NBFCs disrupting traditional banking? How to register with RBI?
NBFC with the Business model of FinTech are competing with traditional banks for the same share of customers and trying to fulfill the gaps created by the traditional banking system.
Fintech NBFC should be agiler and disrupt the lending method. If you a new entrant to the Indian market planning to innovate in the online fin-tech market or you could register a fresh NBFC or can take over existing NBFC (online or offline) but in any case make sure that your business is faster, more automated and optimized.
What is Non-banking Finance Company?
NBFC is a finance company registered under Companies Act, 2013. And NBFC performs most of the common functions of a traditional bank like providing loans, financial leasing or hire except cannot invite people to open savings or current accounts with it. These institutions typically are restricted from taking deposits from the public depending on the jurisdiction. An NBFC also cannot issue cheque and drafts. NBFC is only a valid NBFC if Cor has been obtained from RBI (Reserve bank of India)
How can we differentiate NBFC vs. Bank?
NBFCs can lend as similar to banks, in past few years, Fin tech startups are trying to fulfill the fund need of the SME community in India. The lending process of NBFC is hassle free, as these days around the world, most of the Fintech startups have started using alternative credit scoring method to appraise the loan proposal. Their working is paper less you can apply for a loan online and submit your loan documents online within 12 hours your loan will be sanctioned. At other side traditional banks believes in traditional lending method ( profit and turnover based ) and fin tech NBFC evaluating loan proposal based on the working capital need of the business.
Apart of difference in working culture and operations of the NBFC Vs. Banks, there are other technical differences by defined by the RBI Act.
1. NBFC cannot accept demand deposits
2. NBFCs cannot issue cheques drawn on itself
3. NBFC cannot issue Bank guarantee
4. Factors contributing to the growth of NBFC in 2017
5. Stress on public sector units (PSUs)
6. Latent credit demand
7. Digital disruption, especially for micro, small and medium enterprises (MSMEs) and small and medium enterprises (SMEs)
8. Increased consumption
9. Distribution reach and sectors where traditional banks do not lend
How to register NBFC in India?
After Registration of Company with the objective of Finance and the next step is to obtain a certificate of registration from Reserve Bank of India. You should have a domain expertise of NBFC or Banking or you have to hire them as executive director in the company. RBI wants to make sure that fresh license is granted to a person who has already worked under the regulated environment.
You need to register as NBFC with Ministry of Corporate Affairs with authorized share capital of ₹ 200 Lac and subsequently you need to pay government fees approximate ₹ 3.5 lac.
Make a business plan for 3 years and give maximum focus on USP (Unique Selling Proposition )
You also need to arrange Minimum Net owned capital of ₹ 200 Lac and post company registration, need to create a Fixed deposit on the name of your NBFC. RBI wants to make sure that you have your own capital already for seed fund. NOF Capital can be raised from shareholders.
You need to consult a CA with domain expertise in NBFC Registration.
The application is submitted online by accessing the reserve bank of India’s website. The NBFC application form is downloaded filled it out and uploaded, making sure to enter the correct entity code so that the correct reference number is obtained.
The NBFC registration process involves physical submission of an application by the Company in the prescribed format along with the necessary documents for RBI’s consideration. NBFC license is subject to RBI discretion and if all goes well then RBI has reason to believe that you are really a serious entrepreneur and willing contribute to Financial market then license shall be granted with the conditions enumerated in the act.
Usually, NBFC registration takes 90-120 days, so you need to be careful with any discrepancies in documents or wrong submission of documents may lead to temporary/permanent rejection of the application.
Documents Required for NBFC Registration
Need to obtain a Certified copy of up-to-date Memorandum and Articles of Association of the Company from Ministry of corporate affairs.
Banker's Report in a sealed envelope ( Specifying the receipt of Net owned fund of ₹ 200 Lac )
Auditors report about receipt of minimum net owned fund.
Duly signed 3 years comprehensive Business plan
Draft about the company credit policy
Standard operating procedure of the proposed NBFC
Software and technology plan
A certificate of Chartered Accountant regarding details group/associate/subsidiary/holding companies along with details of investments in other NBFCs as shown in the Proforma Balance Sheet.
Why do you need to hire a CA for NBFC Registration?
When you are planning to set-up Finance business or willing to convert your existing finance business to NBFC. It is an important in your business interest to hire a CA firm with extensive domain expertise & exposure, typically traditional CA firms or law firms has low success ratio as compare to technology driven CA or Law firm. The other factors are for the success of your business need to hire a consultant, who understands banking business and your CA should have expert knowledge about fin tech domain so that they can benefit your organization in lending business. The consultant you deal with should be CA & CS with minimum 8+ years of experience in NBFC Consulting in India.