What are the Eligibility Norms to Start a NBFC Business?

Understanding The Term ‘NBFC’

With the Reserve Bank of India (RBI) easing the regulations and norms for Non-Banking Financial Companies (NBFC), there has been a spurt in the registration of such companies. NBFCs are performing exceedingly well and therefore, more and more players are entering this space.

If you are contemplating stepping into this space, then go through the briefs as they may be helpful for you in doing the spadework!

NBFC are companies that deliver financial services and banking facilities without adhering to the legal definition of a Bank.

The regulatory body for NBFCs is the RBI and hence, they have to follow the banking regulations laid down by Section 45-IA of the RBI Act of 1934.

Services NBFCs Can Offer

The business activities of NBFCs include loans & advances, acquisition of shares or stocks or bonds or debentures or securities that are issued by govt or local authority or other marketable securities of similar nature, like leasing, hire-purchase, insurance business, chit business, etc.

Services NBFCs Cannot Offer:

RBI clearly defines the domains which cannot be touched by the NBFCs, and thus agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services, sale or purchase or construction of the immovable property, cannot be dealt with by NBFCs.

Know About The Eligibility Norms For NBFC Registration!

  • Company should be registered under the Companies Act, 2013 or Companies Act, 1956
  • Company should have Minimum Net Owned Fund of INR 2 crore

(Net Owned Funds to be calculated on the basis of the last audited balance sheet of the Company)

Types of NBFCs, Based On The Nature of Activity

  • Mortgage Guarantee Company
  • Asset Finance Company
  • Microfinance Company
  • Infrastructure Finance Company
  • Housing Finance Company
  • Investment Company
  • Loan Company
  • Core Investment Company

Decode The Procedure of NBFC Registration

  1. First formality is forming a company with Minimum Net Owned Fund of INR 2 crore (Equity Share Capital & not Preference Share Capital).
  2. Then the company needs to open a Bank Account and keep the entire sum of INR 2 crores in a bank’s deposit account which should be free from all liens).
  3. The Applicant company is then required to file an online application on the RBI’s website.
  4. After the submission, the applicant will get a reference number that shall enable to facilitate inquiry in the future.
  5. Thereafter, the company needs to submit the hard copies of the required documents to the concerned Regional Office of RBI.
  6. The Regional Office will verify the accuracy of all submitted documents and on satisfaction, it will forward the application for NBFC registration to the central office.
  7. The central office of RBI grants the NBFC registration only after the applicant fulfills all prescribed requirements in section 45-IA, of its act of 1934.

Document Checklist Required To Be Submitted To RBI:

For NBFC Incorporation the following documents will be required:

  • Certificate of Incorporation (Certified Copy Issued by ROC)
  • Extract of Main Object Clause in MOA (Clearly depicting Financial Business)
  • Board of Resolution stating the following before getting registration from RBI:
    • Adherence to the “Fair Practices Code (As per RBI Guidelines)
    • Non-carrying out any NBFC activity
    • Non-carrying out of acceptance of any public deposit
  • Audited Balance Sheet & Profit & Loss account along with directors and auditors report (for entire period of company’s existence or last 3 years, whichever is less)
  • Director’s Highest Educational & Professional Qualification (Copy of certificate)
  • Director’s experience in the Financial Services Sector, including Banking Sector (Copy of certificate)
  • Details of deposits & loans balances as on the date of application & conduct of account (Bankers report)

“NBFCs have become the driving force of the Indian economy, their USP being versatility and flexibility which helps them to penetrate all corners of the country!”
-Shweta Gupta, Founder, and CEO, MUDS

By | 2019-06-14T12:06:24+00:00 June 7th, 2019|NBFC Weekly Digest|0 Comments

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