Non-Banking finance company


Why register an NBFC company?

A non-banking financial company (NBFC) is indulged in providing various financial as well as non-financial services to individuals, entrepreneurs, etc.

The NBFC has to function as per the norms of the Reserve Bank of India (RBI). To register an NBFC, the company has to follow certain conditions. The company shall apply to RBI in the prescribed manner for registration purposes.

NBFC is now becoming better alternatives to the banking and financial sectors by providing various financial solutions to the unfamous segments of society.

The registration of the NBFC would facilitate the development of various sectors such as education, infrastructure, MSMEs, and more. It also helps in the growth of financial markets. NBFC provides a credit facility furthermore it also aids in the economic development of the country. Wealth can be created through registering an NBFC.

To register an NBFC it must have a net owned fund of more than 2 crores over its life. The requirement of net owned funds is as prescribed by the RBI.

After incorporating NBFC the company can enjoy the benefit of 100% FDI from FATF member countries which comes under the automated route.

Benefits of having an NBFC

  • Easy registration: The registration process of NBFC is easy as compared to any banking company.
  • Loan recovery: It is easy for an NBFC to recover its loan as NBFC systematically perform their operations and offers customized loan products. So it is convenient for the borrower to repay the money within the prescribed time limit.
  • Economic growth of the country: Those searching for credit can avail of the credit facility through NBFC. They provide affordable credit to businesses and individuals to meet their financial requirements. In this way, NBFC contributes to the country’s economic growth by providing credit to the country’s different sectors of the country.
  • Time and cost can be saved: If we compare NBFC with banks then we will find that NBFCs are simpler as compared to banks. In banks, to open a bank account a large amount of capital is required but in NBFC one is required to consult the NBFC consultant to obtain registration in India.
  • Credit score: Banks provide the credit facility on the basis of the credit score of the borrower. In banks if the credit score of the borrower is low the finance is denied but policies of NBFC are comparatively relaxed.
  • Less strict rules: Borrowers of NBFCs are more satisfied as the rules and regulations of NBFC are less stringent thus loan processing is also less complicated.
  • Speedy processing: Those who are in immediate need of money can apply for the same to the NBFC. NBFCs are easy-going in this respect. This feature of NBFC makes the loan approval process easy when compared to banks.
  • Interest rates: Interest is the main consideration of both the lending institution as well as the borrower. The NBFCs have reduced the interest rates to the bank rates. Thus for borrowers, NBFCs are affordable.
  • Act as lender of last resort: When credit cannot be availed through a bank, NBFC acts as a last resort and provides the borrower with the required credit.

About Non-banking financial companies (NBFC)

The NBFC is a company incorporated under the companies act, 2013 and is engaged in the business of providing loans and advances. NBFCs are not allowed to accept demand deposits. They are not allowed to issue cheques drawn on themselves. NBFCs are different from banks. Banks are registered under the Banking Act whereas NBFCs are registered under the Companies Act, 2013.

There are many types of NBFC:

  1. Asset financing company
  2. Mortgage guarantee company
  3. Loan company
  4. Micro-finance company
  5. Housing finance company
  6. Core investment company
  7. Infrastructure company

NBFC does not issue credit cards whereas banks tend to issue credit cards frequently. Banks focuses more on corporate as well as retailers whereas NBFCs are more focused on the retail sector. Another difference between banks and NBFCs is ‘rating’. Deposits of NBFC are rated but the deposits of banks are not.

Requirement related to registering an NBFC

  • A company should be registered under the companies act, 2013. The company should have a minimum net owned fund of 2 crores.
  • The net owned fund would be calculated on the basis of the last audited balance sheet of the company. The net owned fund comp rises paid-up equity share capital, free reserves and balance in share premium account and also includes the capital reserve but the reserve created by way of revaluation of the asset shall be excluded from the same.
  • From the aggregate of items mentioned above, all the accumulated losses shall be separated to arrive at owned funds after that any investment in the shares or debentures of other NBFCs or its subsidiaries or other group companies in excess of10% of owned funds shall be deducted to reach net owned funds.
  • The directors of NBFC must have experience in banking, finance and credit. The shareholders and directors of the NBFC must have not defaulted wilfully in the repayment of loans and credit facilities to banks and NBFCs. The directors are required to provide their education certificates. The credit report of the shareholders is also required.
  • The shareholders, as well as the promoters of the company, are required to qualify for a test called a capital test. The MOA and AOA are to be prepared in accordance with the provision of the act.

Procedure to register an NBFC

Following are the steps to be followed for registering an NBFC:

  1. Certificate of registration: To function as an NBFC every company is registered under the companies act, 2013 or companies act, 1956 needs to obtain a certificate of registration from the RBI after fulfilling the prescribed conditions.
  2. To register NBFC, an application is required to be filled to RBI accompanied with the necessary documents for scrutiny purposes.
  3. A certificate of registration shall be issued to the company if the company complies with all the requirements of the RBI act.
  4. If the company fulfils/satisfies the prescribed conditions necessary to function as an NBFC then the company can go for registration as an NBFC in the prescribed form along with all the necessary documents. Application (COSMOS) can be filled through the website of RBI.
  5. On successful submission of the application, RBI shall issue an application reference number (ARN) for the purpose of tracking the status of the application.
  6. The applicant company is required to submit the physical copy of the application to RBI along with the necessary attachments.
  7. Once the application reaches RBI, RBI will scrutinize all the relevant documents and information contained in the application. On satisfaction, the RBI shall issue the license to the applicant company to function as an NBFC.

Documents required to register an NBFC

  1. A certified copy of the certificate of incorporation accompanied with a memorandum of association (MOA) and articles of association (AOA).
  2. KYC of the shareholders as well as the directors of the company.
  3. Highest qualification certificate of the director of the company.
  4. Board resolution in favour of NBFC registration
  5. Audited financials of last 3 years of the company.
  6. Documents related to the location of the company.
  7. Detailed action plan for the proposed NBFC along with organizational structure.
  8. Director’s report as well as the auditor’s report.
  9. Bankers report regarding no lien remark on net owned funds.

    I would like to discuss:

    Message Us on WhatsApp