NBFC Registration in India - Fees, Documents and Process

NBFC stands for Non-Banking Financial Company, which is a financial institution that operates without a banking license but provides financial services similar to banks. NBFCs play a critical role in providing credit to small and medium-sized enterprises, as well as individuals, who may not be able to obtain financing from traditional banks. If you're looking to register an NBFC in India, here's what you need to know.

Here's a more detailed guide on how to register an NBFC in India.

Types of NBFCs

There are different types of NBFCs in India, and it's important to choose the right type of NBFC depending on the business plan and financial services provided. Here are the types of NBFCs:

• Asset Finance Company (AFC): This type of NBFC provides financing for the purchase of assets such as vehicles, machinery, and equipment.
• Investment Company (IC): This type of NBFC invests in securities such as stocks, bonds, and mutual funds.
• Loan Company (LC): This type of NBFC provides loans and credit facilities to individuals and businesses.
• Infrastructure Finance Company (IFC): This type of NBFC provides long-term finance for infrastructure projects such as highways, airports, and power plants.
• Systemically Important Core Investment Company (CIC): This type of NBFC is classified as a systemically important company and mainly deals with investments in group companies.

Eligibility Criteria of NBFC Registration

To register an NBFC in India, the applicant must meet certain eligibility criteria set forth by the Reserve Bank of India (RBI). Here are the eligibility criteria:

• The applicant must be a company incorporated under the Companies Act, 2013 or any previous company law.
• The company must have a minimum net owned fund (NOF) of Rs. 2 crore. NOF refers to the equity capital and free reserves of the company.
• The company should have a track record of at least 3 years in financial services.
• The company should have a good credit rating and should not have defaulted on any debt obligation.

Registration Process

The registration process for an NBFC involves several steps and requires the submission of various documents to the RBI. Here's the step-by-step process:

• Step 1: Apply for name reservation - The applicant must apply for name reservation with the Ministry of Corporate Affairs (MCA). The name reservation application can be filed online, and the name will be reserved if it's available.
• Step 2: Incorporation of the company - Once the name is reserved, the applicant must incorporate the company under the Companies Act, 2013 or any previous company law.
• Step 3: Apply for registration with the RBI - After the incorporation of the company, the applicant must apply for registration with the RBI. The application must be filed within 30 days of the incorporation of the company.
• Step 4: Submission of documents - The applicant must submit the following documents along with the registration application:
• Certificate of incorporation
• Memorandum and Articles of Association (MOA and AOA)
• Board resolution for NBFC registration
• Net worth certificate from a chartered accountant
• Fit and proper declaration from the directors
• KYC documents of the directors
• Business plan of the NBFC
• Details of the shareholders holding more than 10% equity capital in the company
• Step 5: Follow-up with the RBI - The RBI may ask for additional documents or information during the registration process. The applicant must comply with the RBI's requests and provide the necessary information in a timely manner.

Compliance Requirements

Once the NBFC is registered, it must comply with various regulations set forth by the RBI. Non-compliance with the regulations can result in penalties and other legal consequences. Here are the compliance requirements for an NBFC:

• Capital adequacy ratio (CAR) - NBFCs are required to maintain a minimum CAR of 15% of its risk-weighted assets.
• Submission of periodic reports - NBFCs must submit periodic reports such as the Annual Audited Balance Sheet and Profit and Loss Account, quarterly returns on prudential norms, and other reports as required by the RBI.
• Lending norms - NBFCs must follow the lending norms set forth by the RBI, such as the maximum amount of loan that can be given to a single borrower, the maximum tenure of the loan, and the interest rate charged.
• Investments - NBFCs must comply with the regulations related to investments, such as the maximum amount that can be invested in group companies and other non-banking financial companies (NBFCs) and other entities.
  

Advantages of NBFC Registration

There are several advantages of NBFC (Non-Banking Financial Company) registration. Here are some key benefits:

• Financial Intermediation: NBFCs play a crucial role in providing financial intermediation services, bridging the gap between borrowers and lenders. By obtaining NBFC registration, companies can engage in various financial activities such as lending, investment, leasing, and asset financing. This enables them to serve the financial needs of individuals and businesses that may not have access to traditional banking services.
• Diversified Financial Services: NBFCs have the flexibility to offer a wide range of financial products and services tailored to the specific needs of their target market. They can provide loans, advances, hire-purchase, equipment leasing, investments, insurance services, and more. This allows NBFCs to cater to diverse customer segments and contribute to the overall financial inclusion of the economy.
• Regulatory Framework: NBFCs operate under the regulatory framework established by the relevant financial authorities, such as the Reserve Bank of India (RBI). By obtaining NBFC registration, companies gain the advantage of being regulated entities, which enhances their credibility and instills trust among customers and investors. Compliance with regulatory requirements ensures transparency, stability, and the adoption of best practices.
• Access to Funds: NBFCs can raise funds through various means, including equity, debt instruments, and deposits (subject to certain conditions and regulations). The ability to raise funds from multiple sources allows NBFCs to strengthen their financial position and expand their operations. This access to funds enables them to meet the borrowing needs of customers and support economic growth.
• Flexibility and Innovation: NBFCs have the advantage of operating with greater flexibility compared to traditional banks. They can design innovative financial products and customize offerings to meet specific market demands. This flexibility allows NBFCs to adapt quickly to changing market trends and customer requirements, fostering innovation and competitiveness.
• Niche Market Focus: NBFCs can target specific market segments or niche areas within the financial sector. This specialization enables them to develop expertise in serving particular industries, sectors, or customer profiles. By focusing on specific market segments, NBFCs can provide tailored financial solutions and build strong relationships with their target customers.

It's important to note that while NBFC registration offers several advantages, it also comes with regulatory obligations and compliance requirements. Companies seeking NBFC registration must fulfill the necessary criteria, maintain proper documentation, and adhere to regulatory guidelines to ensure the smooth functioning and sustainability of their operations.

What are the benefits of registering an NBFC?

There are several benefits to registering an NBFC in India, including:

• Access to a wider range of funding sources
• The ability to offer a wider range of financial services
• The ability to operate on a national or international scale
• Increased credibility and reputation

What are the risks associated with registering an NBFC?

There are also some risks associated with registering an NBFC, including:

• The need to comply with a wide range of regulations
• The risk of financial losses
• The risk of reputational damage

Conclusion

Registering an NBFC in India involves meeting the eligibility criteria, submitting the necessary documents, and complying with the regulations set forth by the RBI. It's important to choose the right type of NBFC and follow the compliance requirements to ensure the smooth functioning of the business and avoid penalties or legal consequences.

Latest Updates:

some of the latest updates from the RBI:

• In March 2023, the RBI imposed a penalty  on Dewan Housing Finance Corporation (DHFL) for non-compliance with certain regulations. The penalty was imposed for non-adherence to the directions issued by the RBI on various matters, including asset classification, provisioning, and disclosure norms.
• In February 2023, the RBI placed Lakshmi Vilas Bank (LVB) under a moratorium for 30 days. The moratorium was imposed due to LVB's inability to meet its short-term obligations. The RBI also superseded the board of directors of LVB and appointed an administrator to manage the bank's affairs.
• In January 2023, the RBI imposed a penalty on India bulls Housing Finance Limited (IHFL) for non-compliance with certain regulations.

The RBI has been taking a number of steps to strengthen the regulatory framework for NBFCs and to protect the interests of depositors. These steps include:

• Increasing the capital requirements for NBFCs
• Introducing new regulations on asset classification and provisioning
• Increasing the frequency of supervision of NBFCs
• Imposing penalties on NBFCs for non-compliance with regulations

The NBFC sector is facing a number of challenges. However, there are also a number of opportunities for NBFCs to grow and succeed. NBFCs that are able to adapt to the changing environment and meet the needs of their customers will be well-positioned to succeed in the years to come.

Here are some of the latest trends in the NBFC sector:

• The rise of digital lending: NBFCs are increasingly using digital technologies to lend to customers. This is due to the fact that digital lending is more efficient and can reach a wider range of customers.
• The growth of fintech: Fintech companies are developing new technologies that can be used by NBFCs to improve their operations. This includes technologies for credit scoring, risk assessment, and customer onboarding.
• The increasing focus on customer service: NBFCs are increasingly focusing on providing excellent customer service. This is due to the fact that customers are more demanding and have more choices.

The NBFC sector is undergoing a period of rapid change. NBFCs that are able to adapt to these changes will be well-positioned to succeed in the years to come.