Incorporation:

The NBFC Sector if regulated by the Reserve Bank of India (RBI). Utmost care and vigilance is sought by RBI when considering the incorporation of a company as a NBFC.

  • What is a NBFC?

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 or under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/ stocks/ bonds/ debentures/ securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

Whether a company is an NBFC can be determined with the help of the 50-50 rule. This means that a company is said to be principally engaged in financial activities if:

  1. The financial assets of the company comprise at least 50% of the total assets held by the company, AND
  2. Where at least 50% of revenue is derived from financial assets.

Companies that fulfill the above conditions will have to be registered as NBFCs with the RBI.

 

  • How NBFC is different from a Bank?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself; deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

 

  • The procedure to incorporate an NBFC is:
  1. A company should first be registered under the Companies Act 2013 or under Companies Act 1956.
  2. The minimum net owned funds of the Company should be Rs. 2 Crore (except any specific limit mentioned for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs)
  3. There should be a minimum of 1 Director from the same background or a Senior Banker as a full-time director in the Company.
  4. The CIBIL records of the Company should be clean
  5. After all of the above conditions have been satisfied the online application on the website of RBI should be filled and submitted along with the requisite documents.
  6. A CARN Number will be generated.
  7. A Hard copy of the application also has to be sent to the regional branch of the Reserve Bank of India.
  8. After the application is properly scrutinized, the License will be given to the Company.

Registration:

The NBFC Sector if regulated by the Reserve Bank of India (RBI). Utmost care and vigilance is sought by RBI when considering the registration of a company as a NBFC. There is a lengthy procedure for submission of documents when applying for a registration with RBI. We at NBFC Solutions will provide the requisite assistance in getting the registration of NBFC with RBI done smoothly.

 

  • Is it necessary that every NBFC should be registered with RBI?

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without

  1. obtaining a certificate of registration from the Bank, and
  2. without having a Net Owned Funds of ₹ 25 lakhs (₹ Two crore since April 1999).

However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982, Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.

 

  • What are the requirements for registration with RBI?

A company incorporated under the Companies Act, 1956 or Companies Act, 2013 and desirous of commencing business of non-banking financial institution as defined under Section 45 I (a) of the RBI Act, 1934 should comply with the following:

i. it should be a company registered under Companies Act, 1956 or Companies Act, 2013

ii. It should have a minimum net owned fund of ₹ 200 lakh. (The minimum net owned fund (NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated separately in the FAQs on specialized NBFCs)