Checklist for Incorporation of NBFC

Non-Banking Financial Companies have slowly and steadily made important contributions in India. It is a financial institution which provides banking and non-banking services like hire purchase, leasing, investment funds, insurance business, bonds, etc. They bridge the gap between investors and borrowers, with their main activity involving raising capital funds from the public depositors and investors and lending them to the borrowers. NBFC are rapidly becoming a common choice among people and an easy alternative to banks as they are very supportive. It is very important for the common masses to know the document checklist for incorporation of NBFC

NBFC and RBI Act

RBI regulates the functioning of NBFCs in accordance with Reserve Bank of India Act of 1934. Section 45-IA of the RBI Act stipulates that an NBFC cannot commence nor do business of a non banking financial institution without obtaining registration and having a net owned funds of Rs. 2 crores. However, some of the NBFCs which are regulated by other regulators are exempted from registration with RBI.

For example, venture capital fund or merchant banking companies, stock broking companies which are registered with SEBI, insurance companies having registration under IRDA, nidhi companies, chit companies, housing finance companies, stock exchange or mutual benefit companies.

Here is a detailed checklist for incorporation of NBFC.

Document Checklist for the incorporation of NBFC

Following are a list of documents for NBFCs Registration as Type II – NBFC-ND (NBFC-MFI, NBFC-Factor, and NBFC-IDF):

1. The Certificate of Registration (This can be obtained from the ROC office)
2. Extract of the main object clause in MOA, which relates to financial business. (certified copy)
3. The Board Resolution should state that the company will not commence operations which are similar to NBFC prior to getting registration.
4. The company has inculcated fair practices code as per the RBI guidelines. Furthermore, they do not accept public funds and will not do the same in the future without the approval of the RBI.
5. Furthermore, it will not have a customer interface without the approval of the RBI.
6. A copy of all the fixed deposits receipts and banker’s certificate of no lien showcasing the balance in support of net owned funds (NOF). These FD post-RBI approvals can be utilized only for NBFC registration.
7. If your company already exists, then an audited balance sheet and P&L account along with directors and auditor’s report. (Of the past three years or the entire period of existence of the company)
8. According to the recent RBI guidelines, bankers report for applicant group/subsidiary, associate and all the directors have to be attached with the application.
9. Copy of educational certificate and professional qualification of directors.
10. A copy of the experience certificate of directors in the financial services sectors.

Document checklist for incorporation of NBFC MFI apart from the documents mentioned above:

The Board resolution should state that the company will be a member of all the credit information companies, and it will also be a member of at least one self- regulatory organization. It will follow the regulations dealing with the pricing of credit, fair practice, and non-coercive method of recovery. The board resolution should also mention that the company has a fixed internal exposure limit for avoiding any undesirable concentration in a specific location. And lastly, it should mention that the company is not licensed under section 8 of the Companies Act, 2013.

In case of NBFC factor registration, the following additional documents are required to be submitted along with the application:

• The board resolution mentioning the key details of the registration, that the company will have minimum financial assets in the factoring business which will constitute 50% of its total assets and revenue from the factoring business which will not be less 50% of the total income.
• A no-objection certificate issued from RBI to NBFC-IFC for sponsoring the NBFC-IDF.
• A tri-party agreement between the concessionaire, the Project Authority, and NBFC-IDF. (copy)
• All the details of the change in the management of the sponsor company during the last financial year, along with the reasons.

Most importantly, the applicant has to provide the source of the start-up capital of the company, along with the necessary tax returns of the shareholders.

Process of NBFC Registration in India

Following are the steps for NBFC registration-

Step 1

The applicant company has to apply online by accessing RBI’s secured website.

Step 2

The applicant has to click on the company registration on the login page of the COSMOS application. An excel application form available for download is displayed on the screen. The applicant company can download the application form and upload the filled in application form. After this, a company application reference number will be generated.

Step 3

The company has to note the correct name of the regional office in the field “C-8” of the “Annex-Identification Particular” in the application form. After applying online the applicant has to submit the hard copy of the application along with all the documents mentioned in the checklist for incorporation of NBFC above to the regional office of the RBI.

Lastly, the applicant can check the status of the application with the help of company application reference number.

Important Points for NBFC Registration

• The NBFC has to be registered as a company under section 3 of The Companies Act, 2013.
• The applicant should engage in the financial activities. If the financial flow of such business increase more than 50% the total capital asset of the company then it shall get NBFC registration.
• The applicant company should have a minimum net owned fund of Rs. 2 crores at the time of making the application.
• It should have at least one senior banker or director.
• A clean CIBIL score.
• If a foreign company and foreign investor want to set an NBFC, they should hold paid-up equity capital of Rs. 5 crores.

Conclusion

NBFCs are the changing face of Indian economy. They play a prominent role in the development of India’s infrastructure, wealth, employment, and transport. It also finances the economically weaker sections of our society. Starting an NBFC is a long process with loads of documentation. You need to comply with the document mentioned in the checklist for incorporation of NBFC. Since it requires approval from RBI, it is hard to acquire the NBFC License. Therefore, it is advisable to seek expert advice before incorporation.

For more information and assistance in NBFC registration, contact our team of experts at LawyerINC.