NBFC non banking financial COMPANY REGISTRATION IN INDIA

Non banking financial company

NBFC is a company register itself under act 1956 of India

It Participate in principal  such as:-

investment business of loans and advances,

:-acquisition of shares, stock, bonds,

:-hire-purchase insurance business or chit-fund business ,

It will not participate with any institution whose principal business involves in  :-

agriculture,

industrial activity or the sale, purchase

or construction of immovable property.

It’s functions under by the reserve Bank of INDIA with  the Framework of Indian act 1934 and direction issue by it.

As per the new norms of RBI issued on 9 november 2017, NBFCs cannot outsource core management functions like internal audit,

management of investment portfolio,

strategic and compliance functions for know your customer (KYC) norms

and sanction of loans.

Non- banking financial company

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 with activities similar to that of a bank, except for the following differences:

  • NBFC’s cannot accept demand deposits
  • NBFC’s cannot issue cheque drawn on itself
  • Bank deposits are insure by Deposit Insurance and Credit Guarantee Corporation.
  • However, deposits in NBFC’s are not insured.

NBFC’s like banks except for the above differences are engage with the business of making loans and advances, acquisition and trading of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, insurance business, chit business

but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

Also a company which is in the principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company.

Categories of Non banking financial company

NBFC’s are mainly categorized into deposit taking NBFC’s and non-deposit taking NBFC’s.

Deposit taking NBFC’s and non-deposit taking NBFC’s are further classified  based on their size. Within this broad categorization, there are again many types of NBFC’s like Asset Finance Company,

Investment Company,

Loan Company,

Infrastructure Finance Company,

Systemically Important Core Investment Company,

Infrastructure Debt Fund,

Micro Finance Institution Factors and gold loan NBFC in India .

Difference between NBFC and Banks

NBFCs perform functions similar to that of banks but there are a few differences-

  • Provides Banking services to People without holding a Bank license,
  • NBFC cannot accept Demand Deposits,
  • It  is not a part of the payment and settlement system and as such,
  • It cannot issue Cheques drawn on itself, and
  • Deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors, unlike banks,
  • An NBFC don’t have to maintain Reserve Ratios (CRR, SLR etc.)
  • An NBFC cannot indulge Primarily in Agricultural, Industrial Activity, Sale-Purchase, Construction of Immovable Property
  • Foreign Investment allowed up to 100%.

NBFC REGISTRATION

As per Section 45-IA of the RBI Act, 1934, :-

no company can commence or carry on business of a non-banking financial institution without obtaining a certificate of registration and without having a Net Owne Funds of Rs. 200 lakhs.

The requirement for registration as a NBFC are a company incorporate under Section 3 of the Companies Act, 1956  and having a minimum net owne funds of Rs.200 lakhs.

Net owne funds is the balance of “owne funds” minus the amount of investment in shares of subsidiaries, companies in the same group

and all other NBFCs, book value of debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group.

Owne funds is the aggregate of paid-up equity capital , preference shares which are compulsorily convertible into equity, free reserves , balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset,

excluding reserves created by revaluation of asset, after deducting therefrom accumulated balance of loss, deferred revenue expenditure and other intangible assets.

 

Application for becoming an NBFC has to be made from regional office of Reserve bank of India

Documents required:-

Documents required are listed in the link given below:-

NBFC-List-of-Documents

 Financial companies not regulated by RBI

The Reserve Bank of India regulates and supervises companies which are engaged in financial activities as their principal business.

A company which has financial assets  of more than 50% of its total assets and derives more than 50% of its gross income from such assets is termed as a NBFC and regulated by the Reserve Bank of India.

However, some financial businesses have specific regulators and are given exemption from Reserve Bank od India from its regulatory requirements.

For instance, Insurance Regulatory and Development Authority (IRDA) regulates insurance companies, Securities Exchange Board of India (SEBI) regulates Merchant Banking Companies, Venture Capital Companies, Stock Broking companies and Mutual funds, National Housing Bank (NHB) regulates housing finance companies, Department of Companies Affairs (DCA) regulates Nidhi companies and State Governments regulate Chit Fund Companies.

DeposiT taking in NBFCs

Deposits are amount collected in any manner, other than that collected by way of share capital, contribution of capital by the partners of a partnership firm, security deposit, earnest money deposit, advance consideration for purchase of goods, services or construction, loans taken from banks, financial institutions and money lenders and subscription to chit funds.

Mony collected in any manner other than these would be termed as deposits.

All NBFCs cannot accept public deposits.

Only  NBFCs that hold a deposit accepting Certificate of Registration can accept deposits.

Moreover, RBI has notified that only nationalized banks will accept deposits and hence will not authorize any NBFC start’s after 1997 to accept deposits.

Penalties for taking deposits without authorization

 

If any unincorporate entity (Proprietorship / Partnership) or an NBFC without authorization to take deposit is found accepting public deposits,

it is liable for criminal action. Also, if NBFCs associate themselves with proprietorship/partnership firms accepting deposits in contravention of RBI Act,

they are also liable to be prosecuted under criminal law or under the Protection of Interest of Depositors (in Financial Establishments) Act, if passed by the State Governments.

:-BY COMPANY VAKIL LEGAL INDIA BLOG

 

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Summary
Article Name
Non-banking financial company
Description
What is non banking financial company? What is the difference between bank and nbfc? Registration process of nbfc Penalty on nbfc if taking unauthorized deposits
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Publisher Name
COMPANY VAKIL LEGAL BLOG INDIA LTD

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