NBFC stands for Non-Banking Financial Company, a financial institution that provides all the financial services to business entities and individuals. These financial services are similar to other banks, but it does not possess a full-fledge banking license. But they own NBFC License and must follow all the rules and regulations provided by RBI.NBFC License must be issued under RBI section u/s 45-IA of the RBI Act of 1934. The financial institution that wants to get NBFC Registration must be duly registered as per the Companies Act of 2013 or earlier Act of 1956.
Roles of NBFC in India
The specific roles of the NBFC are mentioned below:
- It helps in increasing wealth creation.
- Helps in economic development.
- A huge contribution to the state exchequer.
- Development of financial markets.
- It provides long term audit and specialized credit.
- Substantial employment generation.
- Development of infrastructure.
How NBFCs are different from Banks?
Both NBFC and Banks are involved in financial activities, but there are some different features in them. Check the table mentioned below:
| NBFCs | Banks |
| NBFCs cannot accept demand deposits. | Banks accept demand deposits. |
| In NBFCs, foreign investment is 100% allowed. | In Banks, up to 74% is allowed. |
| NBFCs are not a part of the Payment and Settlement System. | It is an integral part of the system. |
| Maintenance of Reserve Ratios is not required in NBFCs. | Banks have to maintain Maintenance of Reserve Ratios. |
| A Deposit Insurance facility is not available in NBFCs. | Deposit Insurance Facility is available in Banks. |
| NBFCs do not create credit. | Banks create credit. |
| NBFCs cannot provide transaction services. | Banks provide transactions services. |
Types of NBFCs
NBFC is divide into two types:
- Based on Liabilities:
- Deposit Accepting NBFCs (NBFCs-D)
- Non-Deposit NBFCs (NBFCs-ND)
- Systemically Important (NBFCs-ND-SI)
- Other NBFCs-ND
- Based on Activities
What are the benefits after NBFC?
In India, the financing business is regulated by the RBI (Reserve Bank of India). A registered NBFC helps increase the confidence of borrowers and offers you the security of capital invested in the business.
- Easy Banking Finance.
- Up to 100%, FDI allowed.
- Low operation cost.
- Access of CIBIL and any other Credit Bureaus data.
- Low Business risk.
- The decline in NPA or bad loans due to credit reporting.
Pre-Requisites for NBFC Registration
For NBFC registration, you must fulfil all the conditioned mentioned below as per Section 45-IA of the RBI Act, 1934:
- Five Years of Unique Business Plan
An applicant of the company needs to draft all the detailed business plan for the next five years.
- Minimum requirement of Net Owned Fund (NOF)
The applicant’s company must have at least Rs. 2 Cr. as its NOF.
- FDI Compliances
In the case of foreign investment involvement, the company must have compiled with the FEMA Act.
- CIBIL Score
The company’s CIBIL Score, its directors, and members must be fine and must have not any defaulted loan.
- Director’s Experience
The directors of the company must have decent experience in the field of finance
- Company Registration
An applicant’s company must be registered under the previous Companies Act 1956 or Section 3 of the Companies Act 2013.
Documents required for NBFC Registration
Before the NBFC Registration, you need a few documents so that you don’t face any problem during registration. Here you can check all the documents below.
- Copy of Certificate of Incorporation / MOA / AOA.
- Experience certificates.
- IT Policy.
- Business and Loan Structure.
- Income Tax Returns.
- Credit Reports of shareholders and directors.
- Business profile of Directors and Shareholders.
- PAN of the company.
- GST number and address proof of the company.
- Bank details of the company (Rs. 2 Cr must have deposited into account).
- Educational qualifications of the proposed directors.
- Net worth certificate of Shareholders, Company and Directors.
- No lien, no fixed deposit.
- Format of board resolution regarding NBFC registration.
Online Process for NBFC Registration
Follow these steps for NBFC Registration. Before the registration, you must be aware of all the eligibility criteria and required documents as we mentioned above.
Step- 1: Visit the official RBI website, i.e., https://www.rbi.org.in/, and fill the application form.
Step-2: Submit all the documents along with the application form.
Step-3: After successfully submitting the application form, a Company Application Reference Number (CARN) will be generated.
Step-4: Send the photocopy of the application form to the RBI branch (Regional).
Step-5: If RBI fully satisfied the terms and conditions withal under section 45-I A of the RBI Act, 1934, the RBI will issue the License to the company.
NBFC License Cancellation Case
- The business profile of directors and shareholders of the company is not satisfactory.
- The business plan is not up to the mark.
- NBFC consultant having less or zero experience in the financial field.
- The area of NBFC operations is not encouraging.
- An insufficient financial experience case can cancel the NBFC license.
New NBFC Registration vs. Takeover of NBFC
It’s always a better option to apply for new NBFC Registration than the takeover of NBFC. For Foreign Companies who want to enter the Indian financial market, it is always recommended to apply for the new NBFC registration instead of buying existing NBFC.
Conclusion
Various committees appointed by RBI discusses the importance of NBFC in the Indian financial market, and RBI has been modifying its supervising policies and regulatory policies from time to time. NBFC enhances competition in the financial sector; it also spread risks at times of financial distress and has been highly recognized as complementary in the banking system.
