NBFC Registration
A Non – Banking Financial Corporation is a company included under the Companies Act 2013 or 1956 which is incorporated for carrying on the business of Loans and Advances, Stocks Acquisition, equities, debt and etc, which is issued through the government or by any local authority. The primary objective of this kind of organization is to accept deposits under any scheme or way.
As per section 45-1(c) of the RBI Act, a Non – Banking Company performing the business of a financial institution would be an NBFC. It is administered through the Ministry of Corporate Affairs as well as the Reserve Bank of India.
The following NBFC’s are not necessary to acquire any registration with the Reserve Bank of India:
1. Core Investment Corporations – (assets are less than Rs. 100 crore or public funds not taken)
2. Merchant Banking Companies
3. Corporations which are occupied in the business of stock-broking
4. Housing Finance Corporations
5. Corporations occupied in the commerce of Venture Capital.
6. Insurance corporations holding a certificate of registration issued through IRDA.
7. Chit Fund Corporations as defined in the Sec 2 clause (b) of the Chit Fund Act, 1982
8. Nidhi Corporations
Advantages of NBFCs
NBFCs as of late gained up a great deal of fame in the middle of institutional investors, in light of the fact that NBFCs gives semi-rural and rural India the access towards credit, as the traditional banks have been traditionally poor in contacting them. A few advantages are:
Provides loans and credit facilities- There are corporations opting to take commerce loan from NBFCs except Banks because of quicker processing, competitive interest rates, as well as availability of loans for those with bad credit history.
Supporting investment in property- Investing resources in property with NBFCs is profitable because of flexible rates, easy repayment, and acceptable property collaterals with speedy and simple processing
Trading money market instruments- Interest rates on money market instruments for example commercial paper id soft with NBFCs, however, the base rate of banks remained unaltered.
Funding private education- Flexible rates as well as easy return makes it helpful.
Gives retirement planning
Recommend corporations in merger and acquisition
Wealth management like Managing portfolios of stocks as well as shares
Arrange feasibility, market or industry studies for corporations
The different types of NBFCs:
The NBFCs can be categorized under two broad heads:
1. On the nature of their activity
2. On the basis of deposits
The types of Non-Banking Financial Corporations are:
On the nature of their activity:
• Asset Finance Company (AFC)
• Investment Company (IC)
• Loan Company (LC)
• Infrastructure Finance Company (IFC)
• Systemically Important Core Investment Company (CIC-ND-SI)
• Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
• Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)
• Non-Banking Financial Company – Factors (NBFC-Factors)
• Mortgage Guarantee Companies (MGC)
• NBFC- Non-Operative Financial Holding Company (NOFHC)
On the basis of deposits:
1. Deposit accepting Non-Banking Financial Corporations
2. Non-deposit accepting Non-Banking Financial Corporations
NBFC Registration
According to RBI Act, 1934, Section 45-IA, no corporation could commence or carry on the business of a non-banking financial institution without getting a certificate of registration as well as without having a Net Owned Funds of Rs. 200 lakhs. The requirement for registration as an NBFC is a corporation incorporated under Section 3 of the Companies Act, 1956 and have a minimum net owned funds of Rs.200 lakhs. Net owned funds is the balance of “owned funds” excluding the sum of investment in shares of subsidiaries, corporations in the same group and all other NBFCs, book value of debentures, bonds, outstanding loans as well as advances which includes hire purchase and lease finance made to and deposits with subsidiaries and corporations in the same group. Owned funds is the aggregate of paid-up equity capital, preference shares which are compulsorily convertible into equity, free reserves , balance in share premium account as well as capital reserves indicating surplus arising out of sale proceeds of asset, which excludes reserves made through asset revaluation, after deducting from the accumulated balance of loss, deferred revenue expenditure as well as other intangible assets.
Application for becoming an NBFC should be made in the requisite form to Regional Office of the Reserve Bank of India.
Document Required for Registration
The NBFC License application is required to be submitted online and offline with the mandatory documents towards the Regional Office of the Reserve Bank of India. The documents that are required to be submitted for NBFC License are:
• Documents regarding the Information about the management and administration of the corporation
• Certified copies of Certificate of Incorporation and Certificate of Commencement of Business in case of public limited corporations.
• Certified copies of up-to-date Memorandum and Articles of Association of the corporation. Details of clauses in the memorandum regarding financial business.
• Documents describing the location of the company
• Detailed information about Directors or Partners of the Company
• Accounts of the company well-audited for last three consecutive years
• Board Resolution in favour of NBFC formation
• Bank Account by means of a minimum paid-up equity share capital of INR-2 Crore
• Income tax PAN, etc.
• Other relevant documents on request
Timing and process of legal documentation
The process to incorporate an NBFC is:
1. A corporation must first be registered under the Companies Act 2013 or under Companies Act 1956.
2. The minimum net owned funds of the corporation are required to be Rs. 2 Crore. For a Foreign Company wanting to set up an NBFC in India, they are required to have a paid-up equity share capital of Rs. 5 Crore.
Note: The Net Owned Fund mentioned above has to be present in the Company’s bank account at the time of filing Application
3. There must be a minimum of 1 Director from the same background or a Senior Banker as a full-time director in the corporation.
4. The CIBIL records of the corporation must be clean
5. After all of the above conditions were satisfied the online application on the website of RBI must be filled and submitted along with the required documents.
6. A Company Application Reference Number shall be generated.
7. A Hard copy of the application also needs to be sent towards the regional office of the Reserve Bank of India.
8. After the application is appropriately verified and checked and approval of the submitted documents and application, the regional office will send the application to the Central office of RBI, which then goes through vital examination towards granting the Certificate.
9. If the terms and conditions as per section 45-I A of the RBI Act, 1934 are fully met, then the License shall be granted to the corporation.
We at eStartIndia provide meticulous assistance to the clients incorrectly filing the NBFC Registration as per the rules.
Legal remedies
In case any unincorporated firm which may include Proprietorship or Partnership or an NBFC without any approval towards taking deposit is found accepting public deposits, it is then legally responsible for criminal activity. Furthermore, if NBFCs partner with proprietorship/partnership corporations accepts deposits in contradiction of RBI Act, they are likewise subjected towards being prosecuted under criminal law or under the Protection of Interest of Depositors (in Financial Establishments) Act, if passed through the State Governments.
FAQs
What is NBFC?
NBFC (Non-Banking Financial Company) is occupied in financial actions as mentioned under section 45-IA of the RBI Act 1934 but doesn’t have a banking license. A corporation could offer banking services like lending of loans, assets mortgage, insurance, hedge funds, so forth, after NBFC Registration.
Does every NBFC necessary to be registered with RBI?
The Reserve Bank of India (RBI) controls the functioning of all NBFCs under the RBI Act, 1934 and instructions issued by it from time to time. Therefore, NBFC performs its actions, is requisite to get a license from the Reserve Bank of India to begin its commerce.
What are the requirements to register with RBI?
1. It must be registered under Section 3 of the Companies Act
2. They must have a minimum net owned finance of Rs. 200 lakh
3. The corporation must submit its application for registration in the set format along with required documents for bank’s consideration
How are NBFCs different from banks?
Regarding lending as well as making investments, the Non-Banking Financial Companies are similar to banks. Though there are few differences, they are:
1. NBFCs can’t accept demand deposits
2. NBFCs can’t issue cheques towards its customers as they do not form a part of the payment and settlement system
3. As opposed to banks, NBFCs can’t avail the deposit insurance facility of DICGC.
4. They can’t issue demand drafts
What are the requirements for registering as an NBFC?
According to the Reserve Bank of India Act, 1934, it states that “No corporation can begin the commerce of NBFC unless it has got the certificate of registration and having a net owned finance of Rs. 2 Crore”.
For registering as an NBFC an application towards the Regional Office of RBI must be made along with the necessary documentation.
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