A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013, primarily engaged in providing loans and advances. Unlike traditional banks, NBFCs do not accept demand deposits but offer faster and more flexible financial services. With streamlined processes and customer-centric offerings, NBFCs have become a popular alternative for borrowers seeking quick and accessible credit.

 

Why Register an NBFC?

NBFCs play a pivotal role in delivering both financial and non-financial services to individuals, entrepreneurs, and underserved segments of society. Regulated by the Reserve Bank of India (RBI), NBFCs must adhere to specific guidelines to obtain registration.

Registering an NBFC helps promote the development of key sectors such as infrastructure, MSMEs, and education while fostering the overall growth of financial markets. By providing credit facilities, NBFCs also contribute significantly to the country’s economic development and wealth creation.

An NBFC must maintain a Net Owned Fund (NOF) of at least ₹2 crores, as per RBI norms. Post-registration, NBFCs can also attract 100% FDI from FATF-compliant countries under the automatic route.

 

Benefits of an NBFC

1. Simplified Registration: The registration process for NBFCs is more straightforward compared to banks.
2. Efficient Loan Recovery: NBFCs offer customized loan products and follow systematic operations, making it easier to recover loans.
3. Promotes Economic Growth: NBFCs offer affordable credit to individuals and businesses, driving economic development.
4. Time and Cost Efficiency: Unlike banks that require higher capital, NBFCs can start operations with lower investment and simpler procedures.
5. Relaxed Credit Criteria: NBFCs are more flexible than banks regarding borrowers’ credit scores.
6. Lenient Regulations: NBFCs operate under less stringent guidelines, making loan processing easier for customers.
7. Faster Processing: Ideal for individuals or businesses needing immediate financial support.
8. Competitive Interest Rates: NBFCs offer rates that are often at par or lower than those offered by banks.
9. Last Resort Lending: When banks deny credit, NBFCs step in as an alternative funding source.

 

About NBFCs

NBFCs are registered under the Companies Act, 2013, and provide loans and advances but are restricted from accepting demand deposits or issuing cheques. Unlike banks (regulated under the Banking Regulation Act), NBFCs are governed by the RBI under the Companies Act.

 

Common Types of NBFCs:

1. Asset Finance Company (AFC)
2. Mortgage Guarantee Company
3. Loan Company
4. Micro-Finance Institution (MFI)
5. Housing Finance Company (HFC)
6. Core Investment Company (CIC)
7. Infrastructure Finance Company (IFC)

NBFCs differ from banks in that they do not issue credit cards and focus more on retail segments. Additionally, NBFC deposits are rated, whereas bank deposits are not.

 

Eligibility & Requirements for NBFC Registration

1. Must be registered under the Companies Act, 2013.
2. Maintain a minimum Net Owned Fund (NOF) of ₹2 crores, as per the latest audited financial statements.
3. The NOF includes paid-up equity share capital, free reserves, share premium, and capital reserves (excluding asset revaluation reserves), less accumulated losses and investments in group NBFCs exceeding 10% of NOF.
4. Directors must have experience in finance, banking, or credit, and should not have defaulted on any loans.
5. MOA and AOA should align with RBI requirements.
6. Promoters and shareholders must qualify the “capital test” and provide their credit history and qualifications.

 

Step-by-Step Procedure for NBFC Registration

1. Company Incorporation: Incorporate the company under the Companies Act, 2013 (or 1956). Apply to RBI File an application on the RBI’s COSMOS portal along with required documentation.
2. Application Reference Number (ARN): Upon successful submission, an ARN is generated to track application status.
3. Submission of Physical Documents: Send the hard copy of the application and documents to the concerned RBI regional office.
4. Scrutiny and Approval: RBI scrutinizes the documents and, if satisfied, issues a Certificate of Registration (CoR) allowing the company to operate as an NBFC.

 

Documents Required for NBFC Registration

1. Certificate of Incorporation along with MOA & AOA
2. KYC of Directors and Shareholders
3. Directors’ highest qualification certificates
4. Board Resolution for NBFC registration
5. Last 3 years’ audited financial statements
6. Proof of business premises
7. Detailed business plan and organization structure
8. Directors’ and Auditors’ Report
9. Banker’s report confirming “No Lien” on the NOF