NBFC Takeover

Non-banking financial company (NBFC) is a financial institution registered under the Companies act 2013 regulated by RBI. It provides financial services to individuals as well as to the business organization. NBFC does not have a banking license but is allowed to render financial services to customers. It acts as an alternative to the banks as they provide financial solutions to the unorganized part of the society.

As Per Section 45-IA Of The RBI Act, 1934

Before starting NBFC in India, it is necessary to obtain a license from RBI. As, the Reserve Bank of India (RBI) formulates rules & regulations for NBFCs and is authorized to regulate NBFCs by ensuring that they are complying with the prescribed rules & regulations.

NBFCs provides various financial services which involve-

  • Lending,
  • Investments in shares, stocks, bonds, debentures, leasing, hire-purchase,
  • P2P Market Place lending business,
  • Financial information service provider (NBFC-AA) insurance business or, involved in the receiving of deposits under any scheme of arrangement.

Besides this, to continue NBFC License below mentioned conditions must be fulfilled:-

  • Total Assets comprise more than 50% of financial assets,
  • More than 50% of the gross income should be generated from financial assetsBottom of Form

What are the Benefits of NBFC Registration?

The benefits of NBFC registration are of diverse nature, which are as follows:-

  • 1

    Provides Loan Facilities To Needy

    NBFC offers various services such as loan and credit facilities, retirement planning, currency exchange, money market, underwriting, and various related activities.

  • 2

    Offer Wealth Management Services

    NBFCs can offer services related to wealth management such as managing portfolios of shares and stocks.

  • 3

    Services Related To Underwriting

    NBFCs can underwrite stock and shares and related liabilities. Also, NBFC provides a hassle-free option to the customers for availing of the quick loan.

  • 4

    Last Resort Of Borrowing

    NBFCs offers services where banks are not offering. NBFCs are more profitable because of their lower costs and this as a result helps in providing cheaper loans to the customer.

  • 5

    Trading In Money Market

    NBFCs serves the benefits of trading in money market instruments.

  • 6

    Quick In Functioning

    NBFC performs in such a quick way as it sets the banks apart. It is easier to get a loan from NBFCs as compared to the Banks. As the banks have strict regulations and more paperwork as compared to NBFCs.

  • 7

    Provides Multiple Choices Reaching Audience

    Because of the technological advancement, NBFCs are offering multiple choices to reach the larger audience at a quicker step. NBFC covers both the large businessperson and small sectors by providing them multiple choices to avail themselves the credit facilities.

  • 8

    Strong Regulations And Compliance

    Due to the strong regulation and compliance system, it serves the best authenticity and trust among the society.

  • 9

    Allowed FDI

    Under NBFC, up to 100% Foreign Direct Investment is also an amazing benefits of its registration. NBFCs are the largest propellants of initiating finance into the country. Also, the financing process is faster and easier as compared to Banks.

  • 10

    Low Operation Cost

    Having specifically built innovative and low-cost business models that are driven by a technology platform and low operating expenses, it is evident that the room for growth is wide-open.

  • 11

    Protection By Law For Recovery Of Loan

    NBFCs is allowed to use SARFAESI law for minimum loan size for debt recovery from the existing level.

  • 12

    Loans To People Having A Poor Credit Score

    Banks usually check the credit score while offering loan facilities. In case of a poor credit score, the bank rejects the loan application. However, NBFCs offers loan to people having less credit score.

What is the Checklist for NBFC Registration?

For NBFC registration, the below-mentioned conditions must be fulfilled as per Section 45-IA of the RBI Act, 1934:-

  • Hiring A Professional consultant for NBFC Registration
  • Company Registration under Companies Act 1956 or Companies Act 2013.
  • Minimum NOF (Net Owned Fund) Requirement-Minimum NOF of Rs. 2 Crore must be deposited as a Fixed Deposit.
  • Director’s Experience- To apply for an NBFC license, 1/3rdDirectors of the applicant company must possess experience in the finance field.
  • Business Plan- An applicant company needs to draft a Business plan for the next 5 years.
  • Credit History- The credit history of the company, directors & its shareholders must be checked, and no defaults have been made by the directors/shareholder in re-payment of loans to banks or NBFCs.
  • FEMA Compliances-In case there is a foreign investment, an applicant company must have complied with the FEMA Act.

Note-100% FDI is allowed from FATF member countries.

What are the Restricted Activities that Cannot be Performed by NBFCs?

Below-mentioned are the Restricted Activities that cannot be performed by the NBFCs:-

  • Agricultural Activity
  • Industrial Activity
  • Sale / Purchase of Goods and Services
  • Sale / Purchase of construction of the immovable property

What are the Types of NBFCs?

In India, NBFCs are classified into two types-

Further, NBFCs Are Categorized Into 10 Types-

  • Asset Finance Company
  • Loan Company
  • Infrastructure Finance Company
  • Investment Company
  • Infrastructure Debt Fund: Non- Banking Financial Company.
  • Systemically Important Core Investment Company.
  • Non-Banking Financial Company-Micro Finance Institution.
  • Non-Banking Financial Company – Factors
  • Mortgage Guarantee Companies
  • Non-Operative Financial Holding Company

What Documents are Required for NBFC Registration?

NBFC registration requires a lot of documentation. Here is the list of documents required for NBFC Registration.

  • Certified copy of COI (Certificate of Incorporation) / MOA / AOA
  • Net Worth Certificate of Directors, Shareholders & Company
  • Educational qualification documents of the proposed directors
  • Highest Experience certificates of the proposed directors and shareholders.
  • Business profile of Directors & Shareholders
  • CIBIL report of directors & shareholders
  • KYC details, PAN of the company, GST number, address proof of the company
  • Bank opening details of the company [Rs. 2 Cr must have deposited as NOF]
  • Income tax Returns and Audited balance sheet of last 3 years or from the date of incorporation
  • Related Party Disclosures
  • Banker’s Report confirming no lien on fixed deposit
  • Format of board resolution regarding NBFC registration
  • Underwriting model - Detailed action plan of next 5 years including Fair Practice Code and risk assessment policy
  • Business and Loan Structure, and IT Policy.

What is the Procedure to Obtain an NBFC License?

The applicant company has to comply with the below-mentioned procedure for getting the Certificate of registration from RBI, which are as follows:-

  • 1

    Step-1-Company Incorporation

    A proposed company has to get registered under the Companies Act 2013.

  • 2

    Step-2-Online Application

    After incorporation, the applicant company needs to apply for online NBFC registration. The application is to submit on RBI's official COSMOS website.

  • 3

    Step-3-Arrangement Of Requisite Documents

    Once the application has been made; an applicant company needs to submit a physical copy of the application to the Regional Office of the Reserve Bank of India along with the necessary documents.

  • 4

    Step-4-Filing The Details In COSMOS

    Once the physical copy is arranged by the applicant company, the next step is to log in to the COSMOS and fill in the details of the application online and uploading the same.

  • 5

    Step-5-Allocation Of CARN Number

    Once the COSMOS application is submitted, the applicant company receives a Company Application Reference Number for file submission and future purposes.

  • 6

    Step-6-Submission Of Physical Application

    Once the applicant company receives CARN, the next step is to submit the physical application form along with the requisite documents to the regional office.

  • 7

    Step-7- Scrutinization By The ROC

    The ROC will scrutinize the application and documents and will then send them to the head office.

  • 8

    Step-8-Issuanceof COR

    Once the application along with the supporting documents is approved by the regional office and everything is found accurate, the RBI issues a Certificate of registration (NBFC License).

Note-However, in case of any discrepancies, the regional office can raise the query and can also reject the application.

What Penalties Applicable in Case Of Non-Compliance by Company without Obtaining the NBFC License?

Below mentioned are the Penal Provisions in case of non-compliance with RBI Regulations:-

Carrying NBFC Activities Without Obtaining A Certificate Of Registration From RBI

Imprisonment of 1 to 5 years and Fine of Rs. 1 to 5 lakhs

Non-Compliance Of RBI Directions

Imprisonment up to 3 years

Failure To Produce Documentation Or Answer Queries

Fine which may extend to Rs. 2000 per offense and in case of continuous non-compliance, an additional fine up to Rs. 100 per day from the first offense.

Acceptance Of Deposits

Imprisonment up to 3 years and a fine of twice the amount received.

What are Post COR Compliances to be followed by NBFCs?

Once the process of NBFC registration gets completed, the NBFCs needs to follow the guidelines and instructions issued by the RBI-

  • FIU Registration.
  • Apply for E-KYC Registration.
  • Income tax Returns, ROC Returns, GST.
  • Secretarial compliances.
  • Statutory and Tax Audit.
  • File NBS-9 using the Online Platform of RBI.
  • Membership from all four Credit rating agencies.
  • Regular reporting of the borrowers.
  • Registration with 4 Credit Rating Agencies – CIBIL, ICRA, Equifax and Experian
  • CERSAI Registration
  • Adoption of Fair Practice Code
  • National E-Governance Registration
  • Adoption of Anti Money Laundering Policy & IT Policy

Under What Circumstances the RBI may Cancel NBFC License?

On the following below mentioned grounds RBI may cancel NBFC license:-

  • NBFC license can be canceled in case of insufficient financial experience.
  • Director’s & shareholder’s business profile is not satisfactory.
  • A Business plan not up to the mark.
  • Capital arranged from the prohibited source.
  • NBFC consultants are not experienced.
  • The Area of carrying NBFC operations is not encouraging.
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