What’s the role that NBFCs play in the Indian financial system? Are they even that significant? And, what’s the procedure of NBFC registration in India? If all these questions trouble your mind, then reading this article is probably the best thing you’d be doing now. NBFCs, which stands for Non-Banking Financial Corporations, are entities that offer many financial instruments and services to the general public but do not possess a full banking license. Registered under the Companies Act of 2013 as companies, the principal business of NBFCs is financial activity. The major reason that makes them different from traditional banks is they can’t either accept demand deposits from the people or issue demand drafts. Recently, NBFCs of the country have extensively promoted the true spirit of financial inclusion and provided much-needed aid to the under-represented segments, including MSMEs and rural households. Going through this article will help you understand the benefits of NBFC Registration and the step-by-step procedure of NBFC registration in India. 

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NBFC Registration and the Benefits

Over the years, NBFCs have become a vital part of today’s financial ecosystem of the country as it is not only backing up the small-scale and retail sectors but also the underserved areas and unbanked sectors of India. Where a major segment of the banks is under stress due to increasing bad debt or lending in rural areas deteriorating, NBFCs are witnessing success all over the country. The reasons for this are many, including a wide range of financial products, lower cost, wider and more effective reach, risk management measures to identify and prevent bad debts, and a good understanding of Indian customer segments. Especially during the distress period such as the Covid Pandemic, which we all have been witnessing for years now, NBFCs have proved to be quite significant. They have been offering much-needed funding to Indian companies to run their operations and are now recognized as complimentary services to banks. 

Benefits of NBFC Registration

There are several benefits that NBFC registration can offer. Let’s take a look at the major ones.

• High liberty W.R.T Interest Rates

NBFCs get the freedom to fix the rate of interest on the loans they are offering.

The only condition that they must meet is to make sure their interest rates do not cross the limits prescribed by the Reserve Bank of India.  

• More Flexible

If we take a look at the ways NBFCs operate in the country, then we’d find them way more flexible compared to the banks and this is surely one of the reasons that they have gained such wide recognition and trust among the various sections of the Indian economy. Whereas banks have limited reachability, NBFCs have done an excellent job of making their presence felt, especially when it comes to rural areas.

• Focused on Customers

Given the wide range of financial products and services of the NBFCs, one can easily say that they have considered the needs of every sort of customer. From offering education loans to acquiring stakes in a company, NBFCs play a significant part, that too without demanding customers to go through an extensive list of formalities, like banks. 

• Less Risky

When it comes to the day-to-day operations of NBFCs, they prefer a very well-planned approach, especially for lending loans to their clients. They often have effective and quick risk management measures in place to identify bad debts, which ultimately help them avoid NPAs (Non-Performing Assets) and give them stability. 

Documents Required for the Procedure of NBFC Registration

• Certificate of Incorporation of the applicant company.
• Details of the applicant company’s management and administration (Board of Directors), alongside a brochure of it. 
• The applicant company’s Memorandum and Articles of Association
• PAN number of the applicant company.
• Address proof of the applicant's company
• Credit or CIBIL reports of the applicant company, alongside its every director.
• Copy of the board resolution declaring that the applicant company is not associated with any NBFC activity or has abruptly stopped carrying out any NBFC activity and will not do the same until the RBI grants it the NBFC registration.
• Copy of the board resolution declaring that the ‘Fair Practices Code’ is to be formulated and a certified copy of it shall have to be submitted.
• A certificate from the applicant company’s statutory auditor that neither the company has or accepts any public deposit as of date, nor it did the same in the past and it won't do so in the future without getting the required approval from the Reserve Bank of India.
• A certificate, issued by the applicant company’s statutory auditor, containing the information about the ‘Net Own Funds’ of the company as of date.  
• Documents associated with the bank accounts, balances, loans, credits, etc.
• A copy of the audited balance sheet and profit and loss statements for the past 3 years, besides this, a report of the director and auditor regarding the same.
• Self-certified copy of the company’s bank statements and Income Tax Returns (ITR).

Basic Criteria to Get NBFC Registration in India

To get an NBFC registration, a company must meet the following list of criteria.

• The applicant company must be registered as a public or private company as per the provisions of the Companies Act of 2013/1956.
• The Minimum Net Owned Funds of the company must not be less than INR ten crore.
• The applicant company should have a business plan for the next three years. 
• One-third of the company’s company’s directors must have working experience in the finance niche.
• The CIBIL records of the company must be excellent. 
• The company must meet the requirements prescribed under capital compliances and FEMA regulations. 

The procedure of NBFC Registration in India

Down below are the steps a company needs to follow for NBFC registration and doing business operations as one. 

• Go to the portal of the Ministry of Corporate Affairs.
• Get your company incorporated on the portal under the Companies Act 2013 and obtain a Certificate of Incorporation.
• After that, ensure that the company is following the mandatory criteria (Mentioned above). 
• Visit the RBI’s official website and get the relevant application for NBFC registration under section 45-1A of the Reserve Bank of India Act 1934.
• Fill in all the information asked in the application form and attach all the required documents.
• Go through the application form to ensure no mistake has been done on your part and then submit it.
• Upon successful submission of it, a CARN (Company Application Reference Number) will be generated.

Note:- You can use CARN to check the status of the application form.

• After that, print a hard copy of the application form (CARN to be mentioned) and submit it to the regional branch of the RBI where the company’s registered office is located.
• Thereafter, the officials of RBI will examine the received application form and if found satisfactory, the applicant company will be issued a ‘Certificate of Registration’. 

Conclusion

We hope that you have found this article entertaining to read and helpful for the procedure of NBFC registration in India. The significance of NBFCs for the Indian economy can be acknowledged by the fact that there are more than 9500 NBFCs (Non-Banking Financial Companies) present in the country today. The role they have been playing over the years to promote the country's inclusivity and cater to the financial needs of diverse sectors is just commendable. Not just this, with billions of dollars of profit, NBFCs also present themselves as a rewarding business idea with high margins for the country’s people.

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