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How to Acquire NBFC License in India?

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| Updated: Feb 05, 2019 | Category: NBFC

Every business or company who wishes to start an NBFC is first required to obtain an NBFC license in India. NBFC, Non-Banking Financial Company, is a company which offers identical services as that of a Traditional Bank except issuing on cheques and Demand Drafts. Mainly, NBFCs provide financial services to both individuals and businesses.

Therefore, if you’re planning to start an NBFC, then you must acquire an NBFC license. Hence, in this blog, we have described the pre-requirements and steps for obtaining the NBFC license in India.

NBFC Registration with RBI in India

According to Section 45-IA of the RBI Act, 1934, a company which carries the business of non-banking financial institution is known as Non-Banking Financial Company. NBFCs are not permitted to start or carry on the business of a non-banking financial institution without:

  • Acquiring a certificate of registration from the Reserve Bank of India, and
  • Having a Net Owned Funds (NOF) of Rs. 2 crores.

Basically, an NBFC is a company registered under the Companies Act, 2013 and involved in the business of:

  • Loans and advances,
  • Hire-purchase,
  • Chit business,
  • Leasing,
  • Acquisition of shares or stocks or bonds or debentures or securities issued by Government or local authority, etc.
NBFC Registration in India

What are the conditions for getting an NBFC license in India?

A company enrolled under the Companies Act, 2013 and envious of starting the business of non-banking financial institution as defined under Section 45 I (a) of the RBI Act, 1934 must comply with the following:

  • It must be a company enrolled under Section 3 of the Companies Act, 2013.
  • It must hold a minimum net owned fund of Rs. 200 lakh or 2 crores.

Documents required for obtaining NBFC License in India

There are certain documents required for obtaining an NBFC license in India. They are as under:

  • KYC of all the directors and shareholders of the applicant company;
  • A copy of the Certificate of Incorporation;
  • A certified copy of the Memorandum of Association and Articles of Association;
  • Bankers report concerned with the no lien remark on a fixed report of Rs. 2 crores;
  • Credit report of all the directors and shareholders;
  • A detailed action plan of the proposed NBFC along with the structure of the organization;
  • An NOF certificate of all the directors and shareholders;
  • The highest qualification certificate of every director of an applicant company;
  • The financial statements of the company intending to register as NBFC along with the director’s report and auditor’s report.

How to apply for NBFC license in India with the RBI?

For obtaining an NBFC license in India, the applicant company can apply online, and hence, submit a physical copy of the application. Besides, it also needs to submit the required documents to the Regional Office of the Reserve Bank of India.

Step 1: The applicant needs to submit the application online by accessing RBI’s secured website https://cosmos.rbi.org.in.

Step 2: Here, the applicant company doesn’t require to log on to the COSMOS application. Hence, user ids aren’t required. Then, the applicant needs to click on “CLICK” for Company Registration on the login page of the COSMOS Application.

Step 3: Then, a window displaying the Excel application form available for download will appear. Secondly, the applicant can download the suitable application form which is NBFC or SC/RC from the COSMOS website.

Step 4: The applicant company is advised to show the correct name of the Regional Office in the field “C-8” of the “Annex-I identification Particulars” in the Excel application form.

Step 5: Then, the applicant would get a Company Application Reference Number for the CoR (Company of Registrar) application filed online.

Step 6: Thereafter, the company will submit the hard copy of the application form (intimating the online Company Application Reference Number, along with the supporting documents, to the concerned Regional Office.

Step 7: Once the above steps are served properly, the applicant company can monitor the status of the application on the COSMOS website by keying the company application reference number.

Generally, the issuance of NBFC license in India takes 3 to 4 months. The aforesaid holds true when your documents are accurate and valid. However, with the help of experts, you can obtain it within 90 days.

Classification of NBFCs registered with RBI

Typically, NBFCs are classified on the basis of:

  1. Deposits, and
  2. The nature of activities an NBFC conducts.

Further, these are categorized into several other parts. Let’s find out what they are.

NBFC Registration in India

On the basis of Deposits

Under this, there are two kinds of NBFCs:

1. Deposit accepting NBFCs

NBFC which accepts deposits must possess minimum investment grade credit rating issued by an approved credit rating agency for the deposit collection. However, it excludes certain Asset Finance Companies (equipment leasing and hire purchase company) and Residuary Non-Banking Companies.

2. Non-Deposit accepting NBFCs

Such NBFCs can’t accept deposits. Hence, it depends on Banks, Private Equity Firms, and Corporate Houses for taking deposits. For instance, NBFC-Micro Finance Institution is a non-deposit accepting NBFC. It can lend, however, can’t accept deposit from public other than repayments of the borrowed amount.

Based on the nature of the activity

1. Asset Finance Company (AFC):

It’s a financial institution which carries on the principal business of financing of physical assets supporting economic or productive activity. Those activities include automobiles, lathe machines, material handling equipment, general purpose industrial machines, etc. Additionally, the income arising from such activities isn’t less than 60% of its total assets and total income respectively.

2. Investment Company (IC):

It’s a company and financial institution which carries on the primary business of the acquisition of securities.

3. Loan Company (LC):

It’s a financial institution carrying on as its chief business of providing finance whether by making loans or advances or otherwise for any activity other than its own. Besides, the company doesn’t constitute an Asset Finance Company.

4. Infrastructure Finance Company (IFC):

IFC is a kind of NBFC which-

  • Deploys a minimum of 75% of its total assets in infrastructure loans,
  • Possesses a minimum Net Owned Funds of Rs. 300 Crores,
  • Holds a minimum credit rating of ‘A ‘or equivalent, and
  • A 15% CRAR (Capital to Risk-Weighted Assets Ratio).

5. Systemically Important Core Investment Company (CIC-ND-SI):

It’s an NBFC which carries the business of acquisition of shares and securities while satisfying the following conditions:-

  • It possesses not less than 90% of its total assets as an investment in equity shares, debt or loans, preference shares in group companies;
  • Its investments in the equity shares (including instruments imperatively convertible into equity shares within a period not surpassing 10 years from the date of issue) in group companies constitutes at least 60% of its total assets;
  • It doesn’t trade in its investments in shares, debt or loans in group companies except through block sale for dilution or disinvestment;
  • It doesn’t carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued in favour of group companies.
  • Its asset size is Rs.100 crores or high, and
  • It takes public funds.

6. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC): 

IDF-NBFC is an NBFC which facilitates the flow of long term debt into infrastructure projects. Moreover, it raises resources through issue of Rupee or Dollar-denominated bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) have the authority to IDF-NBFCs.

7. Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)

It’s a non-deposit taking NBFC with at least 85% of its assets in the nature of qualifying assets. Further, such companies need to satisfy the following conditions:

  • Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income shouldn’t exceed Rs. 1, 00,000 or urban and semi-urban household income shouldn’t exceed Rs.1, 60,000;
  • Loan amount must not exceed Rs. 50,000 in the first cycle and Rs. 1, 00,000 in subsequent cycles;
  • Total indebtedness of the borrower doesn’t surpass Rs. 1, 00,000;
  • Tenure of the loan isn’t less than 24 months for the loan amount in excess of Rs. 15,000 with prepayment without penalty;
  • The loan must continue without collateral;
  • An aggregate amount of loans, for income generation, is at least 50% of the total loans provided by the MFIs;
  • The loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower.

8. Non-Banking Financial Company – Factors (NBFC-Factors)

It’s a non-deposit taking NBFC involved in the primary business of factoring. Besides, the financial assets in the factoring business should compound a minimum of 50 per cent of its total assets. However, its income from the factoring business shouldn’t be less than 50% of its gross income.

9. Mortgage Guarantee Companies (MGC)

MGC is financial institutions for which a minimum of 90% of the business turnover is mortgage guarantee business. Whereas, at least 90% of the gross income is from mortgage guarantee business and NOF is Rs. 100 crore.

10. NBFC- Non-Operative Financial Holding Company (NOFHC)

It’s a financial institution through which promoter/promoter groups may set up a new bank. Further, it’s a wholly-owned Non-Operative Financial Holding Company. Moreover, this company holds the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.

Wrapping up

Undoubtedly, there are many crucial things to keep in mind while applying for NBFC license in India. However, the process becomes easy when you take an expert’s help. NBFC registration process is a little daunting because of the involvement of the RBI and their stringent rule for acquiring NBFC license in India. Besides, you would require a minimum net owned fund of Rs. 2 crores to start an NBFC. Furthermore, you need to follow up with its compliances for a smooth workflow of the business.

Therefore, if you are a willing applicant for NBFC registration, then contact Swarit Advisors. We are one of India’s leading consultants and promise you to deliver the best service ever.

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Khushboo Priya is an experienced Legal content writer with a prodigious proof-reading and research & development skill.

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