NBFC Registration Process
Non-Banking Financial Company falls under the category of private lenders catering to activities akin to traditional banks but with a limited scope. They cannot accept deposits and savings, issue cheques drawn on themselves, and yield credit guarantee coverage. These institutions offer services like loan disbursement, chit fund, finance leasing, and hire-purchase. NBFCs ensure financial inclusivity, offering credit to a wider audience and those with a feeble credit history. Those seeking to pursue the operation of the NBFC must apply for the NBFC registration process governed by RBI. If you are the one seeking the same, this article has your back! Let’s begin with what it takes to secure this registration.
Pre-Registration Checklist for NBFC License
Before you delve into the NBFC registration process, fulfilling the given conditions is paramount:
- Registration under the Company Act 2013 is compulsory.
- Devising a pragmatic business plan for 5 years is vital.
- CIBIL score or credit rating cannot be lower than what’s recommended
- The presence of Rs. 2 crore of net own fund is essential
- Rs. 200 crores should be the overall worth of the company’s assets.
- Fulfillment of capital compliance and FEMA norms is mandatory
- One-third of the directors must have served the financial realm and with ample experience.
How to calculate NoF?
Use the given formulae to calculate the NoF i.e. Net owned fund
NOF = Paid-up Capital + Free Reserves + Other Surplus Funds – Intangible Assets – Accumulated Losses – Deferred Revenue Expenditure
Note: If the total investment in shares or debenture in other similar entities exceeds 10% of the owned funds, subtract such investment from the NoF.
Understanding the Types of NBFCs
NBFCs in India are categorized as follows. While applying for the registration, you can choose one of the following business models.
- Deposit accepting NBC’s
- Non-deposit accepting NBC’s
This broad categorization is followed by further classification, reflecting the type of NBFCs that exist in India.
- Mortgage Guarantee Companies (MGC)
- Non-Banking Financial Company Factors (NBFC-Factors)
- Asset Finance Company
- Loan company
- NBFC Non-Operative Financial Holding (NBFC-NOFHC) Company
- Infrastructure Debt Fund
- Non-Banking Financial Company Micro-Finance Institution (NBFC-MFI)
- Residuary non-banking company
- Systemically Important Core Investment Company (CIC-ND-SI)
- Investment company
- Infrastructure finance company
Documents To Consider For NBFC registration process
Keep the following dossiers handy before delving into the NBFC registration process:
- Documents verifying the office location/address.
- Certificate from the statutory auditor specifying the company’s owned funds as of the application date.
- Certified copy of the company’s Memorandum of Association (MoA) and Articles of Association (AoA).
- Detailed future plans for the company for the next three years, including projected balance sheets, cash flow statements, and income statements.
- Certificate from the statutory auditor stating the company neither holds nor accepts public deposits.
- Company Incorporation Certificate.
- Certified copy of the board resolution on the ‘Fair Practices Code’.
- Copy of the board resolution certifying that the company has ceased or never commenced NBFC activities and will not resume until RBI registration is obtained.
- Signed profiles of all directors must be included.
- Comprehensive information about the management team along with a company brochure.
- Self-certified copies of bank statements and Income Tax Returns.
- Copy of the company’s PAN/Corporate Identity Number (CIN).
- If applicable, audited balance sheets and profit and loss statements, along with directors’ and auditors’ reports for the last three years.
- Details of the bank account, including balances, loans, credits, etc., must be provided.
- CIBIL/credit reports of the company’s directors.
Steps Involved in the NBFC Registration Process
Delving into the NBFC Registration Process is all about following the given steps, each demanding a distinct approach and requirement.
Step 1: Visit the Reserve Bank’s portal
Step 2: Fill out the concerned application form based on the type of license you seek
Step 3: Upload the document as cited above in the recommended format.
Step 4: Note down the CARN number as soon as the portal accepts the application.
Step 5: Submit the hard copy of the application and paperwork to the RBI’s regional office.
Step 6: RBI shall vet the submitted paperwork for accuracy and compliance. Any error or misleading info can incur the rejection possibility, compelling the applicant to follow the entire process again.
Step 7: The grant of certification shall come to light if the authority can’t locate any error in documents.
Fundamental Norms to Follow After Completing the NBFC Registration Process
- Every NBFC should maintain a recommended threshold of Net Owned Funds (NOF). Any deviation could lead to severe penalties involving the prohibition of business activities.
- Providing RBI with quarterly and annual returns is compulsory.
- Reinforcing transparency in management and operation is paramount. Also, deploying the Fair Practices Code is necessary to stay compliant.
- Performing periodic due diligence within the purview of RBI’s norms is vital. The report for the same should be shared with the authority without fail.
- Adhere to prudential norms governing asset classification, income recognition, and provisioning.
- Deploy Anti-Money Laundering (AML) and Know Your Customer (KYC) policies without fail.
- Careful inspection of borrowers’ credit records is compulsory. Make sure to secure the Credit Information Reports (CIR).
- Share the credit information with the Credit Information Companies (CICs).
- Complying with RBI’s norms concerning loan facilitation and credit threshold is compulsory.
- Maintain liquidity coverage ratios within the context of RBI regulations.
- Comply with RBI’s directives on the regulation and tracking of non-deposit-accepting NBFCs (NBFC-ND) and deposit-accepting NBFCs (NBFC-D).
Conclusion
Delving into the NBFC registration process is all about catering to myriad compliances and RBI’s guidelines. From registering a company, hiring directors, and filing applications to arranging NoF, applying for an NBFC license is a daunting task. You must have an apt understanding of applicable legalities before you apply for this registration.
At Adviso, we help clients navigate through legalities and intricate compliances when striving for NBFC registration. Our experts posses vast expertise and in-depth knowledge about concerned regulations, processes, and paperwork, paving the roadmap for successful registration. If you wish to get NBFC license in one go with zero hassle, look no further than Adviso.
Read Our Article: NBFC Compliance Checklist: A Comprehensive Overview
