One of the fastest-growing businesses in India is considered to be Non-Banking Financial Companies (NBFCs). Just like any other financial institution, NBFC gives loans to individuals or business enterprises.
Overview of NBFC registration in India
NBFCs provide monetary services to persons and business enterprises and perform just like any other financial institution. A banking license is not mandatory for Non-Banking Financial Institutions to perform its financial functions; they need the NBFC License. NBFC is kind of a bank to the unorganized part of the society.
The Reserve Bank of India is the regulating authority for NBFCs. To start a Non-Banking Financial Company, an NBFC License is mandatory under section 45-1A of the Reserve Bank of India Act, 1934. Reserve Bank of India has the power to cancel the NBFC license if the company is not performing its actions as per the rules and regulations of the RBI Act.
Business Requirement for NBFC Registration in India
NBFCs business functions are providing services like giving loans, helping people invest in shares, debentures, stocks, P2P market place lending, leasing, information provider, chit business, etc. NBFCs can receive deposits in any scheme. To complete the NBFC registration, there are some conditions that should be fulfilled.
It is mandatory for NBFCs to have 50% financial assets of the total assets.
It is mandatory that the gross income of NBFCs should be 50% of the total income.
Types of NBFCs
NBFCs are of Two Types:
Liability Based NBFC
Activity-Based NBFC
NBFCs Regulating Departments
RBI has two regulating departments:
DNBR
Department of Non-Banking Regulation (DNBR) performs the following functions to regulate NBFCs:
1. NBFC registration application is evaluated by DNBR.
2. Directors and shareholders profile assessment is done by DNBR.
3. Until the registration license is granted to NBFCs, constant communication is formed by DNBR.
4. Circulars and notifications for rules and regulations for NBFCs are published regularly by DNBR.
DNBS
Department for Non-Banking Supervision (DNBS) performs the following functions to regulate NBFCs:
1. To keep in check if an NBFC has completed post incorporation compliances.
2. Rules and regulations mentioned under the RBI Act are followed by every NBFC.
3. Inspects the audits of the NBFCs.
4. DNBS has the authority to cancel NBFC registration if a company is found violating any rules and regulations prescribed under the RBI Act.
5. Increases awareness of the RBI guidelines by conducting seminars on a regular basis.
Benefits of NBFC Registration in India
Basics for NBFC Registration in India
There are some conditions to be fulfilled for NBFC registration in India, as per section 45-1A of the RBI Act, 1934.
Company Registration
A registration application must be filed by the NBFC under the Companies Act, 2013, or Companies Act, 2013 for registration.
Directors Experience
It is mandatory for one-third of companies' directors to have experience in the financing sector to apply for NBFC registration.
Business Plan
A company has to submit a draft of a five-year business plan before filing for NBFC registration in India.
Minimum Net Owned Fund
The minimum requirement of net owned funds for NBFC registration is tax paid Rs 2 crore.
Qualify Capital Test
A quality test of capital invested in the company is taken by the Reserve Bank of India to verify that capital investment is made as per the RBI Act prescribed guidelines.
Credit History
Directors and shareholder's credit check is performed by the authorities to confirm that there is no credit default involve like non-repayment of loans or any other financial fraud.
Compliances of FEMA
Foreign Direct Investment from the countries that are members of FATF is allowed up to 100%. The rules and regulations, as per the FEMA Act, must be followed by the NBFC directors in case of any foreign investment.
Documents Required for NBFC Registration in India
Certificate of Incorporation’s certified copy.
Memorandum of Associations certified copy.
Articles of Associations certified copy.
Educational certificates of directors.
Experience certificate of directors.
Directors and shareholder's business profiles.
Credit report of both directors and shareholders.
KYC details.
Company’s PAN card
Company’s GST number
Company registered office’s address proof
NOF deposited in the company’s bank account must be Rs 2 crore
The balance sheet of the company from the last three years from the date of incorporation
Disclosers by the party’s
Company’s Income Tax returns
Bank report
Board resolution’s NBFC registration format
Details of risk assessment, fair practice code, and five-year business plan
Loan and business structure
IT policy of the company
Procedure for NBFC Registration in India
For NBFC registration, a specialized team of Lawyers, Company secretory, Charted Accountants, and Financiers must be appointed.
The name nominated by directors must comprise of fintech, Finance, Capital, FinServ, Leasing, etc.
Registration of a private company or public company must be done by the directors.
In which city or area NBFCs registered office will be established.
Certificate of incorporation will be granted by the Registrar of the companies.
NOFs must be deposited in the company's bank account.
Documents regarding NBFC registration.
A five-year business plan should have the following details:
1. Executive summary
2. Product plan
3. Lending Model
4. Risk Management Model
5. In-depth analysis of the market
6. SWOT analysis
7. Financial projections
The application of NBFC registration should be as per the RBI Act,1934
On the RBIs, the official website applicant will file for the application for NBFC registration.
CARN number for the future inquiry will be generated on the official RBI website.
Cross verification of the documents provided by the applicant will be conducted by the RBIs regional office.
NBFC registration application will be sent to the Central office of RBI by the regional office.
Under section 45-1A of the RBI Act, the central RBI office will grant NBFC registration only if it is as per the mentioned section.
The commencement of the business must be under six months from the date of incorporation.
Conclusion
NBFCs provide monetary services to persons and business enterprises and perform just like any other financial institution. One of the fastest-growing businesses in India is considered to be Non-Banking Financial Companies. The Reserve Bank of India is the regulating authority for NBFCs.NBFCs business functions are providing services like giving loans, helping people invest in share, debentures, stocks, P2P market place lending, leasing, information provider, chit business, etc.
Comments