What are NBFCs and explain NBFC registration process?

A non-banking financial firm is one that has been registered under the Companies Act of 1956 and is in the business of providing loans and advances as well as buying shares, stocks, bonds, debentures, securities issued by state or local governments, as well as other marketable instruments (NBFC).

The Securities and Exchange Board of India, India’s banking regulator, oversees NBFCs (Sebi).

What Are The Benefits Of Using NBFC

One of the key benefits of using NBFCs is that they are able to provide banking and financial services to a broader range of customers than traditional banks. This includes customers who are not eligible for traditional banking services, such as small businesses and rural residents. Additionally, NBFCs are able to provide these services at a lower cost than traditional banks.


NBFC Registration :

NBFC must adhere to a number of RBI-mandated compliances. Prior to and after registration, it must satisfy the following requirements:

Pre- Requisites for NBFC Registration 

Before an NBFC is registered, the following requirements must be satisfied:

  • First, the financial institution shall be incorporated as a company under the Companies Act 1956/2013 before applying for NBFC Registration;
  • Second, at least one-third of the Directors must have at least 10 years of financial experience, and they must be hired as full-time Directors;
  • The applying company must have a thorough business plan for the following five years;
  • To receive the registration, the company must have net-owned money. Currently, the corporation must have a net-owned fund of 2 crore rupees, however since the RBI implemented the scalar-based regulation, a few minor amendments have been made. (Note: The new net-owned fund requirements are listed below.)
  • The business, its directors, and its members should have acceptable CIBIL scores, indicating that they have never defaulted on a loan;
  • The business plan must align with the object clause in the memorandum of association;
  • The directors must adhere to the appropriate and fit standards.

Documents required for NBFC Registration:

  • Keep the following paperwork on hand:
  • Certificate of Incorporation; Comprehensive managerial information and a company brochure;
  • a replica of the company’s PAN or Corporate Identity Number (CIN);
  • documents containing the address or place;
  • a certified copy of the articles of association and memorandum;
  • a list of the director profiles that need to be properly signed;
  • certification of directors’ qualifications and certification of their work history;
  • credit reports from CIBIL for the company’s directors;
  • a verified copy of the board’s fair practices code resolution;
  • statutory auditor’s certificate stating that the company does not keep any public deposits and does not accept them;
  • a Statutory Auditor’s certificate detailing owned funds as of the application date;
  • shareholder Know Your Customer (KYC), CIBIL, ITR, and banking reports;
  • provide details about the bank account, including balances, loans, and credits;
  • a P&L statement that has been audited, along with the directors’ report and the auditors’ report for the previous three years;
  • a self-certified copy of your ITR and bank statement;

Post-Requisites Of NBFC:

Application and Documents for Verification Are Submitted

The applicant must then deliver their application and all other supporting materials to the authority for verification. To confirm that the applicant’s contributions are accurate, the authorities will review the application and any supporting materials.

Reclassification of NBFCs:

The Base layer, Middle layer, Upper layer, and Top layer are the four scale-based tiers that the RBI has stated will regulate NBFCs, according to the revised framework.


Certificate of Registration Issue

The registration certificate will be issued by the authority following a final confirmation of the application and supporting documents.

Framework for Scalar-Based Regulation of NBFCs through 2021

The Reserve Bank of India announced on October 22, 2021, a scale-based new regulatory framework for NBFCs in order to continue stringent surveillance of the sector. In accordance with the scale-based regulatory framework for non-banking financial organisations, there will be additional NBFC categories with severe rules.

The Following Are The Main Revision Highlights:

  • There will be a maximum loan amount of one crore rupees per borrower for financing IPO subscriptions.
  • NBFCs’ regulatory structure will consist of four tiers:
  • Base Layer-

 An NBFC that does not take deposits and has an asset size of less than 1,000 crore rupees; 

  • Middle Layer- 

A group of NBFCs with assets above 1000 crore rupees that take deposits, as well as non-deposit-taking NBFCs

  • Upper Layer-

 This layer will include the top 10 NBFCs based on the size of their assets; 

  • Top Layer-

 The regulator may impose this layer if it believes that the upper layer NBFCs have a substantial risk of default.

  • With certain exceptions, all NBFCs will be required to have a net owned fund of 10 crore rupees.

  • Except in certain cases, all NBFCs now have to have 10 crore rupees in net owned funds.