Looking for Registering an NBFC with RBI – A step by step process….

Executive Summary – This is a simple step-by-step guide for all of those looking for Non-Banking Financial Company (NBFC) registration and license from the Reserve Bank of India (RBI). The guide covers basic concepts such as definition, types of NBFCs, principal business criteria, registration requirements, minimum documentation requirements, fees & charges.

Definition:

 A non-Banking Financial Company (NBFC) is a financial institution upon registration allowed to offer financial products and services to customers. NBFC is primarily concerned with the business of loans and advances, acquisition of shares, finance leasing, hire-purchase, chit fund, etc. It is important to note that an NBFC is different from the bank in ways like an NBFC cannot accept demand deposits, cannot issue cheques drawn on itself and its depositors do not get deposit insurance and credit guarantee coverage.

 Category of NBFCs:

 NBFCs in India can be basically categorized into (a) Deposit accepting NBFCs, (b) Non-deposit accepting NBFCs. Further, on the basis of activities, they can be further classified as below:

·        Investment & Credit Company (ICC)

·        Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)

·        Non-Banking Financial Company – Factors (NBFC-Factors)

·        Infrastructure Finance Company (IFC)

·        Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)

·        Housing Finance Companies (HFCs)

·        Asset Finance Company (AFC)

·        Core Investment Companies (CICs)

·        Non-Operative Financial Holding Company (NOFHC)

·        Mortgage Guarantee Companies (MGC)

·        Peer to Peer Lending Platform

·        Account Aggregator

 Certain Exclusions:

 The NBFC business does not include businesses whose principal business is the following:

·        Agricultural Activity

·        Industrial Activity

·        purchase or sale of any goods excluding securities

·        Sale/purchase/construction of any immovable property

·        Providing any services

What are the Principal Business Criteria?

 Financial activity as a principal business is when a company’s financial assets constitute more than 50 percent of the total assets and income from financial assets constitutes more than 50 percent of the gross income. A company that fulfills both these criteria will be registered as NBFC by RBI.

The term ‘principal business’ is not defined by the Reserve Bank of India Act. The Reserve Bank has defined it so as to ensure that only companies predominantly engaged in financial activity get registered with it and are regulated and supervised by it. Hence if there are 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 business in a small way, they will not be regulated by the Reserve Bank.

Interestingly, this test is popularly known as the 50-50 test and is applied to determine whether or not a company is in financial business.

Registration requirements for an NBFC

 ·        The entity should be registered under the Companies Act 2013/1956 as either a Private Limited or a Public Limited Company.

·        The minimum net owned funds of the Company should be INR 20 Million.

Minimum documentation requirements stipulated by RBI

 The indicative list of documentation required for registration of NBFC is as follows: There are possibilities that on case to case basis RBI may seek additional information.

·        Certified copies of Certificate of Incorporation.

·        Certified copies of extract of only the main object clause in the MOA relating to the financial business.

·        Board resolution stating certain compliance on norms & guidelines.

·        Copy of Fixed Deposit receipt of INR 2 Million & Bankers certificate of no lien indicating balances in support of NOF.

·        For companies already in existence, the Audited balance sheet and Profit & Loss account along with the directors & auditors report or for the entire period the company is in existence, or for the last three years, whichever is less, should be submitted.

·        Copy of the certificate of highest educational and professional qualification in respect of all the directors.

·        Copy of experience certificate, if any, in the Financial Services Sector (including Banking Sector) in respect of all the directors.

·        Banker’s report in respect of the applicant company, its group /subsidiary/associate/holding company /related parties, and directors of the applicant company having substantial interest in other companies. The banker’s report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing entity.

Note: Please provide bankers reports from all the bankers of each of these entities and provide the report for all the entities. The details of deposits and loan balances as of the date of application and the conduct of the account should be specified.

·        Specific Statements Company duly certified by the Statutory Auditor.

·        Specific Statements on Capital Funds certified by the Statutory Auditor.

·        Specific information on Promoters, Directors & CEO of the Company as per specified format with substantial interest details.

·        Any other documents, which RBI may deem fit.

Fees & Charges

The various fees and charges incurred towards the registration of NBFC are as follows:

·        There are no application fees to be paid to RBI for registration as NBFC.

·        Incorporation of Company, a fee based on the authorized capital of the company is to be paid to the Ministry of Corporate Affairs (MCA).

·        A company would also need to pay fees on the basis of the authorized capital and other factors for the MOA (Memorandum of Association) and AOA (Articles of Association) of the company.

·        For a Reserve Unique Number (RUN) and Director Identification Numbers (DIN), a predetermined fee is to be paid to the MCA towards the company.

·        A Digital Signature Certificate (DSC) is required for every director and thus its generation would require a payment of periodic fees.

Further, we would also like to bring to your notice that Fintechs, startups, Entrepreneurs, and Businessmen are looking for NBFC License as an opportunity to leverage technology in the digital lending space. NBFCs ascertain the loan eligibility of an applicant faster than the banks and are the preferable choice for customers unserved by Banks.

PS. The content of the article is written based on the RBI Instructions & industry experience.