NBFC Registration in India


NBFC (Non-Banking Financial Company) is a company registered under the Companies Act, 1956, NBFC is a company involved in the primary business of leasing, hire-purchase, lending, investments in stocks/shares/debentures/bonds, chit business, insurance business, or involved in the receiving of deposits under any scheme or arrangement. NBFC are regulated by the Reserve Bank of India (RBI).
Non-Banking Financial Company
NBFC (Non-Banking Financial Company) is a company registered under the Companies Act, 1956 with activities similar to that of a bank, except few mentioned below:
·         NBFC’s cannot issue cheque drawn on itself
·         NBFC’s cannot accept demand deposits
·         Deposits in NBFC’s are not insured, however in Bank deposits are insured by Deposit Insurance and Credit Guarantee Corporation.
NBFC’s act like banks except for the above mentioned points. NBFC’s are engaged in the business of making loans and advances, hire-purchase, insurance business, acquisition and trading of stocks/shares/debentures/bonds /securities, leasing, chit business but does not include any institution whose prime business belong to industrial activity, providing any services and purchase/sale/construction of fixed assets, agriculture activity, or purchase or sale of any goods (other than securities).
Also a company which is in the primary business of receiving deposits under any scheme or deal in one lump sum or in installments by way of contributions or in any other manner, is also considered an NBFC (non-banking financial company).
Categories of Non-Banking Financial Company (NBFC)

NBFC’s are primarily categorized into two categories
1. Deposit taking NBFC’s
2. Non-deposit taking NBFC’s.
Deposit taking NBFC’s and non-deposit taking NBFC’s are additionally classified based on their size and working activities. Within these two types of broad categorization, there are again many types of NBFC’s like Investment Company, Asset Finance Company, Systemically Important Core Investment Company, Loan Company, Infrastructure Debt Fund, Infrastructure Finance Company, Micro Finance Institution and Factors.
NBFC Registration
As per Section 45-IA of the RBI Act, 1934, no company can start or carry on business of an NBFC (non-banking financial company) without obtaining a valid certificate of registration and without having a Net Owned Funds of Rs. 20 million (2 Crores). The mandatory requirement for registration as a NBFC are a company incorporate under Section 3 of the Companies Act, 1956 and having a minimum net owned funds of Rs. 20 million (2 Crores).
To elaborate more about Net Owned Funds, Net owned funds is the balance of “owned funds” minus the amount of investment in shares of subsidiaries, companies in the same group and all other NBFCs, book value of debentures, outstanding loans, bonds, and advances plus hire purchase and lease finance made to and deposits with subsidiaries and companies under the same group.
Owned funds is the total of paid-up equity capital, preference shares which are forcibly convertible into equity, balance in share premium account, free reserves, and capital reserves representing leftover arising out of sale proceeds of asset, not including reserves created by revaluation of asset, after deducting there from total balance of loss, overdue revenue expenditure and other intangible assets.
Application for registering an NBFC (Non-Banking Financial Company) must be made in the prescribed form to the Regional Office of the Reserve Bank of India.
Documents required to get NBFC License from RBI
·         COI Copy issued by ROC
·         AOA & MOM of the company
·   Board of Resolution accepting the following before getting registration from RBI:
·         Adherence to the “Fair Practices Code” As per RBI Guidelines
·         Non-carrying out of acceptance of any public deposit
·  Audited Balance Sheet along with P&L account with directors and auditors report for a period of last three years
·         Director’s Highest Educational & Professional Qualification certificates
·         Director’s experience certificate in Financial Services
·         Details of deposits & loans balances as on date of application & conduct of account (Bankers report)
RBI Requisite for NBFC License or NBFC Registration
·         Company should be registered under the Companies Act, 2013 OR Companies Act, 1956
·         Company should have Minimum Net Owned Fund of INR 20 millions
Financial Companies NOT Regulated by RBI
RBI regulates and governs companies which are engaged in financial activities as their prime business. A company which has 50% of the total assets as financial assets and generates more than 50% of its gross income from such assets is termed as an NBFC (non-banking financial company) and regulated by the Reserve Bank of India (RBI).
However, few financial institutes have specific regulators and are exempted from Reserve Bank of India (RBI) from its regulatory requirements. For example, Insurance Regulatory and Development Authority (IRDA) regulate insurance companies. Also National Housing Bank (NHB) regulates housing finance companies.
Securities Exchange Board of India (SEBI) regulates Mutual funds, Venture Capital Companies, Merchant Banking Companies, Stock Broking companies. State Governments regulate Chit Fund Companies and department of Companies Affairs (DCA) regulates Nidhi companies.
Deposit Taking NBFCs
Deposits are money collected in any manner, other than that collected by way of share capital, security deposit, financial institutions and money lenders and subscription to chit funds, contribution of capital by the partners of a partnership firm, advance consideration for purchase of goods, services or construction, earnest money deposit, loans taken from banks.
Money collected in all manners other than these would be considered as deposits. Few NBFC’s (non-banking financial companies) cannot accept public deposits. Only those NBFC’s (non-banking financial companies) that hold a valid deposit accepting Certificate of Registration from RBI (Reserve Bank of India) can accept deposits.
Moreover, RBI (Reserve Bank of India) is of the purview that only nationalized banks can accept deposits and hence has not certified any NBFC started after 1997 to accept deposits.
Penalties for Deposit-Taking without Authorization
If any company either (Proprietorship / Partnership) or an NBFC is found accepting public deposits without valid authorization from RBI, that company is liable for criminal action.
Also, if any of the NBFCs connect themselves with proprietorship/partnership firms accepting deposits in breach of RBI Act, they are also liable to be prosecuted under criminal law or under the Protection of Interest of Depositors (in Financial Establishments) Act, if passed by the State Governments.

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