NBFC is a short form of Non-Banking Financial Company. NBFCs are the financial organizations that offer all kinds of financial services to individuals and business organizations, but NBFCs do not have a proper banking license. NBFC Registration in India is regulated by the Reserve Bank of India (RBI) under the Chapter III-B of the Reserve Bank of India Act, 1934.
Overview of NBFC Registration in India
Banks are not present everywhere, nor can they help every person in society, so we need more financial institutions in areas where banks can't reach. With the growing demand for advances and loans, Non-Banking Financial companies are growing rapidly in India. NBFC Registration in India is regulated by the Reserve Bank of India (RBI) under the Chapter III-B of the Reserve Bank of India Act, 1934.
NBFCs in India perform bank-like functions such as loans, investment in shares, bonds, stocks, leasing, debentures, etc. without meeting the legal definition of a bank or financial institution. It is obligatory for NBFC registration to obtain a commercial or graduation enterprise certificate from the Reserve Bank of India as prescribed under section 45I(A) of the Reserve Bank of India Act,1934.
Regulating Authorities of NBFC Registration in India
Department of Non-Banking Regulations (DNBR)
Department of Non-Banking Supervision (DNBS)
What are the Conditions of RBI for NBFC Registration?
After the applicant has applied for NBFC registration, the Reserve Bank of India will verify the applicant's application and information, and authorities will grant a Non-Banking Financial Company registration certificate only after the below-mentioned conditions are satisfied:
NBFCs must have the ability to repay their dues to investors, and they have a business plan that can fulfill the interest of the society on a larger scale.
NBFCs must have the potential to infuse adequate capital.
Earning capacity of the planned business.
NBFCs must carry out their operation in a way that they are beneficial for the public interest.
The NBFC board must act in the interest of depositors or the public.
Giving the Non-Banking Financial Company registration certificate will add to the economic development of the country.
NBFC must be planned as per the regulation of the Reserve Bank of India Act, 1934.
Benefits of NBFC Registration
Can provide loans and credit facilities
NBFCs deal in money market instruments
NBFCs do wealth management like supervision of portfolios of shares and stocks
NBFCs underwrite shares & stock and other compulsions
Non-Banking Financial Companies are the last place for borrowings; even where the banks are not present, NBFCs are present there.
NBFCs are the chief propellants for escorting finance into the country.
Agility is very vital for Non-Banking Financial Institutions as it sets the banks apart from them. NBFCs function faster compared to banks.
The utilization of modern techniques by NBFCs has conquered the major challenges that have stopped conventional lending for so long. NBFCs have made good use of technological innovation, such as the use of the internet and mobile phones, which has helped in accessing information easily anywhere, anytime. This has reduced the dependency on branches of banks.
In today's world, technology is not only leading the financial and banking services, but it has also digitized India and has underpinned the growth of NBFCs. Digitalization has offered NBFCs the capability to reach the audience swiftly and present multiple choices to them. This ultimately gives rise to the NBFC sector.
Combination of database and partnership assists in escalating the infiltration of the financial enclosure. To reach hefty numbers of customers effectively and reduce risks, NBFCs have counterfeit partnerships, including the government, to use their database to identify customer value. Thus providing loans has been productive for NBFCs.
Another foremost advantage of NBFCs is that it has a better understanding of their customers' profiles and their credit requirements.
Pre Requisites for NBFC Registration
As per section 45- IA of the Reserve Bank of India (RBI) Act, 1934, the following conditions must be fulfilled:
Company Registration
An applicant NBFC must be a company registered as per the provisions of the Companies Act of 1956 or Companies Act of 2013.
Director’s Experience
One-Third of the applicant NBFC should have experience in the financial sector in order to apply for NBFC registration.
Five Year Business Plan
An applicant NBFC is required to draft a detailed business plan for the next five years.
Minimum NOF Requirement
The applicant NBFC is required to possess a minimum NOF (Net Owned Fund) of INR 2 crore, and Tax must be paid the NOF.
Qualify Capital Test
The Reserve Bank of India undertakes a quality capital test to make sure that invested capital is free from any non-compliance with any prescribed law.
Credit History
The registered company's credit score and its shareholders and directors must be okay, and they should not have done evasion loan re-payment consciously to NBFCs or Banks.
Quality Of Capital
An applicant NBFC must follow all the binding compliances.
FEMA Compliances
If there is any foreign investment involvement, an applicant NBFC must comply with the provisions FEMA Act. Only the FATF member countries are allowed 100% FDI.
Market Size of NBFCs in India
NBFCs are considered as rapidly emerging business organizations. In India, there are numerous banks; however, there are no banking facilities available to the people in certain places. This results in the rising demands for obtaining loans from NBFCs. The non-Banking Financial sector has taken a boom in the past few years and has played an essential role in the development of the Indian financial sector. Behind this, the major reason is offering modified loan products, customer-friendly loan policy as well as advanced technology, quicker loan processing, and digital reach.
Conclusion
NBFCs in India perform bank-like functions such as loans, investment in shares, bonds, stocks, leasing, debentures, etc. without meeting the legal definition of a bank or financial institution. It is obligatory for NBFC registration to obtain a commercial or graduation enterprise certificate from the Reserve Bank of India as prescribed under section 45I(A) of the Reserve Bank of India Act,1934.