Introduction: Non-Banking Financial Company

If you have a company and want to make it an NBFC company or you want to incorporate a new NBFC company or you have an NBFC company and want to get it registered under RBI regulations then this article is for you. Read it till the end and all your doubts and questions will be answered. We will let you know all the procedures to be followed, the authorities to be addressed, the documents to be submitted, and the details to be shared to get your NBFC Registration done.

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NBFC companies are just like any other company registered under the Companies Act of 2013 but because they are dealing in financial matters and providing monetary services, they come under the ambit of the RBI regulations without being a Bank. And that makes them NBFC which stands for Non-Banking Financial Companies. Before moving further into the process of registration, let’s have a look at the definition of NBFC Companies.

What Is NBFC?

The Reserve Bank of India Act of 1934 defines Non-Banking Financial Companies in Section 45 I. A Non-Banking Financial Company means a company that is not a bank but deals in monetary services, for example:-

• Receiving deposits in various schemes and arrangements &
• Lending money, as their principal business.

These terms are amendable by The Reserve Bank of India. It can obtain prior approval of the central government and can amend the criteria which are discussed here for NBFC companies.

NBFC Companies are financial institutions hence it is necessary to discuss the meaning of financial institution as defined in the Reserve Bank of India Act. These are the Institutions involved in monetary matters, such as:-

• Giving loans and advances.
• Acquisition of shares, stocks, bonds, debentures or securities.
• Let or deliver goods of any kind under a hire-purchase agreement.

If a company or institution is involved in the business of insurance, it will also be called a financial institution. The collection of money in a lump sum also makes a company, a financial institution.

We have discussed NBFC. Now let's have a look at some businesses which are not considered financial institutions and hence cannot be registered as NBFCs. These businesses are involved in:-

• Agricultural businesses.
• Industrial activities.
• An institution providing any kind of service.
• An institution that sells and purchases goods except for securities.

Types OF NBFC Companies

NBFC companies are divided into many categories based on various factors like whether they are accepting deposits or not, and if they are not accepting deposits. Those companies which do not accept deposits are further divided into systemically important and other companies. Further, all NBFC companies are divided based on what work and activities they are involved in. Some of the major types of NBFC companies are described below.

• Asset Finance Company

These companies are involved in the financing of physical assets that are used for economic and productive growth. These assets include automobiles, generators, tractors, earth movers etc.

• Investment Company

The main business of these companies is to deal with the acquisition of securities. They reinvest the pooled capital of investors to generate returns.

• Loan Company

These companies provide finance in terms of loans and advances but Asset Finance Companies are excluded from this category.

• Infrastructure Finance Company

This type of NBFC deploys a big part of their asset into infrastructure loans. They have a minimum net owned fund of 300 crores with 15 per cent CRAR and a credit rating of ‘A’.

• Systemically Important Core Investment Company

These companies are involved in the business of shares & security acquisition. These companies accept public funds and their asset size is more than 100 crores.

• Infrastructure Debt Fund

These NBFC companies facilitate long-term debt flow into infrastructural projects and raise resources through bonds of minimum five-year maturity.

• Micro-Finance Institution

These companies don’t accept deposits and have at least eighty-five per cent of assets as qualifying assets. Qualifying assets depends on the amount of loan, type of household, period, prepayment policies etc.

• NBFC - Factors

These NBFCs are involved in the business of factoring. Their fifty per cent of assets are financial assets and fifty per cent of gross income is derived from the factoring business.

• Mortgage Guarantee Companies

Mortgage companies have net owned fund of hundred crores. Ninety per cent of their business turnover or gross income is derived from Mortgage Guarantee Companies.

• Non-Operative Financial Holding Company

These companies allow promoters and promoter groups to set up a new bank. It holds the bank and all other financial services regulated by RBI or other Financial Sector Regulators.

Now that you know which companies and institutions are Non-Banking Financial Companies, we can move forward with the process of NBFC Registration.

Requirements For Registration Of NBFC

Section 45 IA of the RBI Act makes it mandatory to obtain a certificate of registration (CoR) for NBFCs. And the company should also have a net owned fund of two crore rupees or other amounts not exceeding a hundred crore rupees. Previously this limit was twenty-five lakh to two crore rupees but it was amended by Finance Act 2022 and increased the higher limit from two crores to a hundred crore. The lower limit was amended in 1999 which was 25 lakhs previously. These limits are amendable by the RBI. It may also prescribe different limits for different types of NBFCs.

To register as a Non-Banking Financial Company, the company shall make an application for registration to The Reserve Bank of India. It may inspect the books of the NBFC which has applied for the certificate of registration. Although such inspection may not be necessary and would be the discretion of RBI in case the company fulfils some conditions. These conditions are prescribed by the Reserve Bank of India and amended from time to time.

• The NBFC should be in a position to pay its present and future depositors.
• It should be able to make such a payment in full whenever the claim accrues.
• The affairs of NBFC should not be or are likely to be concluded in any manner which can be detrimental to the interest of its depositors in the present and future.
• The character of management should not be prejudicial to the public interest and interest of its depositors. And this condition applies to present management, as well as proposed management for the future.
• The Non-Banking Financial Company must have sufficient capital structure and earning prospects.

The Bank can also grant the certificate of registration if the public interest will be served by issuing a certificate for the NBFC for doing its business in India also if such certificate is not prejudicial to the operation and consolidation of the financial sector in consistency with the stability and economic growth of the country. Bank may again use its powers to prescribe any condition to ensure that the NBFC and its business would not be prejudicial to the investors and public.

The Reserve Bank of India after ensuring that above mentioned conditions are fulfilled by the Non-banking Financial Company, may grant the certificate of registration. The RBI may also put any conditions if such conditions are fit to impose.

Cancellation Of NBFC Registration & Appeal

Now we know what conditions must be met to obtain a certificate of registration for your Non-banking Financial Company but not to lose it You have to take care of some issues otherwise the Bank may cancel your NBFC registration in various circumstances that are mentioned below:-

• If such company anytime ceases to carry on the business of a Non-Banking Financial Company or has failed to do so.
• If the NBFC has failed to meet any conditions which the Bank imposed at the time of issuance of the certificate.
• If the company fails to fulfil the conditions or requirements it was fulfilling at the time of issuance of the certificate.
• If the company fails to comply with the directions given by the bank.
• If the company fails to maintain the accounts as prescribed by law.
• If the company fails to offer its book of accounts or other documents for inspection.
• If the company is prohibited from accepting deposits for three months or more.

Now you know the things to take care of not to lose the certificate of registration but in case you lose it for any of the above-mentioned reasons the company aggrieved by order of rejection of the application or cancellation of the certificate may prefer an appeal within thirty days to the Central Government.

When You Don’t Need NBFC Registration?

There is some kind of companies that do not need NBFC registration. We have already discussed various types of companies and along with their definitions, we also mentioned some limits. If any company falls out of that limit then it does not need NBFC registration. Along with that the following companies also don’t need NBFC registration if they satisfy certain conditions:

• Housing Finance Companies
• Merchant Banking Companies
• Stock Exchanges
• Stock Brokerage Companies
• Venture Capital Fund Companies
• Nidhi Companies
• Insurance Companies

Some of these NBFC companies are regulated by other financial sectors regulators like National Housing Bank, Securities & Exchange Board of India, Insurance Regulatory and Development Authority, Ministry of Corporate Affairs - Government of India and State Governments. Reserve Bank of India does not regulate these companies to avoid ambiguity in the rules and prevent dual regulation.

Step-By-Step Guide To NBFC Registration

To register as a Non-Banking Financial Company, the company shall make an application for registration to The Reserve Bank of India. The Bank may issue the certificate of registration if all the above-prescribed conditions are met.

A process of application is available on the website of the Reserve Bank of India which prescribes:-

• To apply online as well as submit a physical copy of the application to the regional office of the Reserve Bank of India.
• The applicant company has to download an Excel application form from the website.
• Fill in all the required details and upload it back to the website.
• By doing so the company will receive a ‘Company Application Reference Number’.
• This reference number must be indicated in the hard copy of the application and should be submitted to the concerned regional office along with all the required documents.
• The status of its application can be accessed by the applicant company through the ‘Acknowledgement Number’ on the website.

Documents Required For NBFC Registration

Various documents are required to be submitted by the applicant company along with the application. These requirements are different for different kinds of NBFC companies.

• Type I NBFC

Type 1 NBFC companies are those which don't accept public funds. These companies have to submit certified copies of the Certificate of Incorporation, Certificate of Commencement of Business, Certified copy of the object clause of Memorandum of Association, Board Resolution, Copy of FDR (Fixed Deposit Receipt), Bankers Certificate of No Lien, Audited Balance Sheet, Auditor’s Report, Profit-Loss Account, Banker’s Report in respect of all associated companies.

• Type II NBFC

Type II NBFC companies are those which accept public funds. These companies are required to submit a Copy of the Certificate of Educational Qualification of Directors and Experience Certificate in addition to the documents previously mentioned for Type I NBFC Companies.

• NBFC-MFI

MFI stands for Micro-Finance Institutions. These companies are required to submit a Board Resolution, in a different format and a Roadmap to achieve 85% qualifying assets, in addition to the documents previously mentioned for Type I NBFC Companies.

• NBFC - Factor

NBFC - Factor is an NBFC engaged in the principal business of factoring. These companies are required to submit a Board Resolution in a separate format prescribed by the Bank.

• NBFC - IDF

IDF stands for Infrastructure Debt Fund. These companies are required to submit four additional details which include a No Objection Certificate, a copy of the agreement between the concessionaire, The Project Authority, and NBFC - IDF, Details of change in the management with reasons, and lastly source of the startup capital.

Conclusion

Non-Banking Financial Companies are defined and explained above as prescribed in the Reserve Bank of India Act with the conditions required for NBFC registration. Further, the process of getting a certificate of registration is discussed along with a step-by-step guide for the application and a list of required documents for each type of NBFC Company. Being said that we hope that we answered most of your questions and doubts regarding NBFC registration.