What do you mean by Non-banking financial Company (NBFC)?
There companies are the financial institutions which are registered under Companies Act 2013 or 1956 and provide various financial services and supports to public without having banking license. Reserve bank of India under Section 45(1A) regulates the Non - Banking Finance Company.
Activities which are dealt by NBFC are: Loans and Credit Facilities, Assets Financing, Acquisition of Shares, Stock, Bonds, Hire-Purchase of assets, Insurance, Currency Exchange activities, Peer to Peer lending facilities etc.
No activities other than financing and investment are carried out by the NBFCs. Demands which are not fulfilled by the earlier banking systems; NBFCs try to meet them in a shorter period of time.
Brief Explanation of registration of Non-Banking Finance Company
It takes 90 to 120 working days in India to register NBFCs and commencing the finance activities.
Usually NBFC takeover is not considered over New NBFC registration. Department of Non-Banking Regulation issues the registration certificate if you qualify the several steps of registration such as Business Eligibility test, experience in finance, Business Plan, Quality of Capital test, Profile Assessment, Business Plan and Public interest concern of the Regulator.
We India Financial shall provide you consultation regarding the NBFC company registration, Fintech based NBFC Business Plan, Software of NBFC, CISA Audit and complete support in registering, managing, controlling and guiding the NBFC business In India.
- Assessment Test of Profile
- Registration of Non - Banking Finance Company (NBFC)
- High-Level Business Plan
- Filing of Application online
- Questions/Clarification of Reserve Bank of India
- Final Decision on Registration Certificate
- Commencement of Business
- On-Going legal and regulatory Compliances
What are the advantages of NBFC registration?
The Reserve bank of India regulates the Non-Banking Finance Company in India as a result it has many advantages such as it secures the capital invested by owner in the business, builds the confidence of borrowers etc.
- Registration Process of NBFC does not require much cost.
- Personal Liabilities of the Owner are secured and also it safeguards the owner from business risk and legal risk.
- Borrowers are attracted as they gain confidence.
- Raising Investments in NBFC is easy.
- Access of CIBIL - Borrowers be afraid of poor credit score and Hence lowest Default
- Interest Rate are open without any Cap
- Free to charge Processing Fees - No Cap
- Protection by Law for recovery of loan
- Easy Bank Finance
- 100% FDI are allowed
- Processing of loan in no time
- Soft Eligibility Criteria
- Rules and Regulations are not much to be followed.
- Loan, Investments and Assets financing in one Single License
- All India Coverage - With NBFC License you can operate All Over India, no need to seek any approval from the local authority.
- No additional approval from RBI is required to open branches upto 1000
- Direct sale agencies (DSA) can be appointed by the Non Banking Finance Company.
What are the checklists for registering the NBFC in India?
Below mentioned conditions are required to be fulfilled by the company as per Section 45(1A) of the Reserve bank of India.
- Profile of Directors: Experience in Finance must be possessed by atleast 1/3 of Directors.
- Unique Plan of Business: Company must have detailed Business plans which are going to be implemented in the next five years.
- Owned Fund: The Shareholders in total, Must have Rs. 2 Cr as a net owned fund, Invested Capital must not be the borrowed fund. A gift from Spouse is considered as an Owned fund.
- Clean Credit History: There should not be any default by the directors and shareholders in the repayment of the loans to NBFC/ Bank.
- Experienced NBFC Advisor: Managing the registration of NBFC requires experienced professionals as such registration requires regulatory and legal compliances to meet.
What is the procedure to Apply for Non Banking Finance Company License?
To fulfill the credit gaps which are created by the banks, Non-banking Finance companies come into force and also it sanctions the loans without much processing by using the latest, updated and better technology.
Registration process of NBFC is governed by the Ministry of Corporate affairs along with the rules and regulations framed by the Reserve bank of India on time to time basis.
- Step 1: Hiring of Experienced NBFC Consultants (CA/CS/Lawyers/Ex-Banker - Suggested Consultant Team Size Should be more than 100+)
- Step 2: Qualify Eligibility Test - NBFC Advisors on the basis of his experience are required to conduct the eligibility test as per the rules framed by the Reserve Bank of India (RBI) Act.
- Step 3: Registration of Company (With Authorize share Capital of Rs. 2.5 Cr), Opening of Bank Account & Apply for Goods and Services Tax Number.
- Step 4: Appointment of Auditor - Auditors are expected to have experience in the NBFC audit and requisite knowledge of Reserve Bank of India (RBI) Act.
- Step 5: Constitute Board of Directors (Right Composition of Board securesÂ NBFC LicenseÂ easily as RBI Approves Cor only in the interest of Public)
- Step 6: Selection of Right Category and Customer Interface Option
- Step 7: With the help ofÂ NBFC Consultants high level business plans are required to create. Fintech Based Business model recommended
- Step 8: Infusion of Rs. 2 Cr capital and Creation of Fixed Deposit of Rs 2 Cr
- Step 9: Expert reviews the application.
- Step 10: Online Filing of Application (Cosmos)
- Step 11: Submit Physical submission of Application to Reserve Bank of India (RBI) Office
- Step 12: RBI Clarification/Questions are required to be solved, so there should be proactive respond to them.
- Step 13: Within 90 to 120 Days, Reserve Bank of India announce its final decision on registration certificate.
- Step 14: Within 6 months, commencement of Business shall be filed to Reserve Bank of India (RBI) onceÂ NBFC License is obtained.
- Step 15: After successful receiving the NBFC License you are required to comply with the NBFC Regulations, RBI Directions which is issued from time to time.
Do You Have Any Questions?
Shareholders owned fund i.e. gifts from spouse or relatives but it cannot be a borrowed fund.
NBFC License is compulsory in case you are running the business of lending and investment.
The net owned fund is computed on the basis of latest audited balance sheet which includes the Paid up Equity Capital, Reserves and surplus (excluding the revaluation reserve) and Long Term Liabilities (which are to be paid after 1 year), after deducting the accumulated loss and Trading investments and fictitious assets.
You can avail the NBFC License even running the business as a Sole-proprietorship or Partnership with or without a local lending license under the state laws but once the NBFC License is granted to you, need to surrender the local lending license.
Only taxed owned capital is required to meet the minimum capital requirements of the NBFC. Gifts from spouse or relatives can be obtained to finance the same.
Developing or sourcing the NBFC Software can be done only after the approval of application by the RBI.
For loan business you can make use of this fund once Reserve Bank of India approves your application.
Either you should have experience in the Finance or you can hire a professional having experience in Finance. However, 99.99% of shares can be kept by you or family members.
It would be better to hire an NBFC Consultants as they possess vast amount of experience in this field and moreover the process to register the NBFC usually takes 4 months. It would be difficult to apply for registration again in case the application is rejected.
The FEMA Provisions along with the RBI Act are required to be complied with in case you allow Foreign Direct Investment at the initial stage of the NBFC formation and moreover there are no such restrictions on Foreign Direct Investment but FDI must be in the form of T1 Equity.