All You Should Know about Investment and Credit Company

On February 22, 2019, the Reserve Bank of India had released a notification that combined three different classifications of Non-Banking of Financial Companies (NBFCs) into one called NBFC- Investment and Credit Company. The new financial company is also known as NBFC-ICC, was formed by combining Asset Financing NBFC, Investment and loan companies. In this blog, we will discuss about Investment and Credit Company.

What is NBFC- Investment and Credit Company & how it was created?

NBFC- Investment and Credit Company means any company or entity which is a financial establishment carrying on as its principal business- asset finance, the offering of money whether by making advances or loans or for any activities other than its own and the securities acquisition; and is not any other classification of Non-Banking Financial Company as defined by the Reserve Bank of India in any of its Master Directions.

The primary reason for creating the new category of NBFC is to complement regulation of different classification of Non-Banking Financial Company by activity; the Reserve Bank of India (RBI^[1]) created a committee on Comprehensive Financial Services for Low-Income Households and Small Businesses, which was led by Dr Nachiket. Also, the Reserve Bank of India created an internal committee managed by Shri G. Padmanabhan. These committees submitted their report in January and April 2014, respectively, signifying that synchronization of different classifications of NBFCs based on activity was required.

So, in the year 2019, the Reserve Bank of India decided to combine three various types of Non-Banking Financial Companies, which cover 99% of the number of Non-Banking Financial Companies in India. These classifications were Investment Company, Loan Company, and Asset Finance Company. The idea behind the formation of this category was to give NBFC-Investment and Credit Company more freedom to allocate its assets. This has directed to flexibility in the Non-Banking Financial Companies operations in this type and efficiently made the lending operation and finance.

What are the Benefits of Registering a New NBFC-ICC?

Following are some benefits of registering a newly established NBFC-Investment and Credit Company:

• Low-Cost Loans: It is observed from all the different reports from all over the nation that despite having branches of traditional rural banks extend across the nation and other banks are trying to reach the far surroundings of India, the financial presence among small towns and rural areas remains low. The credit shortage in such regions could be easily managed by Non-Banking Financial Companies as they won’t require high-grade infrastructural backing to function their business, such as banks.

The cost needed for Non-Banking Financial Companies to function in such regions is very cheap or low, and hence, they can easily have a physical existence in such regions as compared to a bigger bank. Many NBFC-Investment and Credit Companies speedily spread their business to many small cities in India and provide loans at a minimal interest rate to small businesses or entities.

This represents that the contribution of Non-Banking Financial Companies towards increasing monetary inclusion and improvement of the population in small towns and rural areas. We already know that NBFC- Investment and Credit Company can offer loans or advances at a lower interest rate to the borrowers to get for their businesses of companies or any personal activities.

• Better Supply of Credit: Those days are gone when the supply of credit was the primary responsibility of the banks and other huge financial companies. These huge institutions follow strict policies to finance a small business or give small credits or loans that have represented as a barrier to access the huge part of the population of India with a modest background. The alternative credit supply chain formed by various financial institutions that are now NBFC-ICC has managed to the financial presence of the lower social class.

These lenders also concentrated the loads from banks to satisfy every part of society. Also, these lenders work with moderately smaller infrastructure and so they can extent to the far surroundings of India easily compared to banks.

• Expressing into the Financial Market of MSMEs: In India, many professionals or experts believe that the NBFC-Investment and Credit Company plays an essential role in the development of the Indian Economy. The NBFC-ICCs has become a primary player for simplifying the development of MSMEs financing markets. Most of the MSMEs are searching for small loans or advances for their business which they may not get from huge banks due to the severe rules and regulations or other obvious reasons.

Now, due to the simplicity of regulations or norms proposed by the Reserve Bank of India, the AFC, in the new classification of NBFC-ICC, can lend loans to such small companies or businesses to again start their financial activities in the harsh financial conditions created by the COVID-19 Pandemic. The Indian Government has also assisted credit flow to the NBFC-Investment and Credit Company to maintain liquidity which can extra help the small businesses without facing any problems.

• Extra Finance Options: The necessities of small business or companies are different from other large businesses or companies. So, the requirements of loan for different activities also differ for small businesses or companies. Mostly these enterprises require a small number of loans to meet a temporary lack of cash. These might comprise paying salaries to the employees, implementing a larger order suddenly or in R&D. The bigger banks have tactics that hardly if ever cater to the needs of these small businesses or companies and are mostly focused on the necessities of huge companies. At the same time, the LC or AFC under the category of NBFC-ICC can have a variety of strategies that can fulfil the requirement of these small merchants, vendors, and distributors to buy assets for their business. This also leads to the enlarged financial enlargement of the owners of small business in the financial market.

What are the Vital Documents Required for the Registration of NBFC-Investment and Credit Company?

Following are some essential documents required for the Registration of NBFC-ICC:

1. Submit a copy of the Identity Proof such as Voter’s ID Card, Aadhar Card, Passport, and Driving License);
2. Submit passport size photos;
3. Submit a copy of PAN Card;
4. Submit any address proof such as Mobile Bill, Bank Statement, Electricity Bill, and Telephone Bill);
5. Submit an ownership document or Rent Agreement for office space;
6. Submit an original copy of the Registration Certificate;
7. Submit Bankers Report for applicant company;
8. Submit a copy of Board Resolution;
9. Submit a copy of the receipt of Fixed Deposit and Lien Certificate of banker showing balances in support of NOFs (Net Owned Funds);
10. Submit a copy of an extract of the primary object clause in the Memorandum of Association (MOA) relating to the monetary business;
11. In case of rented property, submit NOC or No Objection Certificate;
12. Submit any experience proof and education of promoters;
13. Submit a net worth certificate of members and directors.
14. Submit a CIBIL record of all members and directors of the proposed company.

Process to Commence NBFC-Investment and Credit Company in India

Following is the step by step procedure of starting an NBFC-ICC:

1. The first step is to obtain NBFC Registration as a Public or Private Limited Company with the Government;
2. Then the company should raise a certified and paid-up capital of around two crores rupees to fulfil the required standards of the registration;
3. Once the company raise this sum, then they need to open a fixed deposit account in a bank and deposit the money. After this, they should obtain a certificate of NO Lien from the bank to move forward with the registration process;
4. Getting all the certified copies to complete the RBI Registration Checklist;
5. Once you arrange all the documents for the registration, then the applicant needs to fill an online application form for NBFC Registration. After filing the application form online, the company will issue a Company Application Reference Number (CARN) which will be used as a reference number in all further communication with the Reserve Bank of India;
6. Once the applicant files the application form online and gets the CARN for your company, the hard copies of all the vital documents should be complied with the application form and must be submitted to the Reserve Bank of India Office to complete the registration process.

Conclusion

From the above sections, it is clear that any new business or company trying to enter the business of financing in India should begin by registering itself as an NBFC-Investment and Credit Company with RBI. The procedure for the same is defined in the sections mentioned above. But this procedure could become burdensome and time-taking for founders of the new Non-Banking Financial Companies and, hence, take assistance from experts or professionals who help them save cost & time and the hassle-free registration procedure.

Read our Article:A Complete Guide on the Roles of Reserve Bank in Acquisition of Control in NBFC