How to Register NBFC in India

In ours this meticulously prepared and highly enlightening web article, presented is detailed and vital information regarding NBFCs in India, and how to register an NBFC in India. Our well-established and worldwide connected and reputed law firm of India has been rendering superb and expeditious services for NBFC registrations as an ancillary service, in all across India and other countries worldwide, for a long span of successful and enriching period. All major disciplines and areas of the law have been well-served by ours well-experienced, mellowed, expert, and internationally renowned legal professionals.

What is an NBFC?

A Non-Banking Financial Company (NBFC) is the financial institution, other than the Commercial and Cooperative Banks, which provides a variety of banking and non-banking service to the interested or concerned people and companies, without holding a proper banking license. These NBFCs raise funds from the public investors directly and indirectly, and lend to all categories of borrowers, under certain conditions. Thus, these NBFCs bridge the broad gap existing in between the investors and the borrowers. The usual clients and customers of these NBFCs in India and abroad are entrepreneurs, professionals, small-scale industries, wholesale and retail traders, companies and institutions, industrialists, and investors, who could be engaged in any sector of occupation and economy. Thus, NBFCs are fast becoming an immensely beneficial and very significant complementary to the banking and financial sector of any progressive country like India. Services of the NBFCs are also known as the 'Shadow Banking' services.

What are the Main Businesses of NBFCs?

The most common and popular businesses of these NBFCs are associated with any one or more of the fields of – loans and advances, deposits, leasing, hire-purchasing, insurance business, chit business, instruments of the capital and money markets, and so on. These NBFCs are not entitled to carry out activities related with the agriculture sector, sale or purchase of goods and products other than securities and bonds, and buying and selling of real estate property. The activities and working of the these NBFCs in general, are supervised and regulated by the Reserve Bank of India (RBI) as per the provisions and regulations given in the Chapter III B of the magnificent RBI Act, 1934.

Types of NBFCs in India

Since December 2006, there are three main categories of NBFCs present in India, which are the following:

Asset Finance Company (AFC): The main business of this category of NBFCs is financing real or physical assets which promote vital and productive activities in various economic sectors. Such assets include industrial machines, big material handling vehicles and equipments, tractors, automobiles, lathe machines, generator sets, etc.

Investment Company (IC): Dealing in securities is the principal business of such type of NBFCs.

Loan Company (LC): Providing finance to borrowers in forms of loans and advances, for purposes other than purchasing of physical assets.

Difference between Banks & NBFCs Both Banks and NBFCs give to and take money from public under specific terms and conditions, and procedures. But, the following features of NBFCs differs these from Banks:

• An NBFC is not authorized to accept deposits which are prone to be demanded immediately or suddenly by the depositors at any future point of time (called as demand deposits), as is in the case of the current or savings accounts.
• NBFCs are not enabled by the law to issue Cheques to their customers, for the purposes of payment and settlement.
• Like as in banks, the lavish facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not achievable to the depositors of NBFCs.
• Other features and regulations followed by the NBFCs are given in the pertinent section below.

Do All NBFCs Require Registration with RBI?

In strict compliance with the Section 45-IA of the RBI Act of 1934, an NBFC is recommended to obtain a proper Certificate of NBFC Registration from RBI, for doing a business in any of the above-mentioned field, anywhere in India. After 9th January 1997, this requirement of registration with RBI has been made compulsory.

However, to avert dual registration and regulation, some specific categories of NBFCs are exempted from the need of getting registered with RBI; because of being regulated by other appropriate governmental bodies and regulators. Such categories of non-banking financial companies are – Venture Capital Fund companies, Stock Exchanges, Merchant Banking companies, and Stock-broking companies, which are regulated efficiently by the SEBI (Securities and Exchange Board of India); Housing Finance companies which are regulated and controlled by the National Housing Bank; Insurance companies which governed and regulated by the Insurance Regulatory and Development Authority (IRDA); Chit Fund companies [defined in clause (b) of Section 2 of the Chit Funds Act of 1982] are prudently regulated by the respective State Governments; and Nidhi companies [notified in Section 620A of the Indian Companies Act of 1956] are rigorously regulated by the Ministry of Corporate Affairs (MCA), the Govt. of India.

Do All NBFCs Can Accept Public Deposits?

All NBFCs are not privileged to accept public deposits; only duly rated and fully authorized NBFCs can accept/hold public deposits. However, an exception is present in the case of unrated AFCs (with CRAR of 15%), which can accept public deposits up to a certain ceiling determined on the basis of the Net Owned Funds of every such company. For providing rating to NBFCs, there are five expert and reputed agencies present in India, there are --- CARE, CRISIL, ICRA & FITCH, Brickwork Ratings India Pvt. Ltd, and the Ratings India Pvt. Ltd.

In case any NBFC makes ever any irregularities or derelictions in proper and timely repayment of deposits, then the depositors can readily approach to any concerned Bench of the Company Law Board (CLB), or Consumer Forum, or file a rigorous civil lawsuit, in order to recover the legitimate deposits. The Principal Bench of the CLB is located in New Delhi. And the zonal Benches of the Company Law Board are situated in New Delhi, Mumbai, Kolkata, and Chennai.

Salient Features and Regulations Associated with NBFCs

The following features and regulations of the NBFCs in general, are very enlightening and beneficial to the depositors, investors, and borrowers:

• Only duly rated NBFCs (except some AFCs) can accept public deposits. For this, these companies must have the Minimum Investment Grade Credit (MIGC) rating.
• Rated NBFCs can accept/renew deposits for a minimum period of one year, and a maximum period of five years. These companies cannot undertake public deposits repayable on demand.
• NBFCs are not permitted to give higher interest rates than the prescribed ceiling rate by the RBI contemporarily. At present, the maximum interest rate an NBFC can provide to its depositors is 12.5% per annum.
• NBFCs are not facilitated by the RBI to render incentives/gifts, or any other extra benefits to their depositors.
• Deposits with NBFCs are not insured, and RBI does not guarantee the due and fair repayment of deposits by NBFCs.

Requirements for NBFC Registration with RBI

NBFCs are rigorously registered as per the rules and regulations described in the Section 45-IA of the RBI Act of 1934. For this, the following are the main requirements:

• The applicant company must be properly registered under the Indian Companies Act of 1956
• It must be engaged or is desirous to be engaged in any business fields mentioned above
• It must possess a minimum disposable Net Owned Fund (NOF) of INR-2 Crore (as raised in April 1999). This amount is INR-5Crore for foreign investors or companies.
• In case, when the financial assets involved in the business of such a companies, exceeds 50% of the total capital asset of the company, then obtaining a certificate of NBFC registration from RBI is mandatory.

Procedure for NBFC Registration

The application form for NBFC Registration can be promptly obtained from the website: www.rbi.org.in/-. An indicative checklist of the various documents and enclosures to be submitted along with the completed application form to the Regional Office of the RBI, is also given there. The application can also be filed online by accessing elegant website: https://secweb.rbi.org.in/COSMOS/rbilogin.do. After filing the application, a Company Application Reference Number is granted to the applicant company for making further enquiry and knowing the current status of the filed application. If the specific requirements and conditions mentioned in the section 45-IA of the said Act, are satisfied, and then the NBFC Registration Certificate will be granted by the apex financial institution of India (RBI).