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Important Checklists for NBFC License in India

Checklists for NBFC License
Swarit Advisors
| Updated: Oct 31, 2017 | Category: NBFC

The Non-Banking Financial Companies (NBFCs) are Companies who act alike Banks. NBFC License is a Company duly registered under Act whose principal business is to conduct the financial activity. In India, the number of NBFCs is significantly growing and plays a vital role in the financial sector. In this blog, we will brief about the complete Checklists for NBFC License registration in India.

What is a Non-Banking Financial Company (NBFC)?

Non-Banking Financial Companies is Company registered under Companies Act[1] whose principal business is to grant loans and advance, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority, leasing, hire-purchase, insurance business, chit business, receive deposits under any scheme or arrangement etc.

Financial activity as a principal business is when a company fulfils the following conditions:

  • Financial assets constitute more than 50 percent of the total assets.
  • Income from financial assets constitutes more than 50 percent of the gross income.

The RBI has not defined the Principle business under the Act but for the purpose of the financial activity, it has set conditions to be fulfilled before taking License.

Meanwhile, the NBFC and Banks activities are akin but below activities of Banks makes it different from NBFC:

  • Acceptance of Deposits;
  • An issue of cheques drawn and being a part of the payment and settlement system;
  • The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation;

Registration of a Non-Banking Financial Company:

The Non-banking Financial Company shall commence its business only after taking the certificate of registration from the Bank.

Conditions for Registration:

The applicant of NBFC shall comply with the following conditions:

  • The applicant must be registered Company as per the provisions of Companies Act 2016 or earlier Companies Act 1956.
  • The applicant shall engage in the financial activities mentioned in the Act. If at any time the financial flow of such business increase more than 50% the total capital asset of the Company that such company shall get NBFC Registration in India.
  • The applicant Company at the time of making an application for NBFC registration shall hold minimum Paid-up the capital fund of INR 2 Crore. Whereas the Foreign Company and foreign investor who wants to set NBFC shall hold paid-up equity capital of INR 5 Crore.

The process of Registration:

  • The applicant shall file an application online in RBI’s secured website
  • After applying online application applicant shall get a print of the application and shall submit the same along with the below mentioned required documents to the Regional Office of the Reserve Bank of India.
  • The Company shall click on “CLICK” button on the login page to apply for COSMOS.
  • After clicking one excel sheet display in the window. The applicant shall download the application form.
  • The company may note to indicate the correct name of the Regional Office in the field “C-8” of the “Annex-I identification Particulars” in the Excel application form.
  • After submission, the Company shall get a Company Application Reference Number for the CoR application filed online.
  • The company has to submit the hard copy of the application form (indicating the online Company Application Reference Number, along with the supporting documents, to the concerned Regional Office.
  • The status of the application can be checked by the Company from the above mentioned secure address, by inputting in the acknowledgement number.

Documents Required along with Application:

  • Certified copy of Certificate of Incorporation.
  • Certified copies of the extract of only the main object clause in the MOA relating to the financial business.
  • Board resolution stating the following:
    • The company is not carrying on any NBFC activity and will not carry on/commence the same before getting registration from RBI.
    • The UIBs in the group where the director holds a substantial interest or otherwise has not accepted any public deposit in the past /does not hold any public deposit as on the date and will not accept the same in future.
    • The company has formulated “Fair Practices Code” as per RBI Guidelines.
    • The company has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the approval of Reserve Bank of India.
    • The company does not have any customer in line as on date and will not have any customer interface in the future without the approval of Reserve Bank of India.
  • Copy of Fixed Deposit receiving & bankers certificate of no lien indicating balances in support of NOF.
  • For companies already in existence, the Audited balance sheet and Profit & Loss account along with directors & auditors report or for the entire period the company for last three years, whichever is less, should be accompanied.
  • The Bank report of an applicant company, directors of the applicant company having a substantial interest in other companies The Banker’s report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing entity.

Exempted Companies from registration:

In terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI. Which are as follow:

  • Housing Finance Companies
  • Merchant Banking Companies
  • Stock Exchanges
  • Companies engaged in the business of stock-broking/sub-broking
  • Venture Capital Fund Companies
  • Nidhi Companies
  • Insurance companies
  • Chit Fund Companies

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