NBFC License in India - S.K. & Associates

Procedure

Process of Registration

01

Online Application

An online application is submitted in the prescribed format, which generates a reference number for the company application.

02

Send Documents

You need to email us the required documents and we will create your application forms.

03

Document Submission

A hard copy of the application along with the demanded documents and enclosures is submitted to the concerned regional office of RBI.

04

To RBI Central Office

The regional office sends the application to RBI's central office, which conducts a crucial examination of the application.

05

Certificate Granted

If the terms and conditions under Section 45-IA of the RBI Act, 1937 are fully satisfied, then the Certificate will be granted.

Definition

What is a NBFC?

The Companies Act of 2013 defines Non-Banking Financial Companies (NBFCs) as those which provide loans and advances, buy shares, bonds, debentures, government or local authority securities, lease, hire-purchase, insurance, and chits, and acquire shares, stocks, bonds, debentures, or other marketable securities of a similar nature.

NBFCs can raise funds from the public, either directly or indirectly, and freely lend them to ultimate spenders, which aids in market participation. In India, NBFCs are regulated by the RBI under Chapter IIIB of the RBI Act, 1934.

To obtain an NBFC Registration Certificate, you must go through a lengthy process and provide all necessary documentation. We at S.K. & Associates help you obtain an NBFC Registration in India at your convenience.

Documents

Documents Required for NBFC Registration

Affidavits & Declarations

Affidavits or Declarations on stamp paper are required for the application.

Statutory Auditor Appointment

We require the appointment of the company's statutory auditor.

Net Worth Certificate

A Net Worth certificate from the auditor, as well as a Net Worth certificate from the promoter or directors.

Banker & CIBIL Report

Promoters' source of funds, a banker's report on the Promoters or Directors, and a CIBIL report.

Other Company Information

Information on the other company in which the Promoters or Directors have a stake.

Business Plan (3 Years)

A well-organized Business Plan for the next three years.

Incorporation Documents

Documents for the incorporation of the Private Limited Company.

Types — Part I

NBFC On the Basis of Activities

NBFC-Factors

Concerned with the acquisition of receivables from an assignor to extend loans at a discount against the security of the receivables.

NBFC-Peer to Peer Lending (P2P)

Borrowers can obtain loans from individuals willing to lend at an agreed-upon interest rate. For a P2P Lending License, it may take ~180 working days for RBI In-Principle Approval.

NBFC-Account Aggregators

Enables data sharing across multiple financial sector organizations acting as consent brokers. Aggregates data from bank, investment, and consumer accounts onto a single platform.

NBFC-Systemically Important Core Investment

Primarily invests in the equity, preference shares, debt, and loans of group companies.

NBFC-Infrastructure Debt Fund (IDF)

Facilitates the flow of long-term debt into infrastructure projects.

NBFC-Investment and Credit Company (ICC)

Does primary business-asset finance by lending money. Enables wholesale, retail loans, and investment business. 120 days for approval.

NBFC-Infrastructure Finance Company (IFC)

Deploys at least 75% of total assets in infrastructure loans. Minimum NOF of ₹300 crore and a CRAR of 15%.

Non-Operative Financial Holding Company

A financial institution that allows a promoter group to establish a new bank. A wholly owned NOFHC that holds banks and other financial services companies.

NBFC-Microfinance Institutions (MFIs)

Makes loans to small businesses that are underserved or do not qualify for loans. Established to provide credit to economically disadvantaged groups.

Housing Finance Company

Used to provide loans to people who want to build their dream home — main business being financing the purchase or construction of houses.

NBFC Mortgage Guarantee Company (MGC)

Financial institutions where mortgage guarantee business accounts for at least 90% of business turnover or gross income. Net owned funds of ₹100 crore.

Types — Part II

NBFC On the Basis of Liabilities

Deposit-Taking NBFCs

These are the ones that allow for public deposits.

Non-Deposit Taking NBFCs

These are the ones that cannot receive public deposits. Further divided into Systemically Important NBFCs and others. In NBFC-ND-SI, all NBFCs-ND with assets of ₹500 crores or more per the latest audited balance sheet are exempt from adhering to the Prudential Norms, 2015.

Detailed Process

NBFC Registration Process

01

Step 1: Organizing the Documents

It is critical for the applicant to gather all of the necessary documents in order to begin the NBFC Registration process.

02

Step 2: Making an Application to the RBI

The applicant must file the application with the authority after assembling the necessary documents. Requirements: (a) Capital for Fixed Deposit — ₹2 crores, to be increased to ₹2.2 crore before filing; (b) Capital for Pvt Ltd Incorporation — minimum ₹10 lakhs, then raised to ₹2.2 crore; (c) Number of Members — at least 2 shareholders or directors, one with finance experience.

03

Step 3: Submission of Application

The next step is for the applicant to submit the application along with the necessary documents for verification by the authority.

04

Step 4: Verification of Documents

The authority will verify the documents and application to ensure the accuracy of the applicant's submissions.

05

Step 5: Registration Certificate

The registration certificate will be issued after the authority has successfully verified the application and documents.

The NBFC registration process typically takes 3-6 months (approx.) including RBI approval. The timeline may vary depending upon responses from the RBI.

Advantages

Advantages of NBFC Registration in India

Low Cost and Time

The registration process for an NBFC is simpler than that of a small bank. Opening an account with a bank requires significant capital, time, and cost — whereas an NBFC does not.

Economic Growth

NBFCs serve an underserved market by providing affordable and secure credit facilities. They have aided the country's economic growth by granting financial independence to MSMEs, self-employed professionals, and individuals.

Allowed FDI

Up to 100% Foreign Direct Investment is permitted under NBFC. Non-banking financial companies are the largest proponents of start-up finance in the country.

Loans to Low Credit Scores

Banks check credit scores first and reject low scores. NBFCs, on the other hand, make loans to people with poor credit.

Partnership

The combination of partnership and database aids in increasing financial inclusion. NBFCs have formed partnerships, including with the government, to identify customer worthiness.

Simple Loan Recovery

Because NBFCs are very systematic and offer significantly less loan amount, borrowers return the amount easily. It also contributes to customers receiving lower-interest loans.

Variety of Options

NBFCs have made extensive use of technological advancements such as mobile phones and the internet, reaching a larger audience more quickly.

RBI Requirements

RBI Requirements for Issuing an NBFC License

To obtain an NBFC Registration License, the proposed NBFC must adhere to the following RBI requirements:

The business plan of the firm and the NBFC's capacity to pay back investors' loans must serve the societal good.

Activities of NBFCs must not be harmful to the general public's ability to invest enough funds to get an NBFC registration license.

Income potential of the proposed business.

Actions must be carried out in a way that serves the general welfare.

The granting of licenses will help the nation's economy grow.

Pre-Requisites

Pre-Requisites for NBFC Registration in India

As per Section 45-IA of RBI, the following conditions must be satisfied.

Company Registration

The company must be registered in accordance with the Companies Act of 1956 or the Companies Act of 2013.

Director Experience

At least one-third of the company's directors must have at least 10 years of experience in the finance field and be employed as a full-time director.

5-Year Business Plan

An applicant company must develop a detailed five-year business plan.

Minimum NOF — ₹2 Crores

The applicant must have a Net Owned Fund (NOF) of ₹2 crores. However, proposed to be revised from ₹2 crores to ₹20 crores — applicable immediately for new registrations, with a 5-year grace period for existing.

Quality Capital Test

The Reserve Bank of India conducts a quality capital test to ensure that invested capital is free of noncompliance with the prescribed laws.

Capital Quality

An applicant company must meet the mandatory compliances.

Credit History

The Company's credit score, directors, and shareholders must be in good standing. They must not have purposefully defaulted on loan repayment to banks or NBFCs.

FEMA Compliances

In the case of foreign investment, the company must have complied with the FEMA Act.

Object Clause

The object clause in the Memorandum of Association must correspond to the business plan.

Appropriate Directors

The directors must be suitable and appropriate.

Comparison

How NBFCs are Different from Banks?

#	Factors	NBFC	Banks
1	Meaning	Anyone can access financial services from NBFCs without having a bank license. Government-approved financial intermediary.	Bank intends to offer banking services to the general population. Government-approved financial intermediary.
2	Demand Deposit	Demand deposits are not permitted by NBFCs.	Demand deposits are accepted by banks.
3	Foreign Investment	Foreign investment is fully permitted in NBFCs.	Private sector banks are permitted up to 74% foreign investment.
4	Creation of Credit	Credit is not made by NBFCs.	Credit is made by banks.
5	Reserve Ratios	In the case of NBFCs, not necessary.	Reserve ratios must be maintained by banks.
6	Transaction Services	NBFCs are unable to offer transaction services.	Transaction services are offered by banks.

Important

What is NOT Included Under NBFCs?

The definition of an NBFC excludes institutions engaged in agriculture, industrial activity, the purchase or sale of goods (other than securities), the provision of services, or the construction or sale of real estate.

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FAQ

Frequently Asked Questions

NBFC stands for Non-Banking Financial Company. It is a company registered under the Companies Act, 2013 that provides banking services without holding a bank license. NBFCs deal in loans, advances, shares, bonds, debentures, insurance, chit funds, and other marketable securities.

Requirements: (a) Company must be registered under Companies Act, (b) Minimum NOF of ₹2 crores, (c) 1/3 of directors with 10+ years finance experience, (d) 5-year business plan, (e) Good credit history, (f) FEMA compliance (if foreign investment), (g) Object clause matching the business plan.

Key differences: (a) NBFCs cannot accept demand deposits, (b) NBFCs cannot create credit, (c) NBFCs are not required to maintain reserve ratios, (d) NBFCs cannot offer transaction services, (e) 100% FDI allowed in NBFCs vs 74% in private banks.

The process: (1) Register a Private Limited Company, (2) Organize documents (auditor, CIBIL, business plan), (3) File application with RBI regional office, (4) Application moves to RBI central office for examination, (5) Certificate issued if Section 45-IA terms satisfied. Takes 3-6 months.

Affidavits on stamp paper, statutory auditor appointment, Net Worth certificate, Promoters' source of funds, banker's report, CIBIL report, other company info, 3-year business plan, and Private Limited Company incorporation documents.

No, RBI does not regulate all financial companies. NBFCs are regulated by RBI under Chapter IIIB of the RBI Act, 1934. Housing Finance Companies are regulated by NHB. Insurance companies are regulated by IRDAI. Chit funds are regulated by state governments.

RBI has powers to: (a) Grant or reject NBFC registration, (b) Issue directives on deposit acceptance, (c) Conduct inspections, (d) Impose penalties for non-compliance, (e) Cancel registration, (f) Issue prudential norms for capital adequacy and asset classification.

If a financial institution fails to register with RBI as required, RBI can take penal action including fines, prohibition from accepting deposits, and legal prosecution under the RBI Act, 1934.

NBFCs-ND (Non-Deposit) with asset size less than ₹500 crores are exempt from adhering to the Prudential Norms, 2015 issued by RBI. However, they must still comply with basic reporting and other regulatory requirements.

Public Fund is NOT the same as Public Deposits. Public Fund includes deposits from the public plus borrowings from banks, FIs, and inter-corporate borrowings. Public Deposits only refer to deposits received from the public.

NBFCs must comply with: (a) Chapter IIIB of the RBI Act, 1934, (b) Prudential Norms on capital adequacy, (c) Asset classification, (d) Provisioning requirements, (e) Reporting to RBI, (f) Audited financial statements, (g) KYC norms, (h) Fair Practices Code.

RNBC stands for Residuary Non-Banking Company. It is a type of NBFC whose primary business is to obtain deposits under any scheme of arrangement in a lump sum. RNBCs are subject to specific regulations under the RBI Act.

No, only deposit-taking NBFCs (NBFCs-D) can accept public deposits. Non-Deposit Taking NBFCs (NBFCs-ND) are prohibited from accepting public deposits. Deposit-taking NBFCs must meet additional RBI requirements.

The maximum rate of interest an NBFC can pay on deposits is prescribed by RBI from time to time. Currently, deposit-taking NBFCs can pay a maximum of 12.5% per annum on public deposits.

Deposit-taking NBFCs can accept deposits for a minimum period of 12 months and a maximum period of 60 months (5 years). Deposits for shorter or longer durations are not permitted.

NBFC License

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