Detail Information about NBFC in India

A non-Banking Financial Company (NBFC), is a financial institution that doesn't have a bank license, but can still offer financial products to customers. NBFC Registration focuses on loans and advances, purchase of shares, hire-purchases, finance leasing, chit funds, and other financial services. An NBFC is different than a bank in that it cannot accept savings or current account deposits, can't issue cheques drawn on its funds, and its depositors don't get credit insurance or credit guarantee coverage.

The NBFC business does NOT include businesses whose principal business is:

• Agricultural Activity
• Industrial Activity
• Any goods, except securities, may be purchased or sold.
• Sale/purchase/construction of any immovable property - Providing any services

What types/categories are there of NBFC that have been registered with RBI?

NBFCs can be categorized:

a) In terms of the types of liabilities in Deposit or Non-Deposit Accepting NBFCs

b) Non-deposit-taking based on their size into systemically significant and other non-deposit holding companies (NBFC–NDSI or NBFC–ND).

c) By the type of activity they engage in. These are the types of NBFCs that can be classified as a broad category:

I. Asset Finance Company: An AFC (Affordable Financial Company) is a financial institution that finances physical assets to support productive/economic activities. It is an organization that is involved in the financing of tangible assets such as automobiles and tractors, generator sets, lathe machines, and generator sets, as well as earth-moving and material-handling machines. This is the sum of all assets used to finance real/physical assets that support economic activity. The income from these assets must not be less than 60%.

II. Investment Company - An investment company (IC): An IC is a financial institution that acquires securities as its main business.

III. Loan Company: LC is a company that provides finance, whether it be loans, advances, or any other activity. It does not include Asset Finance Companies.

IV. 

A) that invests at least 75% of its assets in infrastructure loans

b) must have a minimum net owned fund of Rs 300 crore

c) must have a minimum credit rating 'A' or equivalent d) as well as a CRAR value of 15%.

It holds at least 90% of its Total Assets as investments in equity shares, preference stocks, debt, or loans in group businesses;

(b) Its investments in equity shares (including instruments that can be converted into equity shares in not more than 10 years) in group companies do not make up less than 60% of its total assets.

(c) It does not trade its investments in shares or debt in group companies, except for block sales to dilute or disinvestment.

(d) It does not engage in any other financial activity as described in Section 45I(1) and 45I(2) of the RBI act of 1934, except for investment in bank deposits, money-market instruments, loans to and investments into debt issuances or guarantees issued on behalf group companies.

(e) The asset size of the company is at least Rs 100 crore.

(f) It accepts public money

VI. An IDF-NBFC can issue bonds in either Rupees or US Dollars with a minimum maturity of 5 years to attract funding. The only entities able to sponsor Non-Bank Financial Companies that Deal in Infrastructure Investments are Infrastructure Finance Companies (IFC).

VII. 

A. loan disbursed to a borrower by an NBFC–MFI to a rural household income not exceeding Rs 10,00,000. Urban and semi-urban households' incomes not exceeding Rs 1.60,000

b. The loan amount is not more than Rs 50,000 for the first cycle, and Rs 1,00,000

The total amount of the borrower's indebtedness must not exceed Rs 1,00,000.

d. Loan tenure not to exceed 24 months for loans exceeding Rs 15,000; prepayment is allowed without penalty

e. Loan to be extended without collateral

The aggregate amount of loans used for income generation is not less than 50% of total loans granted by MFIs.

G. Loans can be repaid in weekly, fortnightly, or monthly installments at the discretion of the borrower

VIII. VIII. Factoring assets should make up at least 50% of the company's total assets, and its income from factoring should not exceed 50% of its gross income.

IX. MGC - Mortgage Guarantee Companies (MGC - MGC is a group of financial institutions where at least 90% of their business turnover is in the mortgage guarantee business. At least 90% of gross income comes from mortgage guarantee businesses. The net owned fund of MGC is Rs 100 crore.

REVISED CATEGORIZATION OF NBFC -

The revised framework has notified the RBI of 4 scale-based layers for regulating NBFCs. The revised framework has notified 4 scale-based layers to regulate NBFCs: the Base layer, the Middle layer, the Upper layer, and finally, the Top layer.

Regulatory Framework for NBFCs

The regulatory structure for NBFCs will consist of four layers, each based on the size, activity, and perceived riskiness. NBFCs located in the base layer (NBFC-BL) shall be known. NBFCs located in the middle layer and upper layers shall be known respectively as NBFC – Middle Layer (NBFC–ML) and NBFC – Upper Layer (NBFC–UL). The Top Layer should be empty. It will be called NBFC – Top Layer (NBFC–TL).

Information about NBFCs that populate the different layers

Base Layer: The Base Layer shall consist of

(a) Non-deposit-taking NBFCs with assets below Rs1000 crore

(b) It engage in the following activities:

(i) It-Peer to Peer Lending Platform (NBFC-P2P),

(iii) Account Aggregator (NBFC -AA).

(iii). Non-Operative Financial Holding Company.

(iv) Do not have a customer interface and don't avail public funds.

Middle Layer

The Middle Layer will consist of

(a) All deposit-taking NBFCs (NBFC–Ds), regardless of asset size

(b) Non-deposit-taking NBFCs with assets of Rs1000 crore or more

(c) It engage in the following activities

(i) Standalone Primary Dealers, (SPDs),

ii) Infrastructure Debt Fund - Non-Banking Financial Companies, (IDF-NBFCs),

(iii). Core Investment Companies (CICs).

(iv) Housing Finance Companies

(v) Infrastructure Finance Companies

• Upper Layer

The Reserve Bank will designate the Upper Layer as NBFCs that are eligible for enhanced regulatory requirements. These NBFCs must be identified using a set criterion and scoring method as described in the Appendix. The upper layer shall include the top ten eligible NFCs in terms of their asset size, regardless of any other factors.

• Top Level

The Top Layer should ideally be left empty. If the Reserve Bank believes that there is a significant increase in systemic risk due to specific NBFCs within the Upper Layer, this layer may be populated. These NBFCs will be moved to the Top Layer by the Reserve Bank.

Category of NBFCs that are engaged in specific activities

The regulatory structure contemplates both activity-based and scale-based regulation. Therefore, the following regulations shall apply to NBFCs

NBFCs that are not subject to public funds or have no customer interface, NBFCs-P2P and NBFCs-AA, NOFHC, and NBFCs that are not subject to public funds will remain within the Base Layer of this regulatory structure.

NBFC-D and CIC, IFC, IFC, HFC, and CIC will all be included in Middle Layer, or the Upper Layer, depending on the situation. The Middle Layer will continue to contain SPD and IDFNBFC.

They owned by the government shall be placed in either the Base Layer or the Middle Layer, depending on the situation. They will not be placed on the Upper Layer until further notice.

NBFC INCORPORATION REQUIREMENTS

To incorporate, you must first register a private or public company. The following is the procedure to register:

1. Register a company with ROC

Companies registered under the Companies Act are eligible to apply for an NBFC license from RBI. You must draft Memorandums and Articles of Association to reflect these objectives. You can register a company as a Private Limited Company or Public Limited Company. A declaration must be made at the time of company formation that the company will not engage in business activities without the approval of the sectorial regulator.

These documents are required to register the company under the Companies Act 2013:

• For identity proof, a copy of the PAN card for all directors proposed and subscribers
• Bank Statement/Driver’s license/Voter ID for all directors proposed and subscribers to address proof
• Photographs of proposed directors and subscribers in the passport-sized format
• DSC (Digital Signature) for all directors and subscribers
• Utility bill/rent agreement/sale document for proof of address at the registered office
• Declare that the company will not engage in business activities without the approval of the sectorial regulator

2. Minimum net owned funds for the company should not exceed Rs. Minimum 10 Crores or More

3. Open Bank Account and Subscription Amount

After the company registration is completed, a Bank Account must be opened. The subscription amount must be deposited into the bank account. It is important to note that promoters are not allowed to conduct any business activities without a license from the RBI.

4. A minimum of 1/3rd should have at least 10 years of experience in finance. Such a person should be employed full-time as a Director and collect all documents from the directors.

5. A good CIBIL score is required to register for NBFC

6. Prepare a business plan, and any other allied documents. The Memorandum of Association object clause must be aligned with the business plan.

7. Make sure to prepare a complete application.

8. Fix Deposit Rs. Get Fixed Deposit Certificates for 10 Core by depositing Rs.

The entire amount must be deposited at the Bank as Fixed Deposit.

9. Fill out the application form on the official website of RBI

10. All required documents must be submitted with your application.

11. After the application has been verified and checked, the NBFC license will be issued subject to the character and background evaluations of RBI.

WHAT IS THE PROCEDURE FOR APPLICATION TO RESERVE BANK OF INDIA FOR REGISTRATION?

Step 1 - Arrange the Documents

The applicant must arrange all necessary documents to begin the process of NBFC registration.

Step 2- The Application will be submitted online by accessing RBI's Secured website https://xbrl.rbi.org.in/orfsxbrl/

. Upon successful submission, a Company Application Reference Number (CARN), is generated. This number can be used for all future inquiries or communications.

Step 3- Submitting Application and Documents to Verify

The applicant company must apply online and send a printed copy of the application together with the required documents to the Regional Office of the Reserve Bank of India.

To verify the authenticity of submissions by applicants, the authority will review the documents and applications.

Step 4: Issue of Registration Certificate

After successful verification of the application and supporting documents, and if the company meets all terms and conditions set out in Section 45-IA of the RBI Act, the authority will issue a registration certificate. The NBFC license shall be granted.

LIST OF BASIC DOCUMENTS/INFORMATION TO BE FURNISHED ALONG WITH THE APPLICATION. ALL DOCUMENTS/INFORMATION IS TO BE SUBMITTED IN DUPLICATE

Documents needed to register as Type I - NBF-ND (not accepting public money/ not intending to accept public funding in the future and having customer interface/ not planning to have customer interface)

• Public limited companies may require certified copies of the Certificate of Incorporation or Certificate of Commencement Of Business.
• Certified copies of the extract from the MOA that only deals with the financial business.
• Board resolution declaring that:
• a) The company has stopped any NBFC activity/internal NBFC activity and will cease carrying out/commence such activities before being registered with RBI
• b) The UIBs of the group in which the director holds substantial interests or has not accepted public deposits in the past/does not hold any public deposits as of the date and will no longer accept them in the future
• c) According to RBI Guidelines, the company has created a "Fair Practices Code".
• d) The company has never accepted public funds in past/doesn't hold any public funds as of this date, and will not accept them in the future without approval from the Reserve Bank of India
• e) At the time of writing, the company has no customer interface and will not have one in the future.
• Copy of Fixed Deposit receipt and bankers certificate of non-lien indicating balances to support NOF
• Companies that are already in existence should submit the Audited balance and Profit & loss account, along with the directors' & auditor's reports, or for the entire time the company has been in existence or the last three years, whichever is lower.
• Report from the company's banker detailing the applicant company, its subsidiaries, affiliates, holding companies, and related parties, as well as the directors of the applicant company who hold substantial interests in other businesses. The Banker's Report needs to detail the entities' interactions with the Bankers, both as depositors and borrowers.
• Documents needed to register as Type II - (accepting public money/intending to accept public funding in the future and/or providing customer interface/intent to provide customer interface in future) (including new NBFC MFI, NBFC Factor, NBFC IDF)
• Public limited companies may require certified copies of the Certificate of Incorporation or Certificate of Commencement Of Business.
• Certified copies of the extract from the MOA that only deals with the financial business.

Board resolution declaring that:

• The company has stopped any NBFC activity/internal NBFC activity and will cease carrying out/commence such activities before being registered with RBI
• The company has not received any public deposits in the past (specify time)/doesn't hold any public deposits as of the date. If the Reserve Bank of India does not approve, the company will not accept any such deposit in the future.
• The UIBs of the group in which the director holds substantial interests or has not accepted public deposits in the past/does not hold any public deposits as of the date and will no longer accept them in the future
• The company has created a "Fair Practices Code" following RBI Guidelines
• Copy of Fixed Deposit receipt and bankers certificate of non-lien indicating balances to support NOF
• Companies that are already in existence should submit the Audited balance and Profit & loss account, along with the directors' & auditor's reports, or for the entire time the company has been in existence or the last three years, whichever comes first.
• Copies of the certificate of highest professional and educational qualification for all directors
• All directors must have a copy of their experience certificate in the Financial Services Sector (including Banking Sector),
• Report from the company's banker detailing the applicant company, its subsidiaries, affiliates, holding companies, and related parties, as well as the directors of the applicant company who hold substantial interests in other businesses. The Banker's Report needs to detail the entities' interactions with the Bankers, both as depositors and borrowers.

RBI CONDITIONS TO GRANTING NBFC LICENSE

The company must apply for NBFC registration in the format specified by RBI. The RBI may inspect financial and other books before registering the company to become an NBFC.

• The NBFC can pay all its investors, past or future, as soon as their claims are made.
• It is unlikely that its operations will be in any way detrimental to the interests of existing or future investors.
• The general character of the Board and management shall not prejudice the interests of depositors or the public.
• It has enough capital structure and earning potential.
• This company should be licensed as an NBFC to serve the public interest.
• CoR grants are not to be considered detrimental to the functioning of the financial sector. It must also be compatible with the RBI's policies on monetary stability, economic growth, and other pertinent issues.