Non-Banking Financial Company (NBFC) is a financial institution that does not have banking license but is allowed to offer financial products and services to customers. NBFC is primarily concerned with the business of loans and advances, acquisition of shares, finance leasing, hire-purchase, chit fund, etc. It is important to note that an NBFC is different from bank in ways like an NBFC cannot accept savings and current account deposits, cannot issue cheques drawn on itself and its depositors do not get a deposit insurance and credit guarantee coverage.
NBFC in India can be basically categorized into:
Deposit accepting NBFCs
Non-deposit accepting NBFCs
NBFCs in India are categorized in 10 forms that are mentioned below:
Asset Finance Company (AFC)
Loan Company (LC)
Infrastructure Finance Company (IFC)
Investment Company (IC)
Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
Systemically Important Core Investment Company (CIC-ND-SI)
Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)
Non-Banking Financial Company – Factors (NBFC-Factors)
Mortgage Guarantee Companies (MGC)
Non-Operative Financial Holding Company (NOFHC)
Steps to Register NBFCs in India
Step 1:Register the company under the Companies Act 2013 or under Companies Act 1956.
Step 2:Minimum Net Owned Funds of the Company should be Rs. 2 crore or more.
Step 3:There should be at least 1 director in the company from the same background.
Step 4:Good CIBIL score is required to present in order to register as NBFC.
Step 5:Next, visit RBI’s official website and fill in the application form.
Step 6:Submit all the required documents along with the application form.
Step 7:Once you have submitted the application form, a CARN number will be generated.
Step 8:Send the hard copy of the application to the regional branch of RBI.
Step 9:After the application is checked and verified, the License will be given to the company.
Investment and Credit Company (ICC): ICC is one common license for all types of financing business in India. Prior to feb 2019 there were three different licenses namely Loan Company, Asset Finance Company and Investment Company. Now after merger into one single License defined as ICC, It allows the license holder to engage in various kinds of wholesale retail loans and Investment business. The ETA for NBFC ICC License estimated to 120 days.
NBFC-Microfinance Companies (MFIs): The NBFC-MFIs disburse loans to the households whose annual income in rural areas does not exceeds ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000. Around 85% of the financial assets of MFIs shall lie in the nature of qualifying assets as above. The minimum Net owned funds of MFIs shall not be less than INR 5 crores. The ETA for NBFC CIC License could be 200 days.
NBFC-Factors: Engaged in the principal business of factoring, constituting at least 50 percent of its total assets and the income derived from factoring business should not be less than 50 percent of its gross income.
NBFC-Peer to Peer Lending (P2P): P2P lending intermediaries provide an online platform consisting of highly secured credit and risk assessment fin-tech driven platforms that runs an automatic risk assessment checks of the applicant and determines credit risk of the borrowers and Artificial intelligence based Platforms, Automatically publish the loan requirement along with the borrowers profile and risk rating on the platform. With peer-to-peer lending market place, borrowers can take loans from individuals who are willing to lend their money for an agreed interest rate to the borrower. For P2P Lending License, it may take approximate 180 working days for the in-Principal Approval from RBI. And after In-Principal Approval the Applicant will require to undergo with the Mandatory CISA Audit.
NBFC-Account Aggregators: This is the newest category of NBFC. NBFC Account Aggregators enables sharing of data across multiple financial sector organizations and act as “consent brokers”, i.e., they intermediate data transfer among the financial organizations with the consent of the user. The activities of Account Aggregators involves accumulation of financial data that involves gathering of information on a single platform from varied accounts such as bank accounts, investment accounts, business accounts, consumer accounts and other related financial accounts. The Net-Owned Fund requirement for NBFC-AA is also INR 2 crores.
Infrastructure Finance Company (IFC): This kind of NBFCs deploys at least 75 per cent of its total assets in infrastructure loans. Also, it has to maintain a minimum Net Owned Funds of ₹ 300 crore and shall also seek a minimum credit rating of ‘A ‘or equivalent with a CRAR of 15%. The ETA for NBFC IFC License could be 240 days.
Core Investment Companies (CIC): These kind of NBFCs carry on the business of acquisition of shares and securities and also fulfill the following conditions:
Holding of 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
Not to carry out any other financial activity except as listed in point (a) above;
The ETA for NBFC CIC License could be 180 days.
Can NBFCs Accept Deposits?
NBFC Can accept deposits: but in recent few years, RBI has followed strict approach while granting the NBFC-D (Deposit) License.
After 2016 RBI has been encouraging: The Application for non-deposit taking NBFC and large number of new license has been approved in year 2017 to 2019.
Easy to raise fund from Bank: Even Non deposit taking NBFC is allowed to raise fund from bank at very cheaper rate.
Principal business as Finance: Non Depositing taking NBFC will primary engage in the lending activities and shall not accept the public deposits in the form of Savings Deposits, Recurring Deposits and Fixed Deposits
Be careful during Deposit taking NBFC Application: Even if you are planning to takeover the deposit taking NBFC License, in such circumstances at the Time of granting the approval for change in management and change in ownership of NFBC, RBI may downgrade to Non deposit taking NBFC.
We encourage our clients to submit fresh Application for NBFC Registration rather taking over the old NBFC. Advantages and disadvantages of both option can be evaluated.
Minimum Capital Requirement for NBFC License Registration
The minimum paid-up Capital: The Net owned fund of NBFC-ICC (Investment credit company) must be more than Rs. 2 Crores over the life of the NBFC unless otherwise prescribed the RBI.
Gift From Family Members: Shareholders should introduce own 2 crores as share capital, However shareholders can give or take gifts from Close relatives or Spouse
No Blockage of Fund: it shall mandatorily hold a Net owned funds of INR 2 crores at the time of registration and at all times thereafter. However, you can use the minimum capital for the lending or investment purpose.
Capital Must be tax Paid: The Applicant will require to produce the Proof of tax payment against the capital invested in the NBFC.
Need to Qualify the Quality of Capital Test: RBI Conducts quality of capital test and ensure that Capital invested by the shareholders are free from any possible defects or non-compliance with Indian or international laws.
FATF Member Investment: RBI Only recognize and Approves NBFC Registration or takeover from FATF Member Country Investment in India
100% FDI is Allowed: In NBFC Sector 100% FDI is allowed from FATF member countries and under auto route.