NON BANKING FINANCE COMPANY
Non-Banking Financial Company or NBFC is an entity that is incorporated as per the Companies Act of 1956 and 2013. These companies have played an essential role in the financial system in India by bringing in diversity and efficiency into the financial sector. NBFCs have evolved over the years in various aspects such as operations, asset quality, heterogeneity, profitability, and regulatory architecture.
Hence, customers tend to find these entities convenient as they make quick decisions, promptly provide services and expertise in niche segments. Moreover, they enhance the resilience of the country’s financial system by acting as backup institutions when banks come under stress. This article talks about Non-Banking Financial Companies (NBFC) and its various aspects.
Banks vs. NBFCs
- NBFCs are not permitted to accept demand deposits
- These entities do not form a part of the payment and settlement system in India. Therefore, they would not be able to issue cheques drawn on itself
- Unlike banks, the facility of deposit insurance from the Deposit Insurance and Credit Guarantee Corporation is not accessible to the depositors of NBFCs
- 100% FDI is permitted in NBFCs under the automatic route in particularly 18 activities, under minimum capitalisation norms
Incorporation of NBFC
- Initially, it should be ensured that the company is registered under the Companies Act of 1956/ 2013
- The company should have a minimum of INR 2 crores as net owned funds
- As a part of the company, there must be a minimum of one Director from an NBFC background or a Senior Banker as a full-time director in the company
- It is essential that the CIBIL records of the company are acceptable
- Once the pre-requisites mentioned above have been satisfied, an online application for the incorporation of the NBFC has to be filed on the official portal of the RBI. All the critical documents must be submitted along with the application as well
- A relevant CARN Number would be generated
- A hard copy of the application has to be sent to the regional branch of the RBI
- The NBFC License would be offered to the company after the application is reviewed and adequately scrutinised
When is NBFC License with RBI Required?
- The principal business of financial activity is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria must have NBFC license. This test for NBFC license is popularly known as the 50-50 test
- Therefore, companies engaged in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial activity in a small way, will not require NBFC registration
Financial Companies NOT requiring NBFC License
- Housing Finance Companies – Regulated by the National Housing Bank
- Insurance Companies – Regulated by the Insurance Regulatory and Development Authority of India (IRDA);
- Stock Broking – Regulated by Securities and Exchange Board of India
- Merchant Banking Companies – Regulated by the Securities and Exchange Board of India
- Venture Capital Companies – Regulated by the Securities and Exchange Board of India
- Companies that run Collective Investment Schemes – Regulated by the Securities and Exchange Board of India
- Mutual Funds – Regulated by Securities and Exchange Board of India
- Nidhi Companies – Regulated by the Ministry of Corporate Affairs (MCA)
- Chit Fund Companies – Regulated by the respective State Governments
Documents Required
Members
- PAN of all the members
- Aadhaar Card of all the members
- Valid Residential proof of all the members via Bank Statement, Driving License, Aadhaar Card, Utility Bill and Passport
- Photograph
- Digital Signature
For Registered Office
- Address Proof of the registered office of the society
- NOC from the owner of the building in which registered office is situated
- List of all the members of the governing body with their signatures
- Declaration by the society’s president that he is willing and competent to hold the stated position
Other Details
- Main Object
- Name
- Capital Contributed
- Ratio of share between partners
- Email ID
- Member’s Educational Qualifications
- Phone number
- Net worth of Promoters
*Cost of Stamp paper as per Government rules
Deliverables
Minimum Requirements
Deliverables
- Pre Registration Consultation
- DIN for all Directors
- Digital Signature Token for Promoters
- Company Name Approval
- RBI Approval
- MOA + AOA
- Incorporation Certificate
- New Incorporation Kit
- Customized Incorporation Master File
- Company PAN Card
- Company TAN/TDS Number
- Bank Account Opening Document Support
- GST registration
- PF and ESI registration
Minimum Requirements
- A Company Registered in India (Private Limited Company or Limited Company)
- The company must have a minimum Net Owned Fund of Rs.200 lakhs
- The minimum net owned funds of the Company should be Rs. 2 Crore
- 1/3rd of the Directors must possess finance experience
- The CIBIL records of the Company should be clean
- The company must have a detailed business plan for five years
- The company must comply with the requirements for capital compliances and FEMA
