What is NBFC Registration?
A Non-Banking Financial Company or NBFC is an RBI approved financial institution registered under Companies Act, 2013. Devoid of banking license, these companies provide an array of financial services, from contractual savings to currency exchange, NBFCs have got you covered. Probably, that is the reason behind the growing popularity of NBFCs. Such companies are a significant contributor to the progress of (BFSI) Banking, Financial Services, and Insurance sector in India.
Role of NBFCs in the Indian Economy
The importance of Non- Banking Financial Company is beyond assessment in the contemporary world. Besides, RBI and the Ministry Of Corporate Affairs acknowledge the role of NBFCs; further, regulate their activities for sustaining a healthy financial system. Until now, NBFCs has already proven its tenacity in empowering various businesses. By catering several innovative credit schemes to the customer, NBFC has become a go-to financial organization. Apart from that, NBFCs have level-up the game by bridging the economic gap between any organized and unorganized business.
NBFCs hold a unique skill of channelizing the scarce financial resources to capital formation.These institutes mainly support those companies and individuals that are overlooked by the banks. The primary customers of an NBFC are small and medium-sized enterprises (SME) whose growth can fundamentally affect the Indian economy. Henceforth, NBFCs offer banking services to the economically weaker sections of society.
Incorporation of Innovation in NBFCs
Since technology has taken over on almost everything, it’s time for NBFCs to deploy the advanced digital channels. Being the first choice of small and medium-scale companies, NBFCs should enlarge their reach in the market by developing innovative applications. The cutting-edge technology will not only help NBFCs to sustain customer base but also enable de-risking investment portfolio to defeat the inflation of banks in the financial market.
Let’s have a look at the advanced technology that a Non-Banking Financial Company can incorporate or presently using in the business:
Cloud Computing- It refers to the on-demand accessibility of computer system resources without any active management by the user’s side. The practice of cloud computing can bring flexibility in the NBFC business model. Cloud computing is a web-based end-to-end Loan Origination Software (LOS) that can centrally manage and automate different stages of the loan cycle, including loan application, verification of documents and credit approval.
Automation- Another tech-innovation that NBFCs shall actively harness is automation. It helps to speed up the lending process of NBFCs and presents an accurate display of the loan applications. Automation is nothing but a series of predetermined decision that saves the time of the operator.
Blockchain- Several reputed Non-Banking Financial Companies saves millions in cost transactions through the blockchain. The blockchain interlinks various unknown parties of different geographical locations to access an updated digital ledger. Nowadays, many Indian NBFCs has discerned the power of blockchain in providing services like travel insurance and settling claims.
Cognitive Computing and Artificial intelligence (AI)-A human cannot challenge a machine in the aspect of intellect; thereby, the machine takes a smarter decision than humans. If NBFCs employ the techniques of cognitive computing and artificial intelligence in their business, then they can yield the benefits of predictive analytics, speech recognition and machine learning.
Difference between NBFCs and Banks
Despite sharing major similarities in terms of operational functions, an NBFC is poles apart from a bank. Some of their common differences are NBFCs cannot accept demand deposits and avail Credit Guarantee Corporation, unlike banks. RBI and Companies Act, 2013 regulates the activities of NBFC whereas, Banking Regulation Act, 1949 govern the banks. NBFCs and banks also contrast in terms of payment and settlement system, deposit insurance facility, and maintaining reserve ratios like CRR or SLR.
Advantages of NBFCs over Banks
Technology can do wonders in reforming the operations of NBFCs. With the use of technology, the Non-Banking Financial Companies can conquer over the traditional lenders, banks. Have a glimpse of the advantages of NBFCs:
Leveraging and Acquiring customer’s data- NBFCs have reduced risk appetite in comparison to the public sector banks to lend money as they keep a close eye on their mounting debts and NPAs. Often, NBFCs focuses on serving the rejected applicants of commercial banks and individuals from rural areas. Technology renders the perfect solution to NBFCs to accurately capture, manage, and analyzethe data of their customers. It provides them with an opportunity to have a better understanding of their customers and makes lending decisions accordingly.
Build Customized Products and Services
NBFCs stays in touch with the latest tech innovations to make strategies forreaching their target audience. These companies outreach the boundaries of standard loans that are offered to low-income farmers or small business owners. NBFCs offer tailored-made services and give a user-friendly experience to their customers.
A Faster way of Lending
NBFCs turn out to be a game-changer that thriftily drives the financial market. Since Non-Banking Financial Companies have less-paper work and entirely runs online, it gives real-time solutions to customer’s query. Hence, companies obtain funds from NBFCs relatively faster than banks.
NBFC Business Plan
Like any other business, NBFCs also require to frame a business plan for laying out the foundation of the company. The business plan gives a source of direction to achieve short and long term objectives. NBFC business planning is an enormous concept that comprises of business structure, promoter background, an executive summary, market size, growth aspect, products & services, etc. To form a proper business plan, you must seek professional help. Follow this comprehensive guide to a successful NBFC business plan:
Create a draft of your services- Make a list of services& products which you will provide. Along with that mention your target audience. After drafting the plan, you have to analyze your product with its market value.
Get started- Do not waste any more timeand surf some best samples of the business plan in the Service Corps of Retired Executives website and other sites. Pick out the necessary information from those samples and incorporate that in your draft.
Note: Ensure that you look for the template which correlates with your business model, i.e., NBFC business plan. Modify your draft as per professional language rather than a casual one.
Write a detailed description of your NBFC- After specifying the products and services go-ahead to write a detailed description of your company. It must include the mission, purpose, and vision of your company’s formation. Further, mention the geographical markets in which you have served until now, the current status of your NBFC, and achievements.
Make an annual expense budget- Despite operating a Non-Banking Finance Company; you need to set a budget. If you have sufficient capital, then only you can provide financial help to others. Thus, estimate the annual budget required for sufficing the business needs of the customers. Contemplate whether your business idea can achieve the desired outcome and create a cash flow forecast for the same.
Executive Summary- It is a significant step in completing a business plan. The executive summary brings together every element of your NBFC. It can either break or make the foundation of your company. Executive summary determines if the customers will take aninterest in enrolling your documentation and forming a relationship with your NBFC or not.
India has more than 11,000 NBFCs that demonstrates its importance. It plays a dominant part in the development of various sections of our society, such as core infrastructure, transport, employment generation, wealth creation, economic development, finance, and contributes to the state exchequer. NBFCs are a prominent contributor to stabilize the financial position of India. So, it is crucial to create a business plan before directly going for NBFC registration.
Documents Checklist for NBFC Registration
To obtain an NBFC license, one needs to have the necessary documents. The documentation plays a significant role in the process of NBFC registration. If the applicant fails to submit a required document, then RBI shall reject his application. Therefore, an applicant must provide appropriate information and valid documents. Here is a complete checklist of documents that you have to attach along with NBFC application:
- An updated KYC of all the directors and shareholders of your company;
- A certified copy of MOA (Memorandum of Association) and AOA (Articles of Association);
- A copy of your company’s Certificate of Incorporation;
- The credit report of every Shareholder and Director of your company;
- Clean banker’s report with no lien remark on a Fixed Deposit of Rs. 2 crores;
- A NOF (Net-owned Fund) certificate of all the shareholders and directors;
- A detailed action plan of the proposed NBFC with the organization’s structure;
- The financial statements of your company;
- Provide the Director’s report and auditor’s report;
- A copy of the highest qualification of all the directors of your company;
- And other documents as required.
Eligibility Criteria for NBFC Incorporation
An NBFC applicant must ensure to meet the specifications of Companies Act 2013 before enrolling NBFC registration in India:
- The company must be registered under Section 3 of the Companies Act.
- It should possess a minimum net owned fund (NOF) of Rs.2 crores. Also, make sure that the funds are not borrowed ones.
- At least 1/3 of the Directors should have experience in Finance.
- There must be a comprehensive plan for the next five years.
Step by Step Procedure to acquire an NBFC License
Once the applicant prepares all the documents and passes the eligibility criteria, it’s time to take the course of action. Follow these steps to submit the NBFC application to the regional office of RBI:
- Incorporate a Private Limited/Public Limited Company
The first and foremost step towards attaining NBFC License is to form a private or public company with financial objectives.
- Business Plan and Documentation
Next step is to create a detailed business plan for your proposed NBFC. The plan must cover various parameters of business, such as capital induction, costing, expansion, and so on. Also, prepare other documents with that.
- Submit the application on COSMOS
Then,fill the online application on the official portal of COSMOS on RBI’s website
- Send the hard copy of documents to the RBI
After submitting the application online, you get one step closer to obtaining an NBFC license. Now submit the hard copy of all the documents along with the application form to the concerned RBI office. Furthermore, provide the Online Company Application Reference Number.
- Track the status of the application
Pat yourself at the back, you have finally completed all the steps successfully. Now you can monitor your application’s status on the COSMOS’ website just by entering the application reference number.
Note :- that it will take about 3 to 4 months for RBI to issue NBFC license if the applicant’s documents are valid. However, the situation may get worse if RBI caught some deceit in the authentication of those documents.
How can we help you to ease the process of NBFC Registration?
Swarit Advisors is a one-stop service provider that can help you attain NBFC license within 90 days. Our team of professionals will guide you throughout the process of registration. From the online filing of the application to assist in the business plan, we are here at your service. You just have to provide us with all your essential documents to obtain NBFC license and rest assured we will sail you through. We aim to strengthen the bond with our clients by giving quality services rather than focusing on gaining monetary benefits. So avail our services for a hustle free NBFC registration.
Frequently Asked Questions on NBFC
In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every Company should get registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.
Taking over an existing company always seems to be a better option for a person intending to do the Financing activity but considering the technicalities involved, it is always better to go for fresh NBFC registration as compared to NBFC takeover because an existing company may have defaulted or may not be regular in making the compliances also the RBI takes more time in approving the transfer of shareholding as compared with the approval for fresh NBFC License.
An investment Company is one whose main business activity is the acquisition of shares, bonds, debentures and other marketable securities, on the other hand, CIC is one who acquires securities and advances loan to its group companies only. NBFC License is required to operate as an Investment company while for CIC's License is not required until the net assets of the CIC are below Rs. 100 cr.
The RBI has allowed 100% FDI in the NBFC sector subject to them without any capitalization norms.
It is as per the mutual consent between the lender and borrower of the Company and also as per the Company's policy on the same. RBI does not play any role in this matter.
P2P Lending, Gold Loan, Vehicle Financing, Payday Loan, Short-term trade financing etc.
A payday loan is also known as the payday advance or salary loan. It is a small, short-term unsecured loan where repayment of the loan is linked to a borrower's payday i.e., the day they receive their pay that is why it is known as Payday loan.
No, an NBFC cannot issue these instruments.
Yes, there is Ombudsman for hearing complaints against NBFCs.
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, and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions.