Non Banking Finance Company REGISTRATION

• A Non–Banking Financial Corporation is a company incorporated under the Companies Act 2013 or 1956. According to section 45-I (c) of the RBI Act, a Non–Banking Company carrying on the business of a financial institution will be an NBFC. It further states that the NBFC must be engaged in the business of Loans and Advances, Acquisition of stocks, equities, debt etc issued by the government or any local authority or other marketable securities.
• A Non-Banking Financial Corporation (NBFC) A non-banking institution that is a company and has principal business of receiving deposits under any scheme or arrangement by any mode is also a non-banking financial company (Residuary non-banking company).
• Exclusions from the definition: The NBFC business does not include business whose principal business is the following:
• Agricultural Activity
• Industrial Activity
• Purchase or sale of any goods excluding securities
• Sale/purchase/construction of any immovable property – Providing of any services
• Meaning of Principal Business: The Reserve Bank of India has defined financial activity as principal business to bring clarity to the entities that will be monitored and regulated as NBFC under the RBI Act. The criteria s is called the 50-50 test and its as follows:
• The company’s financial assets must constitute 50% of the total assets.
• The income from financial assets must constitute 50% of the total income. It is governed by the Ministry of Corporate Affairs as well as the Reserve Bank of India. The License for operation is obtained from the RBI and it is incorporated as a company under applicable laws of the land.
• Different types of NBFCs
• NBFCs Which Need Not be Registered With RBI
• Core Investment Companies – (assets are less than 100 crore or public funds not taken)
• Merchant Banking Companies
• Companies that are engaged in the business of stock-broking
• Housing Finance Companies
• Companies engaged in the business of Venture Capital.
• Insurance companies holding a certificate of registration issued by IRDA.
• Chit Fund Companies as defined in the Sec 2 clause (b) of the Chit Fund Act, 1982
• Nidhi Companies as notified under Section 620(A) of the Companies Act 1956
• Procedure to Incorporate an NBFC
• A company should first be registered under the Companies Act 2013 or should already be registered under the Companies Act 1956 as either a Private Limited or a Public Limited Company.
• The minimum net owned funds of the Company should be Rs. 2 Crore.
• 1/3rd of the Directors must possess finance experience.
• The CIBIL records of the Company should be clean.
• The company must have a detailed business plan for five years.
• The company must comply with the requirements for capital compliances and FEMA.
• After all of the above conditions have been satisfied the online application on the website of RBI should be filled and submitted along with the requisite documents.
• A CARN Number will be generated.
• A hard copy of the application also has to be sent to the regional branch of the Reserve Bank of India.
• After the application is properly scrutinized, the License will be given to the Company.
• Guidelines an NBFC Needs to Follow
• Once the Company gets a valid license it has to adhere to the following guidelines:
• They cannot receive deposits that are payable on demand.
• The public Deposits which the company can take should be for a minimum time period of 12 months and a maximum time period of 60 months.
• The interest charged by the Company cannot be more than the ceiling prescribed by the Reserve Bank of India from time to time.
• The repayment of any amount so taken by the Company will not be guaranteed by the Reserve Bank of India.
• All the information about the company as well as any change in the composition of the Company has to be furnished to the Reserve Bank of India.
• The deposits taken by the Public will be unsecured.
• The Company has to submit its audited balance sheet every year.
• A statutory return on the deposits taken by the company has to be furnished in the form NBS – 1 every year.
• A Quarterly Return on the liquid assets of the company has to be furnished.
• A certificate from the auditors had to be taken stating that the company is in a position to pay back all the deposits or money taken from the Public.
• A half-yearly Asset Liability Management (ALM) return has to be given by the company which has a Public Deposit of Rs. 20 Crore and above or has assets worth Rs. 100 Crore and above.
• The credit rating has to be taken every 6 months and submitted to the RBI.
• A minimum level of 15% of the Public Deposits has to be maintained by the Company in Liquid Assets.
• If the NBFC defaults in the payment of any amount taken, the consumer can go to the National Company Law Tribunal or the Consumer Forum to file a suit against the Company.

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Document Checklist for NBFC Registration:

• Information about the management
• Certified copies of Certificate of Incorporation and Certificate of Commencement of Business in case of public limited companies.
• Certified copies of up-to-date Memorandum and Articles of Association of the company. Details of clauses in the memorandum relating to financial business.
• Copy of PAN/CIN allotted to the company.
• Directors’ profile, separately filled up and signed by each director.
• Certificate from the respective NBFC/s where the Directors have gained NBFC experience.
• CIBIL Data pertaining to Directors of the company
• Financial Statements of the last 2 years of Unincorporated Bodies, if any, in the group where the directors may be holding directorship with/without substantial interest.
• Board Resolution specifically approving the submission of the application and its contents and authorising signatory.
• Board Resolution to the effect that the company has not accepted any public deposit, in the past (specify period)/does not hold any public deposit as on the date and will not accept the same in the future without the prior approval of Reserve Bank of India in writing.
• Board resolution stating that the company is not carrying on any NBFC activity/stopped NBFC activity and will not carry on/commence the same before getting registration from RBI.
• Certified copy of Board Resolution for the formulation of “Fair Practices Code”.
• Statutory Auditors Certificate certifying that the company is/does not accept/is not holding Public Deposit.
• Statutory Auditors Certificate certifying that the company is not carrying on any NBFC activity.
• Statutory Auditors Certificate certifying net owned fund as on the date of the application.
• Details of Authorised Share Capital and the latest shareholding pattern of the company including the percentages.
• Copy of Fixed Deposit receipt & bankers certificate of no lien indicating balances in support of Net Owned Funds.
• Details of the bank balances/bank accounts/complete postal address of the branch/bank, loan/credit facilities etc. availed.
• Last three years Audited balance sheet and Profit & Loss account along with directors & auditors report or for such a shorter period as are available (for companies already in existence).
• Business plan of the company for the next three years giving details of its (a) thrust of business, (b) market segment, and (c) projected balance sheets, cash flow statement, asset/income pattern statement without any element of public deposits.
• Source of the startup capital of the company substantiated with documentary evidence.
• Self-attested Bank Statement/IT returns etc.