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NBFC Registration Procedure with RBI – A Complete Guide

NBFC Registration Procedure with RBI
Karan Singh
| Updated: Mar 09, 2021 | Category: NBFC, RBI Advisory

An NBFC is a financial company which is registered under the Companies Act, 2013 and 1956, and it is involved in the Act of providing loans, advances or acquisition of bonds/shares/debentures/stocks/securities which are issued by the local authority or the Government. The financial service sectors of India comprises not just commercial banks but also Non-Banking Financial Companies. Non-Banking Financial Companies are vital to the economy, especially in India, where 70% of the Indian population lives in rural areas and has a constant need for long and short-term finance. To establish an NBFC in India, you need to go through the NBFC Registration procedure with RBI, and a Certificate of Registration can be obtained in 90 to 120 days. In this blog, we discuss the NBFC Registration Procedure with RBI (Reserve Bank of India).

Explain the Business Activity of an NBFC

Non-Banking Financial Companies are proving to be a perfect alternative to commercial banks in India as a vital part of the Indian Financial System (IFS), thus making a fantastic contribution toward the Financial Development of the country. The RBI (Reserve Bank of India) and the Central Government are the primary regulators of the Non-Banking Financial Companies (NBFCs) in India. The unorganized sector looking for advances and loans have been the most vital beneficiary of Non-Banking Financial Companies, providing easy access to the small borrowers.

Also, Read: Challenges and Opportunities for the Future of NBFC in India

Exempted Companies from NBFC Registration

In terms of authorities given to the Banks, to remove dual regulation, certain categories of Non-Banking Financial Companies which are controlled by other regulators are exempted from the prerequisite of registration with RBI, which are as follow:

  • Chit Fund Companies.
  • Stock Exchanges.
  • Nidhi Companies.
  • Housing Finance Companies.
  • Insurance Companies.
  • Venture Capital Fund Companies.
  • Merchant Banking Companies.
  • Companies involved in the business of sub-broking or stock-broking.

Conditions for NBFC Registration with NBFC

The application of Non-Banking Financial Company (NBFC) shall comply with the following conditions:

  • As per the Companies Act, 2013 and Companies Act, 1956, the applicant must be a registered company.
  • The company shall involve in the financial activities stated in the Act. If the financial flow of such a business grows more than 50% of the company’s total capital asset, such a company will get an NBFC Registration Certificate.
  • When the applicant company is making an application for the registration of NBFC shall hold a minimum Paid Up capital fund of Rs. 2 crores. Simultaneously, the Foreign Investor and Company who wants to set Non-Banking Financial Company shall have paid-up capital of Rs. 5 crores.

What are the Vital Documents required for NBFC Registration Procedure with RBI?

Following are some vital documents required at the time of NBFC Registration Procedure with RBI (Reserve Bank of India):

  • Submit a certified copy of COI or Certificate of Incorporation.
  • Submit certified copies of extract of the main object clause in the MOA or Memorandum of Association relating to financial business.
  • If any company is already registered, submit the audited balance sheet, P&L Account (Profit and Loss) with the director and auditor’s report.
  • Banker’s Report.
  • Submit Board Resolution declaring the following:
  1. The company is not carrying on any Non-Banking Financial Company (NBFC) activity and will not begin the same before obtaining NBFC Registration from RBI.
  2. The company has articulated the “Fair Practices Code”as per the RBI Guidelines.
  3. The company cannot accept any public funds as of the date and will not accept the same in the future without getting approval from RBI.
  4. The company doesn’t have any customer interface as of the date and will not have the same in the future without any approval of RBI (Reserve Bank of India).
  • Submit a copy of FD receipt (Fixed Deposit) and Banker’s certificate of no lien representing balances supporting NOF (Net Owned Fund).
  • Banker’s report of the applicant’s company, it is an associate/related parties/group/holding companies/related parties, directors of the company having considerable interest in some other companies. The Banker’s report should be about the dealings of these companies with these Banker as a depositing company or a borrowing company.

What is the NBFC Registration Procedure with RBI in India?

Following are the steps of NBFC Registration Procedure with RBI:

  • The applicant needs to file an application online at the official website of RBI (Reserve Bank of India).
  • Once you fill the application form online, take a print out of it and submit the same along with all the vital documents mentioned above to the Regional Office of the RBI.
  • To apply for COSMOS, the company shall click on the “Click” button on the login page.
  • After clicking the button, one excel sheet will open on your window screen. The applicant shall download the application.
  • The company may indicate the right name of the Regional Office in the field “C-8” of the “Annex-I Identification Particulars”in the excel application form.
  • After submitting, the company will get a CARN (Company Application Reference Number) for the COR application filed online.
  • Then the company has to submit the hard copy of the form along with the vital documents to the respective Regional Office.
  • The company can check the application form status online by entering the acknowledgement number.

Difference between NBFCs and Banks

Both are the financial intermediaries; NBFCs (Non-Banking Financial Companies) are registered under the Companies Act, 2013, whereas the Banks are regulated by the Banking Regulation Act and Companies Act. The lower costs in founding NBFC make it a more profitable option as compared to banks. The Reserve Bank of India (RBI) governed both financial intermediaries.

Following are some activities that are not allowed by a Non-Banking Financial Company:

  • NBFCs cannot accept DDs or Demand Deposits.
  • Non-Banking Financial Companies cannot issue cheques drawn themselves since they don’t form any part of the payment and settlement system.
  • In the case of Non-Banking Financial Company, deposit insurance facility and credit guarantee corporation is not available to depositors.

Conclusion

The NBFC Registration procedure with RBI has been simplified by the end of 2016. Non-Banking Financial Companies have begun as the largest receiver and lender of the NOFs due to their access to even the country’s remote areas. Non-Banking Financial Companies are expected to quicken the growth of the country’s economy. The Reserve Bank of India is also continuously endeavouring to provide regulatory support to the segment and ensure financial stability in the long run.

Also, Read: What are the Vital Documents Required for NBFC Registration?

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Karan Singh

A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.

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