{"id":10892,"date":"2020-06-06T15:24:01","date_gmt":"2020-06-06T09:54:01","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=10892"},"modified":"2023-08-17T16:45:36","modified_gmt":"2023-08-17T11:15:36","slug":"minimum-capital-requirement-for-nbfc","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/","title":{"rendered":"Minimum Capital Requirement for NBFC: Complete Guide to Start an NBFC in India"},"content":{"rendered":"\n<p>The banking sector encompasses various financial\noperations such as deposits, loans, and so on. Most countries have a\ncentralized bank that regulates all other banks in the country, in India that\nrole is played by RBI (Reserve bank of India). In India the Non-Banking\nFinancial sector has an enormous growth potential. <\/p>\n\n\n\n<p>A <a href=\"https:\/\/swaritadvisors.com\/learning\/non-banking-financial-companies-nbfc-an-overview\/\" class=\"text-primary\"><strong>Non-Banking Financial Company<\/strong><\/a> (NBFC) is defined by the Reserve Bank of India (RBI) as &#8220;<em>A company registered under the Companies Act of 2013 or 1956 which is involved in the business of loans and advances, acquisition of shares\/bonds\/stocks\/securities\/debentures issued by the Government or local authority or other marketable securities of a like kind, leasing, hire-purchase, insurance business, chit business but does not include any institution whose major business is banking.\u201d<\/em><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a332bc4052\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a332bc4052\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#What_is_the_50-50_test\" title=\"What is the 50-50 test? \">What is the 50-50 test? <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#Types_of_Non-Banking_Financial_Company\" title=\"Types of Non-Banking\nFinancial Company\">Types of Non-Banking\nFinancial Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#Minimum_capital_requirement_for_a_Non-banking_financial_company\" title=\"Minimum capital requirement for a Non-banking financial company\">Minimum capital requirement for a Non-banking financial company<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#Chapter_III_B-_Provisions_related_to_Non-banking_financial_institutions_receiving_deposits_and_financial_institutions\" title=\"Chapter III B- Provisions related to Non-banking financial institutions receiving deposits and financial institutions \">Chapter III B- Provisions related to Non-banking financial institutions receiving deposits and financial institutions <\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#What_are_the_eligibility_criteria_for_the_NBFC_registration\" title=\"What are the eligibility criteria for the NBFC registration?\">What are the eligibility criteria for the NBFC registration?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#What_is_the_process_to_register_a_Non-Banking_Financial_Company_in_India\" title=\"What is the process to register a Non-Banking\nFinancial Company in India?\">What is the process to register a Non-Banking\nFinancial Company in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#Documents_required_for_NBFC_registration\" title=\"Documents required for NBFC registration\">Documents required for NBFC registration<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/learning\/minimum-capital-requirement-for-nbfc\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_50-50_test\"><\/span>What is the 50-50 test? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>RBI has formulated a test to check whether an NBFC\nis capable of being registered or not in India. The test is known as the 50-50\ntest. All the companies that are incorporated under the Companies Act of 2013\nand want to launch a venture as a non-banking financial institution (NBFC), as\ndefined under <em>Section 45 I(a)<\/em> of the\nRBI Act of 1934, must meet these basic requirements that are listed below:<\/p>\n\n\n\n<ul><li>The company is required to be registered in India as per <em>Section 3<\/em> of the Companies Act of 2013;<\/li><li>The company should owned the funds of at least INR Two Crores.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types_of_Non-Banking_Financial_Company\"><\/span><strong>Types of <\/strong>Non-Banking\nFinancial Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NBFCs are divided into two types:<\/p>\n\n\n\n<ul><li>Deposit Accepting NBFC (Type -1);<\/li><li>Non-Deposit accepting NBFC (Type -2).<\/li><\/ul>\n\n\n\n<p>A non-deposit accepting NBFCs can be further categorised into ten types, and they are as follows:<\/p>\n\n\n\n<ol><li><a href=\"https:\/\/swaritadvisors.com\/learning\/newsletter\/asset-finance-company-role-in-an-emerging-india\/\" class=\"text-primary\"><strong>Asset Finance Company<\/strong><\/a>, also known as AFC;<\/li><li>Loan Company, also known as LC;<\/li><li>Infrastructure Finance Company, also known as IFC;<\/li><li>Investment Company, also known as IC;<\/li><li>Infrastructure Debt Fund: NBFC, also known as IDF-NBFC;<\/li><li>Systemically Important <a href=\"https:\/\/swaritadvisors.com\/core-investment-company\" class=\"text-primary\"><strong>Core Investment Company<\/strong><\/a>, also known as CIC-ND-SI;<\/li><li>Non-Banking Financial Company-Micro Finance Institution, also known as NBFC-MFI;<\/li><li>Non-Banking Financial Company \u2013 Factors, also known as NBFC-Factors;<\/li><li>Mortgage Guarantee Companies, also called as MGC;<\/li><li>Non-Operative Financial Holding Company, also known as NOFHC.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Minimum_capital_requirement_for_a_Non-banking_financial_company\"><\/span>Minimum capital requirement for a Non-banking financial company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> Before we just on the discussion regarding the minimum capital requirements by NBFCs, let\u2019s look at some of the important sections of the RBI Act of 1934. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Chapter_III_B-_Provisions_related_to_Non-banking_financial_institutions_receiving_deposits_and_financial_institutions\"><\/span>Chapter III B- Provisions related to Non-banking financial institutions receiving deposits and financial institutions <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li><em>Section 45-I(a)<\/em> of the act defines the term, a business of a non-banking financial\ninstitution<\/li><li><em>Section 45-I(aa)<\/em> of the act defines the term company.<\/li><li><em>Section 45-I(b)<\/em> of the act defines the term corporation<\/li><li><em>Section 45-I(bb)<\/em> of the act defines the term deposit<\/li><li><em>Section 45-IA<\/em> of the act talks about the requirement of registration and\nnet-owned fund<\/li><li><em>Section 45-IB<\/em> of the act talks about the maintenance of the percentage\nof assets.<\/li><li><em>Section 45-ID<\/em> of the act discusses the bank&#8217;s power to remove directors\nfrom office.<\/li><li><em>Section 45-IE<\/em> of the act talks about the supersession of the board of directors\nof non-banking financial companies (Other than Government Companies).<\/li><li><em>Section 45J<\/em> of the act talks about the bank to regulate or prohibit\nthe issue of prospectus or advertisement soliciting deposits of money.<\/li><li><em>Section 45JA<\/em> of the act discusses the bank&#8217;s power to determine policy\nand issue directions.<\/li><li><em>Section 45K<\/em> of the act talks about the power of bank to collect\ninformation from non &#8211; banking institutions as to deposits and to give\ndirections.<\/li><li><em>Section 45M<\/em> of the act talks about the duty of non-banking\ninstitutions to furnish statements, etc., required by bank.<\/li><li><em>Section 45MA<\/em> of the act talks about the powers and duties of auditors.<\/li><li><em>Section 45MBA<\/em> of the act talks about the resolution of non-banking\nfinancial company.<\/li><li><em>Section 45QB<\/em> of the act talks about the nomination by depositors.<\/li><\/ul>\n\n\n\n<p>Now coming back to the minimum\ncapital requirements, as per RBI (Reserve bank of India) guidelines, a company\nthat wishes to incorporate as NBFC in India has to maintain a minimum net owned\nfund of INR Two Hundred (200) Lakhs. This requirement came through the RBI\namendment Act of 1999. Prior to this amendment, the regiment was INR 25 Lakhs. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_eligibility_criteria_for_the_NBFC_registration\"><\/span>What are the eligibility criteria for the NBFC registration?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>All those who wish to incorporate a non-banking financial company must\nregister with the Reserve Bank of India (RBI) (except those mentioned by the\nRBI guidelines). So before you proceed with the process of registration, please\ngo through the following list of eligibility criteria:<\/p>\n\n\n\n<ul><li>You must register your company whether as a as a private or public\nlimited company, under the Company Act of 2013. Also, the companies which are\nregistered under the provisions of the Company Act of 1956 are also eligible. <\/li><li>The company must have the business financial strategies ready for at\nleast five years<\/li><li>It is required to have a good credit or Credit Information Bureau (India) Limited&nbsp;also called as CIBIL score.<\/li><li>A company should own minimum funds of INR Two Crores or above.<\/li><li>A company should own minimum assets of INR\nTwo Crores or above. <\/li><li>The company should comply with all the provisions of the FEMA (Foreign Exchange Management Act of 1999).<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_process_to_register_a_Non-Banking_Financial_Company_in_India\"><\/span>What is the process to register<strong> <\/strong>a Non-Banking\nFinancial Company in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following are the steps involved in <a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\"><strong>registering a Non-Banking Financial Company<\/strong><\/a> in India: <\/p>\n\n\n\n<ul><li>In step 1 of the process, the applicant has to register the company under the Companies Act of 2013. <\/li><li>In step 2 of the process, the company is required to maintain a net-owned fund of at least INR Two Crores.<\/li><li>In step 3 of the process, the company must appoint at least one director from the same background. <\/li><li>Step 4 of the process, says the company is required to have a good credit or <strong>Credit Information Bureau (India) Limited<\/strong><sup><a href=\"https:\/\/www.cibil.com\/\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup>, also called CIBIL score.<\/li><li>In step 5, the applicant can fill out the application form with all the required documents and submit it. <\/li><li>In Step 6, a CARN number will be generated and given to the applicant for the future reference.<\/li><li>&nbsp;Finally, in Step 7, authorities will verify the application forms and all the documents filed. If everything is satisfied, the authority will provide the license to the company. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Documents_required_for_NBFC_registration\"><\/span>Documents required for NBFC registration<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The following documents must be provided to obtain an <a href=\"https:\/\/swaritadvisors.com\/nbfc-license\" class=\"text-primary\"><strong>NBFC license<\/strong><\/a>:<\/p>\n\n\n\n<ul><li>Management-related\ninformation;<\/li><li>In the case of public\nlimited corporations, certified copies of the Certificate of Incorporation and\nthe Certificate of Commencement of Business;<\/li><li>Certified copies of\nthe company&#8217;s most recent Memorandum and Articles of Association. Details of\nfinancial business clauses in the MoU;<\/li><li>A copy of the\ncompany&#8217;s PAN\/CIN;<\/li><li>Each director must\nfill up and sign their director profile;<\/li><li>A certificate from\nthe NBFC\/s where the Directors received NBFC experience;<\/li><li>CIBIL information\nabout the company&#8217;s directors;<\/li><li>Board Resolution\nstating that the company has not accepted any public deposits in the past\n(specify period)\/does not hold any public deposits as of the date and will not\naccept any public deposits in the future without the prior written consent of\nthe Reserve Bank of India;<\/li><li>An authenticated copy\nof the board resolution establishing the &#8220;Fair Practices Code.&#8221;;<\/li><li>Statutory Auditors\nCertificate attesting to the fact that the company accepts\/does not accept\/does\nnot hold Public Deposit;<\/li><li>Statutory Auditors\nCertificate attesting that the company is not engaged in NBFC activity;<\/li><li>Statutory Auditors\nCertificate attesting to the net owned fund as of the application date.<\/li><li>Details of the\ncompany&#8217;s authorised share capital and the most recent shareholding pattern,\nincluding percentages;<\/li><li>A copy of the Fixed\nDeposit receipt and a bankers certificate of no lien indicating the balances in\nsupport of the Net Owned Funds;<\/li><li>Details of bank\nbalances\/accounts\/full postal address of the branch\/bank, loan\/credit\nfacilities, and so on;<\/li><li>The three years prior\nDirectors&#8217; and auditors&#8217; reports, an audited balance sheet and profit and loss\naccount, or for the smallest time frame possible (for companies already in\nexistence);<\/li><li>Business plan for the\nnext three years detailing the company&#8217;s (a) business drive, (b) market sector,\nand (c) anticipated balance sheets, cash flow statement, asset\/income pattern\nstatement, without any element of public deposits;<\/li><li>Documentary\ndocumentation supporting the source of the company&#8217;s initial cash.<\/li><li>Self-attestation of\nbank statements\/IT returns, etc.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Funds\nraised by the NBFCs are directly or indirectly from the general public. Then\nthey lend the money (in the form of loans) to a wide range of small businesses,\nwholesale and retail enterprises, and self-employed individuals. In India,\nNBFCs are divided into two types, one is deposit accepting NBFC (Type -1), and\nanother is a non-deposit accepting NBFC (Type -2). RBI governs the working of\nNBFCs, therefore as per the RBI guidelines a, NBFCs has to maintain a minimum\ncapital requirement, which is INR Two Hundred Lakhs. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>The banking sector encompasses various financial operations such as deposits, loans, and so on. Most countries have a centralized bank that regulates all other banks in the country, in India that role is played by RBI (Reserve bank of India). In India the Non-Banking Financial sector has an enormous growth potential. A Non-Banking Financial Company [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":10933,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[89],"tags":[644],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10892"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=10892"}],"version-history":[{"count":32,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10892\/revisions"}],"predecessor-version":[{"id":19126,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/10892\/revisions\/19126"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/10933"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=10892"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=10892"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=10892"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}