Steps for Registering an NBFC in India

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NBFC Registration

A Non-Banking Financial Company is registered under the Companies Act 1956. It is defined as a company that engages in the business of loans and advances, acquisition of either government or non-government shares/stocks/bonds/debentures/securities, leasing, hire-purchase, insurance, chit business excluding such institutions that are engaged in agricultural activity, industrial activity, purchase or sale of any goods or providing any service and sales/purchase/construction of immovable property as their principal business. As per the Reserve Bank of India Act, only such companies that fulfill the following two criteria (also called the 50-50 test) are considered as NBFC and can be registered legally as one:-

a.   The company’s financial asset is more than 50% of the total assets.

b.   Income from the financial assets is more than 50% of the gross income.

The primary difference between an NBFC and a bank is that the former cannot open a running deposit account and issue cheques were drawn on its name or cannot issue Demand Drafts like banks. The other difference is that the bank deposits are insured by deposit insurance and Credit Guarantee Corporation. The deposits in the Non Banking Financial Companies are not insured, however.

Types of NBFC

a.   Asset Finance Company – this business finances assets such as machines, automobiles, material equipment etc.

b.   Investment Company – this company deals in securities.

c.   Loan Company – this company loans and advances

d.  Infrastructure Finance Company – a company which deploys 75% of its total assets in infrastructure loans. The net fund's value of the company must be at least 300 crores.

e.   Systemically Important Core Investment Company – this is a company that has assets worth Rs. 100 crore or above and has deployed at least 90% of the assets in shares, debt instruments or equity shares or loans in group companies.

f.    Infrastructure Debt Fund (IDF) – the company has net owned fund of Rs. 300 crores or more and invests only in Public-Private Partnership infrastructure projects that are least a year old.

g.  Non-Banking Financial Company – Factors: this company engages in the principal business of factoring.

h.  Non-Banking Financial Company-Micro Finance Institution

i.    Mortgage Guarantee Companies – 90% of the business turnover is mortgage guarantee business

j.    NBFC Non-Operative Financial Holding Company - through this company a promoter/ a group of promoters is allowed to set up a new bank.

Steps for Registering an NBFC

As per section 45-IA of the Reserve Bank of India Act, 1934 no NBFC can operate in the country without the certificate of NBFC Registration from RBI with certain exemptions where certain categories of NBFC that are regulated by other regulatory bodies need to register with the concerned body.

Two basic pre-requisite to get the registration are:-

a.   The said company should be incorporated under Section 3 of the Companies Act, 1956, and

b.   The minimum net owned fund of the company should be Rs. 200 lakh. Specialized NBFCs like the Systematically Important Core Investment Company or the Non-Banking Financial Company or the Non-Banking Financial Company Factors have different minimum net owned fund criteria.

The registration process involves:-

Step 1: open the site https://cosmos.rbi.org.in for registering online. This is the Reserve Bank of India’s secured website. A new applicant needs to click on the login page of COSMOS.

Step 2: Download the suitable application form as per the type of NBFC. Fill up the form and upload the application form.

Step 3: on submitting the form the system generates the Company application reference number for the online filed application.

Step 4: The applicant now needs to submit the hard copy of the application form and the supporting required documents to the respective Regional office. The applicant must remember to mention the corresponding online Company application reference number on the application form.

Step 5: the applicant can keep checking the status of the application by checking online at the COSMOS site using the Company application reference number.

Supporting documents that need to be submitted include: - there are about 45 documents that the applicant has to submit including Certificate of Incorporation, Certificate of Commencement of Business, Memorandum and Articles of Association, copy of PAN and DIN of the directors, Board Resolution, statutory auditors certificate, details of authorized share capital and the latest shareholding pattern of the company, fixed deposit receipt and bankers certificate, details of bank balance and more.