Non Banking Financial Company – What it is and How to Apply for it?

Posted on: 2018-01-13 00:51:11

A non banking financial company (NBFC) can be defined as a financial institution that is known to provide some financial services that are provided by the banks as well, the major difference being that they do not have a banking license as such. Normally, these institutions do not have the right to take deposits from common people.

This means that they are not under the purview of the oversight and regulation that you need traditionally for banks. NBFCs are allowed to offer banking services such as credit facilities and loans as well as retirement planning products. It can operate in money markets and can underwrite. It is allowed to perform merger activities too.

A little more information on NBFCs

In the United States of America (USA); it was under the Dodd-Frank Act that the NBFCs were formally classified as companies. They are basically supposed to take part in financial activities but for this to happen at least 85 per cent of their consolidated assets or yearly gross revenues have to be financial in nature. In fact, a lot of companies can be classified as NBFCs. This includes the following:

  • Credit Unions
  • Private Equity Firms
  • Insurance Companies
  • Mobile Payment Firms
  • Money Market Funds
  • Microlenders
  • Asset Managers
  • Peer to Peer Lenders
  • Hedge Funds

How to start such an organization in India?

In India, the workings of an NBFC are regulated by the Reserve Bank of India (RBI); which also happens to be the apex financial institution of the country. Their main business is lending and acquiring shares, bonds, and stocks. They also do work such as hire purchase and financial leasing.

Normally as per the laws, in India an organization is thought to be a financial service provider when the financial assets of a company are more than 50 per cent of the aggregate asset base – similarly when earnings from financial assets make up more than 50 per cent of a company’s gross income.

If a company fulfills both these requirements it would need to have an NBFC license. In fact, the test needed to get such a license is known popularly as the 50-50 test. In India, these companies are not supposed to need an NBFC license:

  • Agricultural Operations
  • Providing Purchases and Services
  • Industrial Activities
  • Building and Selling Immovable Property – this could be the main business as well
  • Selling and Buying Goods
  • Any Small Financial Activity

Registration process is being simplified for new NBFC in India

Nowadays RBI made easy to register a new NBFC (Non Banking Financial Company) in India by minimizing the application form and checklist of documents. Earlier it was taking 45 numbers of documents to be submitted for registering a Non-Banking Financial Company but, now the applicant can submit approximately seven to eight documents during the revised application process.

Now the registration process of Non Banking Financial Companies (NBFCs) is just become easy and smoother, as said by the Reserve Bank of India (RBI).

As said by the RBI, there are two distinct types of requisition context for non-deposit taking organization/NBFCs (NBFC-ND) based on the source of funds and customer interact (interaction between the customer and organization).

Types of NBFC companies

Here you can find the two different types of NBFCs functions are categorized into First Type and Second Type. The first type is referred to Type-I (not accepting deposits) and second type as Type-II (accepting deposits).

In Type-I, the NBFC-ND will not accept the funds from public and also have not to make customer interface for their future intention.

If the Type-I companies wants to avail funds from public or intend to make interaction to their customer for future purpose, they must have to take acceptance from the Department of Non-Banking Regulation under Reserve Bank of India.

In Type-II, the NBFC-D (the Non Banking Financial Company with deposits) will accept the public funds and also can make interaction with the customer for their future scope intention.

How to apply for an NBFC license?

If you want to get NBFC license, you would have to submit your application both offline and online at the regional office of the RBI. You would need to provide the latest information about the management of the company. You would have to provide certified copies of the Certificate of Incorporation.

In case, you are already a public limited company or wish to operate as one you would have to provide a certificate of commencement of business. You would also have to provide certified copies of the latest articles and memorandum of association of your company.

You would also need to provide the latest details of various clauses in said memorandum that may be related to your financial business. You would also need to provide a copy of your PAN (permanent account number) or CIN (corporate identity number) that has been allocated for your company. 

You would also need to provide information regarding the director’s profile, which has to be filled up and signed separately by each and everyone on the board of directors of your company. If the directors already have experience of working in NBFCs they would need to provide certificates from those.

Essential documents required for getting NBFC license

These are the main documents required for NBFC registration in India:

  • Certified copy of company incorporation certificate
  • Certified copy of company MOA and AOA
  • Detail information of all directors and shareholders of the company
  • Board resolution in favour of NBFC registration
  • Bank Account with minimum paid-up capital INR 2 Crores of the company
  • A comprehensive action plan and activities about the company and proposed NBFC
  • Financial statements of the company
  • Director’s report and Auditor’s report
  • PAN of the company
  • Highest qualification of all the directors of the company
  • We may request you, if any relevant document is required

Procedure to Apply for Getting NBFC License

To get your NBFC Company registration certificate form RBI, you need to apply the proposed company for NBFC license online and after the application process is completed, you have to submit the physical copy of application to the Regional Office of the Reserve Bank of India along with the essential documents.

A brief note on application process:

  • First setup a Private or Public Limited Company
  • Prepare a business plan with clear documentation
  • Submit application online through COSMOS official portal
  • Submit applied physical copy of application to RBI
  • Track the status of application

So, here you can follow the steps of application process as explained below:

  1. First log on to the RBI secure site for NBFC application
  2. Click the “Click here” link for NBFC company registration which is just below the Username and Password. Don’t get confused by seeing the Username and Password section, that doesn’t required for NBFC, it is for other purposes. After clicking the Click Here link, a new window will open, bearing with the Excel Application Form for NBFC and SCRC.
  3. Now you can download the suitable Application Form (NBFC or SCRC) according to your need and filled it properly. Remember, during the filling of Excel Form; indicate the correct name of the RBI Regional Office in the field “C-8” of the “Annex-I Identification Particulars”.
  4. Upload the filled form by selecting the correct Type of Company in the same window upload section. After uploading the file, then you would get a Company Application Reference Number for the application of Certificate of Registration (CoR) for your company to be filed online. After this, you will have to submit your hard copy of application form of the company along with the necessary documents, mentioning that this is our company online application reference number at the concerned RBI Regional Office.
  5. You can check your status of the application on the same site address by inputting your acknowledgement number. Usually, the timelines for NBFC registration takes 45 days to get approval from the regulatory authority.

Timeline and expert help on NBFC

As you know, obtaining NBFC registration in India is completely depends on the RBI permission. And you can acquire your NBFC registration certificate from RBI in 90-120 days (3-4 months). And we will help you in this regard. As we are specialized in legal and financial advisory services in Bangalore and offer dedicated legal, incorporation, taxation and compliance services to startups, small and medium sized businesses in all over India. Our goal is to provide class-one solutions to all in one-stop shop.

If you want to know any more about on NBFC, then do touch with our experts, they can assist you at any moment during the office working time.


Related Articles:

How to Start a Startup in Bangalore?

Professional Guide to Entering into Entrepreneurship

How to Start Portfolio Management Services (PMS) in India?