NBFCs are financial firms that provide financial assistance and many banking services but lack a licence. They are not the same as “Cooperative and Commercial” banks; they are not needed to possess financial permission, but they must strictly adhere to the norms and rules established by the RBI from time to time.
NBFCs often provide commercial and industrial loans, start hiring, investment funds, deposits, convertible notes, chit fund business, leasing, insurance market, capital & money market instruments such as “bonds, stocks, and several other comparable operations.”
India’s banking segment has shown constant progress if we look as far as two decades. The NBFC segment of this business has evolved dramatically in recent years. Also, NBFCs have been at the forefront of generating fresh credit disbursements for the country’s neglected retail and MSME markets.
NBFC types
There are several sorts of NBFCs depending on various criteria.
NBFC Investment and Credit Companies (NBFC ICC)
An ICC is a standard licence for all firms that allows them to perform various forms of investments, wholesale and retail loans with a 120-day ETA. Infrastructure loans account for about 75% of the assets of an NBFC infrastructure financial company (NBFC IFC). NBFCs made systematic investments in core investment firms.
NBFC CIC ND SI
Invests in preferred, equity shares, company loans, or debt. The infrastructure debt fund (IDF NBFC) primarily facilitates long-term finance flow towards infrastructure projects.
Microfinance institution (NBFC MFI)
It provides loans in rural regions where yearly income is less than Rs. 1 lakh or semi-urban/urban areas wherein income is less than Rs. 1,60,000.
NBFC Peer-to-peer lending platform (NBFC P2P)
P2P offers an environment for secured credit and risk assessment checks, done automatically on the web platform to verify credit risks or automatically publish loan requests with borrowers’ profiles and risk ratings. This licence may take up to 180 days to get RBI approval, whereby the applicant must pass a mandated CISA audit.
NBFC Account Aggregator (NBFC AA)
A new NBFC category that functions as a consent broker, allowing data exchange across various financial sector firms.
Mortgage guarantee corporation (MGC)
A mortgage guarantee business venture. Forming a non-operative financial holding company (NOFHC) allows promoter groups or individual promoters to launch new banks.
NBFCs are further categorised based on their liabilities
NBFC ND SI
With an asset of a minimum of Rs 500 crores or higher, as shown in the previous year’s audited balance sheet, and subject to RBI rules except for credit concentration restrictions.
Apart from the Annual certificate, NBFCs and non-SIs are free from prudential regulations.
NBFC Registration Process
The following are the steps required in the NBFC registration process:
First, you must recruit an expert NBFC Consultant with at least ten years of knowledge and a team of specialists, including a CA, Attorneys, CS, or Senior Banker.
Then, you must choose a company name that includes Fintech, Finance, Capital, Finserv, Investment, Leasing, and so on. Finally, the applicant must gather all the necessary paperwork to begin the NBF Registration procedure.
The applicant must then file the request with the Authorities. After filing the request to the Authority, the papers and application will be verified to ensure the correctness of the applicant’s submission; If approved, the Authority would provide the NBFC Registration Certificate.
RBI’s Requirements for NBFC Registration
After submitting the request, the RBI will review the file and award the licence only if the following requirements are met: The ability of an NBFC to return all of its debts to investors, as well as the company’s business plan, must serve the broader interests of society.
- Income potential of the business idea;
- The proposed NBFC must comply with RBI laws;
- Activities must be carried out in the public interest.
- Capacity to inject adequate capital;
- NBFC activities must not jeopardise any general public interest;
- And the board must act in the best interests of depositors and the public.
Fees for NBFC Registration
The processing cost for NBFC licence registration is roughly Rs. 3,50,000 to register a firm as an NBFC with such a Net Owned Fund of Rs.2 crore. You must pay an extra 10-12 lakh rupees if you want the professional skills of an NBFC consultant. As a result, the overall cost of obtaining an NBFC licence might be Rs. 15-16 lakhs.
Documents for NBFC
- Certified copy of the applicant company’s CoI (Certificate of Incorporation).
- If the applicant firm is a PLC, a certified copy of the CoCoB (Certificate of Start of Business) is required (Public Limited Company).
- Verified copy of the principal aim clause in the prospective NBFC’s Memorandum of Association about its financial operation.
- The Board of Directors adopted the following resolution:
- The business is not carrying on or has ceased any NBFC activity. It is unlikely to carry on or start any NBFC activity until it receives licence certification from the RBI.
- The firm has not accepted any deposits from the public in the past, doesn’t hold any public deposits as of the time, and will not accept any in the future unless the Reserve Bank of India grants prior consent.
- The UIBs in the group in which the director has a significant stake or otherwise have not taken any public deposit in the past don’t hold such public deposits as of the date and will not receive the same in the future.
- The firm has developed a “Fair Practices Code” following the RBI.
- A copy of the Fixed Deposit receipt and a banker’s certificate of no attachment stating the balance in support of the Net Owned Funds (NOF).
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Conclusion
A Non-Banking Financial Corporation (NBFC) is a financial firm which lacks a banking licence but is permitted to provide consumers with financial goods and services. The primary business of an NBFC is loan and advance lending, share buying, financing leasing, hire-purchase, chit fund, and so on.
It is crucial to note that an NBFC differs from a bank in that it cannot take savings or current account deposits, cannot write checks drawn on itself, and does not provide deposit insurance or credit guarantee coverage to its depositors.
FAQs
- How long is an NBFC registration valid?
An NBFC is needed to commence operations within six months of registration. If the start date is over six months, the registrations will likely become invalid, and the NBFC will need to reapply for registration.
- Is there any criteria for the RBI to provide an NBFC licence?
The RBI’s primary criterion for awarding licences to NBFCs is that the firm has good earning potential, that the public’s interests are met, and that the NBFC contributes to the country’s growth.
- Are NBFCs permitted to accept deposits?
Only NBFCs with special permission from the bank and an investment-grade rating are permitted to receive and keep deposits of no more than 1.5 times the Net Owned Funds.
- What are the benefits of registering an NBFC?
The ability of an NBFC to provide asset management of assets such as shares and stocks, make loans to needy individuals, and have legal protection in debt recovery are some of the critical benefits of an NBFC becoming registered.
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