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An NBFC or a Non Banking Financial Corporation is a company registered under the provisions of under the Companies Act, 2013, and regulated by the RBI.
These institutions are engaged in offering Loans and Advances, and Acquiring stock, equities, and debts issued by the government or any local authority.
Further, NBFCs are different and distinct from commercial or cooperative banks.
NBFCs registration is obtained under the Companies Act, 2013, and the RBI Act, 1934. NBFCs play a crucial role in carrying out the financial functions in our economy. Also, this business format fulfills the demands of the banking sector whenever the banks fail to provide loans and advances.
Further, the primary business of an NBFC is to receive deposits under a prescribed scheme and arrangement. The same can be made either in a lump sum or in installments by means of the contributions.
Furthermore, the working and operations of NBFCs are regulated and administered by the RBI as per the provisions prescribed in the RBI Act, 1934. Section 45-IA states that no NBFC can commence or carry out its business activity without acquiring an NBFC Registration Certificate.
Only the Apex Bank has the authority to issue the NBFC Registration Certificate. Moreover, the Apex Bank has now simplified the regulations concerning NBFC; thus, getting an NBFC license has now become much easier than before.
The benefits of an NBFC Registration are as follows:
According to Section 45-IA of the RBI Act, 1934[1], the following listed are the conditions that a company must fulfill to be incorporated as an NBFC:
Following listed are the different types of NBFCs
In India, the entities not considered as an NBFC are as follows:
Points of Difference |
Non Banking Financial Corporation |
Banks |
Act of Regulations |
Companies Act, 2013 |
Banking Regulation Act, 1949 |
Demand Deposits |
Cannot accept demand deposits |
Can accept demand deposit |
Drawing of a Cheque |
Cannot draw cheques on its own |
Can issue or draw cheques |
Deposit Insurance Facility |
The Facility is not available with the NBFC depositors |
The Facility is available for the Bankers |
Asset Restructuring |
Allowed |
Not Allowed |
Maintenance of Reserve Ratios |
No Compulsory |
Compulsory to Maintain Reserve Ratio |
Loan Sanction |
Easier and Faster |
Comparatively Stringent |
Product Offering |
Major Property Loans |
All types of Loans |
Foreign Direct Investment (FDI) |
Permitted up to a Specified Limit |
100% allowed |
SLR (Statutory Reserve Ratio) |
Only a deposit-taking NBFC needs to maintain 15% SLR. |
Mandatory to Maintain SLR |
Some of the specific role and functions of an NBFC are listed as follows –
In India, the powers of the Apex Bank on an NBFC are as follows:
No, the Reserve Bank of India (RBI) does not administer or regulate all kinds of Financial Institutions operating in India. The Financial Institutions that are not governed by the Apex Bank are as follows:
Following are the Documents required for obtaining NBFC License in India –
The steps involved in the process of NBFC Registration with the RBI are as follows:
The Following listed are the compliances that are required to be complied by an NBFC after obtaining Certificate of Registration (COR):
Following listed are the compliances which are issued by RBI:
The amalgamation of new age technological advancements with the financial business functions is providing various sorts of benefits to the economy. The benefits of doing a Fintech based NBFC Model are as follows:
In India, the situations in which the RBI rejects an application for NBFC Registrations are as follows:
The Reserve Bank of India is the apex authority and has the power to impose a penalty on the prevailing NBFCs for violation of the provisions mentioned in the RBI Act. Such penalties are as follows –
Following are the reasons why one should choose Registernbfc for NBFC Registration –
Frequently Asked Questions
NBFC is the short form for the Non-Banking Financial Company and is established under the Companies Act, 2013. NBFCs are widely engaged in the business of providing Loans and Advances or in Acquisition of equities, debts, stock etc. issued by the government or by any local authority. Further, NBFCs are engaged in all types of financing business; however, it does not possess a full-fledged banking license. Furthermore, these institutions are different and distinct from any commercial or cooperative bank
• Registration under section 3 of the Companies Act, 2013
• Registration under section 3 of the Companies Act, 2013
• At least 1/3rd of the total Directors holding a minimum of 10 years experience in the field of finance.
• A detailed business plan concerning operations for the next 5 years
• The Company needs to have a minimum of Rs. 2 Crore as its Net Owned Fund.
• The CIBIL score of the company, along with its Directors and members, must be good.
• Compliance with the provisions of FEMA Act, 1999 in case of foreign investment
• Act of Regulation - NBFCs are regulated and administered by the Companies Act, 2013, whereas the Banks are governed and regulated by the Banking Regulation Act, 1949
• Demand Deposits - NBFCs cannot accept the deposits, whereas the Banks can easily accept the deposits from their customers.
• Drawing a Cheque - NBFCs cannot issue or draw cheques on its own whereas but Banks can easily issue cheques
• Deposit Insurance Facility- The deposit insurance facility is not available for the NBFC depositors whereas it is easily available for the bankers
• Certificate of Company’s Incorporation
• Detailed information about the management together with a brochure of the company
• A copy of the PAN card or the CIN (Corporate Identity Number) of the company.
• Documents related to the location or address of the Registered office
• Certified copy of the MOA (Memorandum of Association) and AOA (Articles of Association)
• List of Directors’ duly signed by each director
• CIBIL or the credit reports of the Directors of the concerned Company are required
• A copy of the board resolution declaring that the company has not carried out or has stopped NBFC activity and will not carry out the same until RBI grants NBFC registration to that company
• A board resolution regarding the ‘Fair Practices Code’ is to be passed in the board meeting and a certified copy of the resolution is to be submitted
• Certificate issued by any statutory auditor declaring that the concerned company is not holding any public deposit and also do not accept it.
• Certificate issued by the Statutory Auditor specifying the net owned funds as on the date of the application is required
• Information concerning the following is to be furnished bank account, loans, credits and balances
• If applicable, following statements of the previous three years have to be submitted. the statements required are an audited balance sheet, Profit and loss statement, Directors and auditor’s report
• Self-certified copy of the Income Tax Return and Bank Statement
• Information dealing with the company’s future plan, normally for the next three years, together with the projection of the balance sheets, income statement and cash flow statement
No, Merchant Banking, Housing Finance Companies, Stock Exchanges Companies engaged in the business of stock-broking or sub-broking, Nidhi Companies, Chit Fund Companies, Insurance companies, and Venture Capital Fund Companies are all though NBFCs, but they have been exempted from the obligation of registering themselves under Section 45-IA of the RBI (Reserve Bank of India) Act, 1934 subject to certain conditions. Housing Finance Companies are administered by the National Housing Bank, stock-exchanges/ stock brokers/ sub-brokers/ Venture Capital Fund Company/Merchant Banker are regulated and administered by the Securities and Exchange Board of India (SEBI), and Insurance companies are governed by the Insurance Regulatory and Development Authority (IRDAI). In the same manner, Chit Fund Companies are governed and administered by the respective State Governments. Lastly, the Nidhi Companies are regulated and governed by the Ministry of Corporate Affairs (MCA), Government of India. Further, the Companies that do financial business but are regulated and administered by other regulators and are given specific exemption by the RBI (Reserve Bank of India) from its regulatory requirements in order to avoid duality of regulation.
The Reserve Bank of India has been provided vide powers under the RBI Act, 1934 regarding the laying down of policies, registration, inspection, issuance of directions, regulations, supervision and exercise surveillance over NBFCs (Non-Banking Financial Company) that meet 50-50 criteria of the principal business. Further, the RBI also has the power to penalize NBFCs for violating any of the provisions mentioned under the RBI Act or the orders or directions issued by the RBI under the RBI Act, 1934. Furthermore, the penal action can also result in the cancellation of the Certificate of Registration issued by the RBI to the concerned NBFC, or restricting them from accepting further deposits and alienating their assets or even filing a petition for winding up.
The Companies which are registered with the Ministry of Corporate Affairs (MCA) but are not required to be registered with RBI as an NBFC (Non-Banking Financial Corporation) does not come under the purview of the regulatory domain of RBI. If in case the RBI receives any of such complaint about the company being registered with MCA but is not registered with RBI as an NBFC, then it forwards the concerned complaint to the ROC (Registrar of Companies) of the respective state for any further action. Further, the complainants are advised that the complaints relating to irregularities of such companies should be lodged with the ROC on a prompt basis, so that the corrective action can be initiated as early as possible. However, if in case it comes to the knowledge of RBI (Reserve Bank of India) that the concerned company was required to be registered with the RBI as well, but have not done so, and moreover, have also accepted deposits as defined under the RBI Act, 1934, then such action as is considered necessary under the provisions of the RBI Act, 1934 will be taken.
Following listed are the regulations applicable to the NBFC-ND having an asset size of less than Rs. 500 crore –
• They shall not be subjected to any prescribed regulation (whether relating to the conduct of business operations or prudential), such as the FPC (Fair Practices Code), KYC (Know Your Customer), etc. if they neither have accessed any public funds nor do have any customer interface.
• Those which are having a customer interface will only be subjected to the conduct of business regulations if in case they are not accessing any public funds
• Those which are accepting public funds will only be subjected to the limited prudential regulations but not to the conduct of business regulations if they do not have a customer interface.
• In case there is both the acceptance of public funds and customer interface, then such companies are subjected both to the limited prudential regulations and the conduct of business regulations.
The concept of Public funds is not the same as the public deposits. Public funds comprises of the public deposits, bank finance, inter-corporate deposits and all the other funds received whether directly or indirectly from the outside sources such as the funds raised by the issuance of Commercial Papers, debentures etc. Although the public funds include public deposits in the general course, it may be noted that CICs/ CICs-ND-SI cannot accept public deposits
Further, the indirect receipt of public funds means the funds which are not directly received but by way of associates and group entities which have access to public funds.
Following listed are the compliances that are required to be complied by an NBFC after obtaining Certificate of Registration (COR) –
• Statutory Audit
• Income Tax Returns (ITR) Filing
• GST Returns Filing
• ROC Returns
• Tax Audit
• And all the other Compliances and Returns prescribed by a competent authority
RNBC is the acronym form for the Residuary Non-Banking Company. It is a type of NBFC, which is a company and has its own principal business. This company is engaged in the activities concerning the receiving of deposits, under any arrangement or scheme or in any other manner as prescribed. It is significant to note that this company is different from an Investment, Asset Financing and Loan Company. Further, these companies are obligated to maintain investments as per directions issued by the RBI, in addition to the liquid assets. Furthermore, the functioning of these companies is different from those of Non-Banking Financial Companies (NBFCs) in terms of the method of mobilization of deposits and the requirement of deployment of depositors' funds as per the Directions. Apart from this, Prudential Norms Directions are also applicable to these companies.
At Present, the maximum rate of interest that an NBFC can offer is 12.5 per cent. The interest charged may either be paid or compounded at intervals not shorter than the monthly intervals.
NBFCs are allowed to accept or renew the public deposits for a minimum period of 12 months and for a maximum period of 60 months. Further, the NBFCs are not eligible to accept deposits repayable on demand.
An Investment Copmany is an NBFC
An Asset Finance Company
A Loan Finance Company is an NBFC
Infrastructure Finance Company
Infrastructure Debt fund is an NBFC
A Microfinance Institution
this type of NBFC
this type of NBFC
A Microfinance Institution
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