How to Incorporate a NBFC in India

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What is NBFC and NBFC Registration

A Non – Banking Financial Corporation is a company incorporated under the Companies Act 2013 or 1956 which is engaged in the business of Loans and Advances, Acquisition  of stocks, equities, debt etc issued by the government or any local authority. The main objective of this type of a company is to accept deposits under any scheme or manner.   
According to section 451(c) of the RBI Act, a Non – Banking Company carrying on the business of a financial institution will be an NBFC. It is governed by the Ministry of Corporate Affairs as well as the Reserve Bank of India.

What is not included under NBFC's?

NBFC's does not include any institution whose principal business is that of:
  • Industrial activity
  • Agriculture activity
  • Providing any services and sale/purchase/construction of immovable property.
  • Purchase or sale of any goods (other than securities)

As per Companies Act 2013, an NBFC is a company which carries on the activities similar to that of a bank except for the following differences:
  • NBFC’s cannot accept demand deposits
  • NBFC’s cannot issue cheque drawn by Bank deposits are insured by Deposit Insurance and Credit Guarantee Corporation. 
However, deposits in NBFC are not insured.

Categories of NBFC

NBFC’s are mainly categorized into deposit and non-deposit taking NBFC. Deposit-taking and non-deposit taking NBFC are further classified based on their size as such there are many types of NBFC like 
  • Asset Finance Company
  • Investment Company
  • Loan Company
  • Infrastructure Finance Company
  • Infrastructure Debt Fund
  • Micro Finance Institution

How to Incorporate a NBFC?

As per section 45IA of the RBI Act,1934 no company shall commence or carry on the business of a non-banking financial institution without obtaining a certificate of NBFC registration from the Reserve Bank of India and without having a Net Owned Funds of Rs. 2 Crores.

Net Owned Funds means the balance of owned funds minus the amount of investment in shares of subsidiaries, companies in the same group and all other NBFC’s, outstanding loans and advances, deposits with subsidiaries and companies in the same group. Owned funds is the aggregate of paid-up equity capital, preference shares which are compulsorily convertible into equity, free reserves and balance in share premium account, and capital reserves representing surplus arising out of sale proceeds of the asset.

The NBFC registration procedure in India encompasses the following broad steps:

  • Step -1 Formation and incorporation of the company: The desirous company must have a registration under the New Indian Companies Act, 2013 or earlier Companies Act, 1956

  • Step-2 Minimum Net Owned Capital: The minimum amount of net owned capital or fund which must be possessed by the aspirant company for NBFC registration in India is Rs.2 crores i.e. paid up equity share capital.

  • Step-3 Open a fresh bank account: NBFC Registration required minimum capital has to be kept in the deposit account opened which must be free from all liens. Generally, such amount is maintained in the form of Fixed Deposit. While making the application to the RBI this amount has to be maintained in the bank account as the RBI verifies the deposit of the company with the concerned bankers

  • Step-4 Application for NBFC Registration: The aspirant company is required to submit the application for online NBFC registration to the RBI . After which the applicant company will get an application reference number for NBFC Registration. After that, the company is required to submit the hard copy of the online application along with the required documents to the concerned regional office of the RBI.

The following prescribed documents are required to be submitted for NBFC Registration
  • Annexure I-RBI-NBFC 
  • Annexure II-RBI-NBFC
  • Annexure III-RBI-NBFC
  • Incorporation Certificate of the company.
  • Companies MOA and AOA
  • Documents related to administration and management of the company
  • Address Proofs of the Company
  • Audited Financial Accounts of the company
  • Income Tax PAN, GST Certificate

Granting of NBFC Registration Certificate

After the application is filed with the concerned region of the RBI, the application is thoroughly examined and the documents submitted are critically verified and the application is further forwarded to the Central office of RBI and if everything is found complete and satisfying the Central; office shall grant NBFC Registration Certificate

List of Compliances for NBFC's

Click Here to Access the List of Compliances a NBFC needs to comply with in India.

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