Top 9 Things About NBFC Registration Process

A Non-Banking Financial Company is known as NBFC. According to Section 45 I (f) of the RBI Act, it is a financial institution which receives deposits under any scheme or arrangement in one lump sum or installments. The whole process of NBFC registration is done under the Companies Act, 2013 and managed by RBI.

They are preferred by the common masses because of their quick loan sanctioning procedure and online process for registration.

Here in this article, we will look into the 9 most important things for the NBFC registration process like types of NBFCs, the advantages of NBFC, the process of applying for NBFC, and much more.

What is an NBFC?

According to the RBI Act, 1934, a company is said to be an NBFC if their whole business or a part of their business are listed under Section 45 I (c) of the Act. If they are engaged in the business of loans, advances, acquisition of shares, stocks, debentures and securities which are issued by the government or any other local authority, or if they are involved in the hire purchase, finance or insurance business, chit fund activities then they are said to be NBFC.

They provide financial support and services to people. The main objective is giving loans like personal or working capital loans, stocks, and debentures issued by the government or local authorities, and market place lending platform.

If we compare NBFC and Banks, the former provides quick loans to individuals as well as a companies. Reserve Bank of India is the main regulator of NBFC in India, the growth rate of which is at 24.3 % per year.

1.Advantages of NBFC

The Indian financial sector is huge, and it comprises of commercial banks as well as NBFCs. These NBFCs offer a wide variety of financial services like loans, chit- funds, etc. Following are few advantages of having an NBFC-

• Provides loans and credit facilities
• Improve employment opportunities
• Strengthening financial market
• Support investment in property
• Advises companies in merger and acquisition
• Extends long term credit to infrastructure, commerce, and trade companies.
• They help in mobilization of funds, asset distribution and regulation of income.
• Wealth management 
• It helps to build capital for many industries.

2. What are the types of NBFC in India?

The following are the categories of NBFC Companies:

• An Asset Finance Company
• Investment Company
• Infrastructure Finance Company
• Loan Company
• Systemically important core investment company
• Microfinance Institutions
• Infrastructure debt fund company
• Mortgage Guarantee companies
• Non- Banking Financial Company- Factors
• NBFC- Non-Operative Financial Holding Company
• Deposit accepting NBFCs
• Non-Deposit accepting NBFCs

3. How are NBFCs different from the Traditional Banks?

Following are the main differences between traditional banks and NBFCs:

• NBFC has the power only to accept the public deposit, and it cannot accept demand deposit.
• Furthermore, NBFC cannot issue the cheques drawn on itself because they are not part of the settlement or payment system.
• It cannot guarantee insurance or a credit facility.

4.Which activities are not covered under the ambit of NBFC in India?

Institutions which have the following business activity are not covered by NBFC-

1. Agricultural Activity
2. Industrial Activity
3. Sale/Purchase of any goods
4. Services related to purchase, construction, or sale of immovable property.

5. Conditional Requirements for NBFC Registration process

The applicant has to comply with the following requirement for the process of NBFC Registration–

1. They should register the company as per the Companies Act, 2013.
2. The applicant should indulge in financial activities. If the financial flow of the business increases by more than 50 % of the total capital asset, then that company shall get NBFC registration.
3. The company should have a minimum paid-up capital fund of Rs. 2 crores. Foreign companies and investors who want to set up an NBFC should have a paid p equity capital of Rs. 5 crores.
4. They should have a minimum of 1 director from the same field or a senior banker as a director.
5. Most importantly, the CIBIL records should be clean.

6. Registration Process for NBFC

Following is a step by step registration process of NBFC in India-

Step 1: Submit an Online Application for generating an application reference number through their official website.

Step 2: The applicant has to print out the application and submit a hard copy of all the documents along with application with the Regional Office of RBI.

Step 3: After the submission, the regional office sends the application to the Central Office. The officials examine the documents.

Step 4: If the company complies with section 45- I A of RBI Act, then the certificate of registration is given to the company.

7. Documents required for NBFC Registration

Following are the list of documents required for the process of NBFC Registration-

• Incorporation certificate
• Company management and administration documents
• Article of Association and Memorandum of Association.
• Documents verifying location
• Company accounts
• Information about directors and partners
• Board resolution
• Bank account having a minimum of Rs. 2 crore equity.
• PAN Card of the company.
• Any other additional documents.

8. Which NBFCs are not required to register with RBI?

The following NBFC’s are not required to obtain any registration with the Reserve Bank of India:

1. Core Investment Companies having assets which are less than Rs. 100 crore or where public funds not taken
2. Merchant Banking Companies
3. Companies engaged in the stock-broking business
4. Housing Finance Companies
5. Companies involved in venture capital business
6. Insurance Companies (having certificate of registration issued by IRDA)
7. Chit Fund Companies
8. Nidhi Companies

9. Can I add a director in an NBFC after getting an RBI License?

As per the RBI notification dated July 09, 2015, prior approval of RBI is required for the following circumstances-

• If there is any change in control of NBFC, which ultimately changes the management panel.
• When there is a change in shareholding of NBFC, which results in the acquisition or transfer of shareholding of 26 % or more of the paid-up equity capital. This is excluding the shareholding going beyond 26 % due to the buyback of share or reduction in the capital by the approval of competent Court.
• When there is a change in management, which results in a change of more than 30 % of directors excluding the independent directors.

Conclusion

NBFCs have a crucial role in the development of infrastructure, the creation of wealth, and economic development. Establishing an NBFC is complex, and the government has, from time to time encouraged NBFC registration since they play a vital role in channelizing the financial resources in the right direction. For NBFC registration you should comply with the registration process. If the Reserve Bank of India is satisfied with the documentation and other compliances, they grant the certificate of registration in no time.

For more information on NBFC Registration process contact our team of experts at LawyerINC.