5 Small but Important Things to Observe in NBFC License

Author: Enterslice Ites

Non Banking Finance Company is registered under Companies Act, 2013 and operates after the license is issued by Reserve Bank of India. In this blog, we have listed out 5 important things to be observed before you apply for NBFC license.

1. Importance of NBFC

  • Apart from issuing Demand drafts and cheques, NBFC offers all the services alike conventional banks. Financial services to individuals and businesses are majorly provided by the NBFC, it includes providing loans and advances, working capital loans, personal loans, investment in shares, debentures and other stocks issued by a government or other local authorities, insurance business, leasing, hire-purchase or offering Marketplace lending (P2P) platform.
  • When the loan from the bank is against the collateral or income, NBFC plays an essential role in filling the void by providing the loans to the organized and unorganized businesses.
  • NBFC regulated by the Companies Act 2013 and RBI Act 1934, paves the way for prompt loan services in relation to the traditional banks that lead to faster growth than conventional banks.

2. License Requirement from RBI

  • Incorporation of the private limited company or public limited company under Companies Act 2013 is the first towards NBFC. Once the company is registered, an amount of Rs. 20 million has to be reflected in the bank account.
  • After this, you are required to contact NBFC-COR division of the RBI, to submit the application filled in the defined manner.
  • There will be little verification done by the designated officer of RBI such as the founder’s background, verification of shareholder’s profile and source of fund. If the application is found to be clean, NBFC Registration license will be issued by the Reserve bank of India within 90 to 120 days.

3. Companies that do not require NBFC License

  • Housing Finance Companies-Regulated by the National Housing Bank
  • Insurance Companies-Regulated by Insurance Regulatory and development authority of India
  • Stoke Broking, Merchant Banking, Venture capital, companies that run collective Invest schemes, Mutual funds- Regulated by Securities and Exchange Board of India
  • Nidhi companies- Regulated by the Ministry of Corporate Affairs (MCA)
  • Chit Fund Companies- Regulated by the respective state governments

4. Documents that need to be consolidated, when applying for the NBFC license

  • Certified copy of company incorporation, MOA & AOA
  • KYC documents and Income proof of directors and shareholders
  • CA Certified net worth certificates of directors, shareholders an company
  • Certificates of highest educational, professional qualification of the directors of the applicant company
  • Credit report of directors and shareholders
  • At least one director’s profile with 10+ years of senior management experience in the financial services sector such as NBFC/Bank.
  • Clean bankers report of the company, directors, and shareholders

5. What makes NBFC differ from the bank?

  • If your company has a low credit score or falls under the unorganized sector, then you are more likely to receive a loan from NBFCs.
  • NBFCs are not allowed to take the demand drafts; even so, they can obtain public deposits; once they have a certified NBFC deposit-taking license from the RBI.
  • As NBFCs do not make the part of payment and settlement system, so they are not authorized to issue cheques drawn on itself and there is no credit assurance and insurance facility provided to depositors.

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