What is NBFC Registration?

A Non-Banking Financial Company (NBFC) is a business entity that is registered under the Companies Act, 1956/2013. Its activities include lending and advances, purchasing shares, stocks, bonds, debentures, and other marketable securities issued by the government or local authority, as well as leasing, hire-purchase, insurance, and chit business. However, this definition excludes any institution whose primary business is engaged in agriculture, industry, the purchase or sale of any goods (other than securities), the provision of any services, or the sale, purchase, or construction of real estate.

Features of NBFC

The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.
NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests.
NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
NBFCs (except certain AFCs) should have minimum investment grade credit rating.
The deposits with NBFCs are not insured.
The repayment of deposits by NBFCs is not guaranteed by RBI.

Types of NBFCs Registration in India

In India, Non-Banking Financial Companies (NBFCs) are categorized into different types based on their activities, liabilities, and other factors. Here's an overview of the types of NBFC registrations in India:

Asset Finance Company (AFC):

An AFC primarily finances physical assets such as automobiles and machinery. At least 60% of its total assets are devoted to financing these types of assets.

Investment Company (IC):

An Investment Company focuses on investing in securities, including shares, stocks, bonds, and debentures, with the primary aim of earning returns from these investments.

Housing Finance Company (HFC):

An HFC is focused on providing loans for purchasing, constructing, or renovating residential properties, thereby supporting the housing sector.

Loan Company (LC):

A Loan Company provides loans and advances that are not related to asset financing, catering to various financial needs of individuals and businesses.

Infrastructure Finance Company (IFC):

An IFC is engaged in financing infrastructure projects. It must have at least 75% of its total assets in the form of infrastructure loans.

Microfinance Institution (MFI):

An MFI offers small loans and other financial services to low-income or underserved populations, typically focusing on rural or economically disadvantaged areas.

Core Investment Company (CIC-ND-SI):

A CIC holds equity investments in group companies and is not involved in trading of these securities. It mainly acts as a holding company.

Mortgage Guarantee Company (MGC):

An MGC provides guarantees for mortgage loans, helping to reduce the risk for lenders in the housing finance sector.

Peer to Peer Lending Platform (P2P):

A P2P platform connects individual borrowers and lenders directly through an online platform, facilitating personal loans without traditional banking intermediaries.

Eligibility Criteria to Apply for NBFC Registration

The eligibility criteria that applicants seeking NBFC registration must fulfil include the following:

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A minimum net owned fund (NOF) of INR 10 crore is required of all NBFCs, including Investment and Credit Companies (NBFC-ICC), Micro Finance Institutions (NBFC-MFI), and Factors (NBFC-Factor), in accordance with an RBI requirement.
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A minimum of ten years of experience in retail, risk, or credit management at a bank is required for one-third of the management.
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A compelling business strategy that clearly states the company's goal of serving the general public.
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The application business, its directors, owners, or affiliated businesses must all have a spotless credit history free of loan default records.
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According to the Companies Act of 2013, the applicant must be registered as a private or public limited company.

Documents Required for NBFC Registration in India

Entities applying to obtain NBFC registration in India are required to submit the following documents:

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PAN Card
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Bank account with a minimum paid-up equity share capital of INR 10 crores
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Director and Shareholder KYC
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Details of the professional backgrounds of directors and shareholders
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Net worth of directors and shareholders – certified by the CA
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Confidential reports from bankers regarding shareholders and directors
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Duly attested highest education certificate copy
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Shareholders' and directors’ credit reports
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Capital Structure of the Company – Certified by the CA
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Employment certificates and business experience certificates for all entities, including directorial employment history
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Banker report that confirms INR 10 crores Fixed deposit in the bank account of the NBFC company

NBFC Registration Benefits

Business entities that meet the required NBFC compliances can leverage the following benefits:

➔ Permitted by law to provide their clients loans, including NBFC business loans.
➔ Manage short-term funding demands and liquidity through money market instruments and short-term financial institutions.
➔ Participate in wealth management schemes such as share and stock portfolios.
➔ Make significant financial investments in numerous projects across the nation.
➔ Offer more technologically advanced and diverse digital services compared to traditional banking institutions.

Frequently Asked Questions (FAQs)

What is an NBFC?

An NBFC (Non-Banking Financial Company) is a financial institution registered under the Companies Act, 2013. It provides banking-like services, such as loans and investments, but does not hold a banking license.

What are the types of NBFCs?

NBFCs are classified into various types, including Asset Finance Companies (AFCs), Investment Companies, Loan Companies, and Infrastructure Finance Companies, among others.

Who regulates NBFCs in India?

NBFCs in India are regulated by the Reserve Bank of India (RBI) under the provisions of the Reserve Bank of India Act, 1934, ensuring their compliance with financial and operational regulations.

What services do NBFCs offer?

NBFCs offer services such as loans, asset financing, wealth management, and insurance. They cater to both individual and corporate customers.

What is the difference between an NBFC and a bank?

Unlike banks, NBFCs cannot accept demand deposits or issue cheques. They focus more on lending, investments, and asset management services.

What compliance is required for NBFCs?

NBFCs must comply with RBI norms, including periodic financial reporting, adherence to capital adequacy requirements, and ensuring customer transparency.