HOW TO GET NBFC LICENSE IN INDIA

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature, 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.

HOW ARE BANKS AND NBFCs DIFFERENT FROM EACH OTHER?

NBFCs lend and make investments which make their activities similar to that of banks, but there are a few differences which sets apart NBFCs from Banks, those differences are as follows:

NBFC cannot accept demand deposit
NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself
Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs
NBFCs are not required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), etc
NBFCs cannot primarily indulge in industrial activity, sale-purchase, agriculture and construction of immovable property

DOCUMENTS REQUIRED FOR NBFC REGISTRATION

Certified copies of Certificate of incorporation and Certificate of Commencement of Business in case of public limited companies
Certified copies of extract of only the main object clause of Memorandum of Association (MOA) relating to the financial business
Board Resolution stating that:

The company is not carrying any Non-Banking Financial Company activity and will not carry on or commence the same before getting registration from RBI
The UIBs (Unincorporated Companies) in the group where director holds substantial interest or otherwise has not accepted any public deposit in the past or does not hold any public deposit as on the date and will not accept the same in future
The company has formulated “Fair Practices Code” as per RBI Guidelines
The company has not accepted public funds in the past or does not hold any public fund as on the date and will not accept the same in the future without the approval of RBI
The company does not have any customer interface as on date and will not have any public interface in the future without the approval of RBI

Copy of Fixed Deposit receipt and bankers certificate of no lien indicating balances in support of NOF (Net Owned Funds)
Banker’s report in respect of applicant company, its group, subsidiary, associate, holding company, related parties, directors of the applicant company having substantial interest in other companies. The report should be about dealings of these entities with these bakers as a depositing entity or a borrowing entity

(Banker’s report from all the bankers of each of these entities should be provided along with the reports of all the entities. The details of deposits and loan balances as on the date of application and the conduct of the account should be specified).

REQUIREMENTS FOR GETTING NBFC LICENSE

A company incorporated under the Companies Act and desirous of commencing business of non-banking financial institution as defined under Section 45-IA of the RBI Act, 1934 should comply with the following:

It should be a company registered under Section 3 of the Companies Act, 2013
It should have a minimum net owned fund of Indian Rupees two crore (INR 2, 00, 00, 00)

The applicant company is required to apply online and submit a physical copy of the application with the necessary documents to the Regional Office of RBI
The application can be submitted online by accessing RBI’s secured website http://cosmos.rbi.org.in
The applicant can tap on the “Click for Company Registration” on the login page of the COSMOS Application
A window showing Excel application form available for download would be displayed
The applicant company can then download suitable application form, fill in the data and then upload the form
The company then gets a Company Application Reference Number for the application filed online
After this, the company has to submit hard copy of the application form, indicating the online Company Application Reference Number, along with the supporting documents, to the concerned Regional Office
The company can check the status of the application from the abovementioned secure address, by entering the acknowledgement number

The application form and an indicative checklist of the documents required to be submitted along with the application is available at www.rbi.org.in > Site Map > NBFC List > Forms/ Returns.

NBFCs REGULATIONS

RBI has issued detailed directions on prudential norms. Applicable regulations vary based on the deposit acceptance or systemic importance of the NBFC.

The directions inter alia, prescribe guidelines on income recognition, asset classification and provisioning requirements applicable to NBFCs. Exposure norms, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land and building and unquoted shares, loan to value (LTV) ratio for NBFCs predominantly engaged in business of lending against gold jewellery, are some of the norms besides others. Deposit accepting NBFCs have to comply with the statutory liquidity requirements. Details of the prudential regulations applicable to NBFCs holding deposits and those not holding deposits is available in the section ‘Regulation > Non-Banking > Notifications > Master Circulars in the RBI website.

CATEGORIES AND TYPES OF NBFCs

NBFCs are categorized:

a) In terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs

b) Non-deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and

c) By the kind of activity they conduct.

Within this broad categorization the different types of NBFCs are as follows:

Asset Finance Company (AFC)
Investment Company (IC)
Loan Company (LC)
Infrastructure Finance Company (IFC)
Systemically Important Core Investment Company (CIC-ND-SI)
Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)

COMPANIES EXEMPTED FROM GETTING REGISTERED WITH RBI

There are certain categories of NBFCs which are regulated by other regulators and are thus exempted from the requirement of registration with RBI, following are such companies: