulates the NBFC Registration in India.

NBFC can commence its operations only after obtaining "Certificate of Registration" from the RBI. NBFCs operations are regulated on the basis of the Reserve Bank of India directions under Reserve Bank of India Act, 1934. NBFCs have to follow the rules & regulations laid down by RBI but they do not hold the banking license. As per the provisions mentioned in Chapter III B of the RBI Act 1934, NBFCs functions are regulated and supervised by RBI.

For obtaining NBFC license, registration must be done according to rules & regulations given in Section 45-IA of the RBI Act 1934.

As per the rules and regulations prescribed by The Reserve Bank of India

, main business activity of the NBFCs is to raise capital funds from public depositors and investors and then lend to borrowers. Eventually, NBFCs is becoming alternative to the banking and financial sector. Only after obtaining "Certificate of Registration" from the RBI, this type of financial institution can commence its operations.

For obtaining NBFC License, here are the following NBFC registration requirements:

For starting NBFC Registration Process, company must be registered as public limited company or private limited company in India.

There is a requirement of minimum net owned fund of Rs.2 Crore.

*Provided that, net owned funds should be calculated according to the last audited balance sheet of the company.

NBFCs are allowed to accept and renew public deposits for a minimum period of twelve months and maximum period of sixty months.

Deposits repayable on demand cannot be accepted by NBFCs.

In NBFC, interest rates offered cannot be higher than the ceiling rate prescribed by RBI from time to time.

In NBFC, offering gifts or incentives or any other additional benefit is not allowed to the depositors.

Minimum investment grade credit rating is required.

Repayment of deposits by NBFCs is not guaranteed by RBI.

Furnishing hard copies of the list of documents with the regional officer of the RBI.

Types of NBFC

Here are the following type of NBFCs can be registered with the RBI:

1. Deposit Accepting NBFCs (NBFCs-D) [Deposit Taking]
2. Non-Deposit NBFCs (NBFCs-ND) [Non-Deposit Taking]

a.Systematically Important NBFCs-ND (NBFCs-ND-SI)

b.Others NBFCs-ND

NBFCs are further classified into following categories:

Asset Finance Company (AFC)

Asset Finance Company is a type of company involves in financing physical assets such as automobiles, material handling equipment and industrial machines supporting economic activity.

Investment Company

It is a type of financial institution whose principal business is related to acquisition of securities.

Loan Company

Under this type of financial institution, finance is provided in the form of loans or advances. They obtain funds by taking deposits from the public and give loans to small scale traders.

Infrastructure Finance Company

There is a Net Owned Fund of Rs.300 Crore, Credit rating ‘A’ or equivalent credit rating, CRAR of 15% and 75% in infrastructure loans.

Systemically Important Core Investment Company (CIC-ND-SI)

Systematically Important Core Investment Company (assets of hundred crore and above) is a company who have deployed at least 90% of its assets in the form of investment in shares or debt instruments or loans in group companies. Public Funds are accepted by such type of companies. Under this, 60% should be invested in equity shares or those instruments which can be compulsorily converted into equity shares out of 90%.

Infrastructure Debt Fund (IDF-NBFC)

Infrastructure Debt Funds can be set up either as a trust or as a company and they are meant to infuse funds into the infrastructure sector.

Mutual Benefit Finance company

Under this, loans are provided to their members only and their main sources of funds are share capital, member deposits & public deposits.

Chit Fund Company

Under this, deposits are collected from members on a periodic basis and distribute these funds among them as prizes. Members who enter into an agreement with chit Company subscribe for a definite period. They are governed by states.

Process of NBFC registration with RBI

Acquire DSC and Din for directors;

File name approval application;

Affidavit from directors to fulfill RBI compliance;

Drafting of MOA & AOA;

File incorporation forms with necessary documents;

Obtain certificate of registration from Registrar of Companies;

Deposit Net Owned Funds in bank account opened for company;

Apply for registration with RBI under RBI ACT, 1934;

An online application has to be filed by the applicant company with the RBI on its official website;

After this, an applicant will get a reference number;

After this, submit the duplicate hard copies to the concerned regional office of RBI;

The regional office of the RBI shall verify the accuracy of all submitted documents.

For NBFC registration, regional office will send an application to the central office.

NBFC registration is granted by the central office of the RBI when applicant company fulfills prescribed requirements under section 45-IA.

SwaritAdvisors.com is technology motivated platform establishing the specialized legal services in India. We are dedicated to helping startups in solving legal compliance related to starting and running their business.