Non-Banking Financial Companies (NBFCs)

Non-Banking Financial Companies (NBFCs) in India provide a wide range of financial services but are not licensed to operate as banks. The Reserve Bank of India (RBI) classifies NBFCs into different categories based on the services they offer and the nature of their operations. Below are the main types of NBFCs:

Types of NBFCs

• Asset Finance Company (AFC)
  • Purpose: AFCs primarily focus on financing the purchase of physical assets like vehicles, machinery, and other equipment.
  • Services: These companies provide loans for the purchase of goods that are then used as collateral.
  • Examples: Companies financing vehicles, industrial machinery, and other tangible assets.
  • Regulation: AFCs are required to maintain a net owned fund (NOF) of ?2 crore.
• Investment Company (IC)
  • Purpose: Investment companies are primarily involved in the acquisition of shares, stocks, bonds, debentures, or other securities.
  • Services: They invest in securities and manage the portfolio of their clients, generating income through capital gains and dividends.
  • Examples: Asset management companies (AMCs) or companies that focus on trading in financial markets.
  • Regulation: These companies also need to maintain a net owned fund (NOF) of ?2 crore.
• Loan Company (LC)
  • Purpose: Loan companies provide loans and advances to individuals or businesses for various purposes.
  • Services: These companies are involved in extending loans for consumption and investment purposes.
  • Examples: Companies that offer home loans, personal loans, business loans, etc.
  • Regulation: Loan Companies must maintain a net owned fund (NOF) of ?2 crore.

Summary of Key Types of NBFCs:

• Asset Finance Company (AFC)
• Investment Company (IC)
• Loan Company (LC)
• Micro Finance Institution (MFI)
• Housing Finance Company (HFC)
• Systemically Important Non-Banking Financial Company (SI-NBFC)
• NBFC-P2P (Peer-to-Peer Lending)
• Infrastructure Finance Company (IFC)
• Residuary Non-Banking Company (RNBC)
• Chit Fund Companies (CFC)

Regulatory Requirements

NBFC Type	Regulatory Body	Minimum NOF Requirement
Asset Finance Company (AFC)	RBI	2 crore
Investment Company (IC)	RBI	2 crore
Loan Company (LC)	RBI	2 crore
Housing Finance Company (HFC)	RBI & NHB	10 crore

NBFC Registration Process

The process for registering a Non-Banking Financial Company (NBFC) in India is governed by the Reserve Bank of India (RBI). An NBFC is a company that provides various financial services but d

An Overview of the Steps Involved in Registering an NBFC in India

1. Eligibility Criteria

Before applying for registration, ensure your company meets the following basic eligibility criteria:

• Type of Business: The company must be incorporated as a public limited company under the Companies Act, 2013 or the Companies Act, 1956.
• Capital Requirements: The minimum net owned fund (NOF) should be ?2 crore to ?10 crore (depending upon the type of NBFC). NOF is the capital required to operate as an NBFC.
• Fit and Proper Criteria: The promoters and directors of the company must meet the RBI's "fit and proper" criteria, meaning they should have a clean record in terms of financial integrity and business ethics.

2. Incorporate the Company

The first step is to incorporate a company under the Companies Act, 2013:

• Register the Company: You must register the company as a Public Limited Company (if not already done).
• Obtain Digital Signature Certificate (DSC): This is required for signing electronic documents.
• Obtain Director Identification Number (DIN): All directors must have a valid DIN.

3. Application to the RBI for NBFC Registration

Once the company is incorporated, you need to submit an application to the Reserve Bank of India (RBI) to get registered as an NBFC. The application should be made in the prescribed format.

The application should include the following details:

• Covering Letter: Explaining the intention to form an NBFC and detailing the company's objectives.
• Company's Incorporation Details: A copy of the Certificate of Incorporation and Memorandum and Articles of Association (MOA and AOA).
• Details of Directors: Information about the directors, including personal and professional background.
• Business Plan: A detailed business plan outlining the nature of financial services to be provided.
• Capital Structure: The company’s capital structure and financial details, including the NOF of ?2 crore to ?10 crore (depending upon the type of NBFC).
• Audit Reports: Audited financial statements for the past 3 years (if applicable).
• KYC Documents: Know-Your-Customer (KYC) documents of promoters and directors.
• Other Legal Documents: Any other documents required by RBI, such as a copy of the Board Resolution to apply for NBFC registration.

4. RBI Review and Inspection

After submitting the application, the RBI will review the documentation and may conduct an inspection or verification process. The RBI will ensure that the company meets the following conditions:

• The company complies with the net owned fund (NOF) requirement.
• The company’s promoters and directors have a clean track record.
• The company has an appropriate business plan and operational capacity.

5. Issuance of Certificate of Registration (CoR)

Once the RBI is satisfied with the application, it will grant the company a Certificate of Registration (CoR). This is the official document that allows the company to operate as an NBFC.

6. Post-Registration Compliance

After receiving the CoR, the NBFC must comply with the following requirements:

• Minimum Net Owned Fund (NOF): The company must maintain a minimum net owned fund of ?3 crore at all times.
• Capital Adequacy Norms: The company must adhere to capital adequacy guidelines and liquidity norms set by the RBI.
• Regulatory Filings: The company must file regular returns, including:
  • Annual returns with the RBI.
  • Half-yearly financial statements with the RBI.
  • Audited financial statements every year.
• KYC and AML Compliance: The company must follow Know Your Customer (KYC) and Anti-Money Laundering (AML) norms.
• Internal Audits: NBFCs are required to conduct regular internal audits and submit reports to the RBI.

7. Maintain Adequate Infrastructure and Governance

• Board Composition: The board of the NBFC should have adequate representation, with experienced directors in finance and operations.
• Risk Management Framework: Implement proper risk management, internal control systems, and governance practices as per RBI guidelines.
• Compliance with RBI Directions: NBFCs must adhere to the various directions issued by the RBI from time to time.

8. Additional Licensing (if applicable)

Depending on the specific financial services offered, the NBFC may also need additional licenses:

• NBFC-P2P: If the company intends to operate as a peer-to-peer lending platform, it must register separately with the RBI.
• NBFC-MFI: For microfinance activities, registration as an NBFC-MFI (Microfinance Institution) is required.
• Other Licenses: Depending on the services, you may need specific licenses related to insurance, securities, or other financial products.

Summary of the Process:

• Incorporate the company under the Companies Act, 2013.
• Ensure eligibility (minimum capital requirement of ?2 crore to ?10 crore, suitable business plan, and fit promoters).
• Apply to the RBI for NBFC registration with all required documents.
• RBI Review: The RBI will review the application and inspect compliance.
• Get Certificate of Registration (CoR) from the RBI.
• Maintain regular compliance with RBI guidelines, including capital adequacy, KYC/AML, and reporting.

Important Points to Remember:

• The minimum net owned fund (NOF) requirement is ?2 crore to ?10 crore (depending upon the type of NBFC) for an NBFC, which must be maintained at all times.
• The RBI has stringent regulations regarding the financial health and governance of NBFCs.
• NBFCs can operate in various sectors, including loan financing, investment, microfinance, leasing, housing finance, and more, but each may have specific licensing or compliance requirements.

It is advisable to consult with legal and financial experts who specialize in the NBFC registration process to ensure smooth and successful registration and compliance.