An Overview of NBFC Registration

NBFC stands for Non-Banking Finance Company, is a vital part of the Indian financial system and these companies have multiplied in huge numbers and serving the public at large to support the financial inclusion program with affordable credit at home. NBFCs are primarily engaged in providing loans and advances, acquiring shares and stocks and other investible securities. RBI grants License to the NBFCs to carry out the business of providing various kinds of loans such as Personal Loans, Asset Financing, SME Lending, Gold Loans, Loans against Property, Loans against Shares, Short term Personal Loans, etc.

In India, NBFCs are regulated by the RBI within the framework of the Chapter IIIB of the RBI Act, 1934 and any rules made thereunder or any directions issued under it under the RBI Act. In India, Non-Banking Financial Company is considered a rapidly growing business vertical and there are a lot of banks; however, some areas are still untouched and no banking facilities are available there; this consequently has resulted in the boosted demand for getting loans from NBFCs and ultimately more number of NBFC Registration. In the last few years, the NBFC Registration has taken a boom and played an essential role in the growth of the financial sector.

NBFCs have managed to attract a stake in the market in banking-related services. Non-Banking Financial Services are involved in the business similar to a bank but do not cover everything that a bank is indulged into. NBFCs can raise funds from the public directly or indirectly and can freely lend them to ultimate spenders.

Role and Functions of an NBFC

The role and functions of an NBFC in India can be summarised as follows:

1. To develop sectors like Infrastructure, Education and MSMEs;
   
2. To assist in wealth creation;
   
3. To generate substantial employment;
   
4. To provide financial assistance to the economically weaker section of the society;
   
5. Faster processing loan;
   
6. Digital platform to offer loans using advanced technology;
   
7. To assist in the economic development of the country;
   
8. To contribute to the state exchequer;
   
9. To provide specialised credit;
   
10. To help in the growth of the financial market.
    

What are the Focus areas of NBFC? 

NBFCs have grown rapidly as indicated by their asset growth pattern over the years:

• Customised Loan Products: 
• Flexible rate of interest: 
• Quick Disbursal of Funds:
• Minimal documentation requirement:
• Serving the underserved section:
• Efficient Recovery Mechanism:

Principal Business of an NBFC in India

The principal businesses of an NBFC in India are as follows:

• Secured Loan (LAP);
• Gold Loan;
• Unsecured Personal and Business Loan;
• Marketplace Lending (Digital Lending );
• Investment in Shares or Mutual Funds or Debentures;
• NBFC must maintain 50% of its assets as Financial Assets and 50% of its income must be generated from Financial Activity.

In India, an NBFC does not include the entities with the principle business as follows:

• Agriculture Activity;
• Industrial Activity;
• Purchase and Sale of any goods;
• Purchase/ Sale/ Construction of an Immovable Property.

Different Types of NBFCs in India

Basically, NBFCs are categorised into two different parts and you can check the same below:

On the Basis of Liabilities:

1. All NBFCs-ND whose asset size is Rs. 500 crores and more as per the last audited balance sheet is deemed as Systemically Important NBFC (NBFC-ND-SI);
2. The asset size of the group companies to be clubbed;
3. NBFC-ND-SI has to follow the policies suggested by the Reserve Bank of India mandatorily & exempt from Credit Concentration Norms;
4. NBFC-ND- Non-Systemically Important is exempt from observing Prudential Norms, 2015 (except Annual Certificate).
   

On the Basis of Activities:

1. NBFC- Investment and Credit Company (ICC): ICC is one common License for all types of financing business in India. Earlier, there were three different licenses, namely Loan Company, Asset Finance Company and Investment Company. Now, after the merger into one single License defined as ICC (Investment & Credit Company), it allows the license holder to engage in various kinds of wholesale, retail loans and Investment business. The ETA for the NBFC ICC License is estimated to be 120 days.
2. NBFC-Microfinance Companies (MFIs): The NBFC-MFIs disburse loans to the households whose annual income in rural areas does not exceed ₹ 1,00,000 or urban and semi-urban household income does not exceed ₹ 1,60,000. In simple terms, it is formed to provide credit to economically disadvantaged groups.
3. NBFC-Factors: It is concerned with the acquisition of receivables of an assignor/extending loans against the security of the receivables at a discount.
4. NBFC-Peer to Peer Lending (P2P): P2P lending intermediaries provide an online platform consisting of highly secured credit and risk assessment fintech-driven platforms that runs an automatic risk assessment checks of the applicant and determines credit risk of the borrowers and Artificial intelligence-based Platforms, Automatically publish the loan requirement along with the borrowers profile and risk rating on the platform. With the peer-to-peer lending marketplace, borrowers can take loans from individuals who are willing to lend their money for an agreed interest rate to the borrower. For a P2P Lending License, it may take approximate 180 working days for the in-Principal Approval from RBI. And after In-Principal Approval, the Applicant will require to undergo the Mandatory CISA Audit.
5. NBFC-Account Aggregators: This is the newest category of NBFC. NBFC Account Aggregators (AA) enable sharing of data across multiple financial sector organisations and act as "consent brokers", i.e., the intermediate data transfer among the financial organisations with the consent of the user. The activities of Account Aggregators involve the accumulation of financial data that involves gathering information on a single platform from varied accounts such as bank accounts, investment accounts, business accounts, consumer accounts and other related financial accounts. The Net-Owned Fund requirement for NBFC-AA is also INR 2 crores.
6. Infrastructure Finance Company (IFC): This type of NBFC deploys at least 75 per cent of its total assets in infrastructure loans.
7. NBFC-Systemically Important Core Investment Company (CIC-ND-SI):  It’s mainly involved in investment in equity shares, preference shares, debt or loans of group companies.
8. NBFC-NOFHC (Non-Operative Financial Holding Company): Facilitation of promoter groups or promoters in establishing new banks.
9. MGC (Mortgage Guarantee Company): Undertaking of mortgage guarantee business.
10. NBFC-IDF (Infrastructure Debt Fund): The activities of this NBFC are mainly concerned with the facilitation of the flow of long-term debt into infrastructure projects.
    

Advantages of NBFC Registration in India

In India, the advantages of an NBFC Registration are:

Pre-Requisites for NBFC Registration

The Pre-Requisites for NBFC registration are as follows:

Documents Required for NBFC Registration

The following documents are required for NBFC Registration as follows:

1. Certified or original copy MOA (Memorandum of Association), AOA (Articles of Association), COI (Certificate of Incorporation);
2. Net worth certificate of Shareholders, Directors, and Company;
3. Business profile of Directors and Shareholders;
4. Income Tax Returns;
5. Educational qualification certificates of the proposed directors;
6. KYC details such as PAN of the company, GST Number, address proof of the company;
7. Highest experience certificate;
8. Bank account details of the company;
9. Format of Board Resolution regarding NBFC Registration;
10. IT Policy;
11. Loan and Business Structure;
12. Credit report of directors and shareholders;
13. Last 3 years of the audited balance sheet;
14. Related party disclosures;
15. Detailed action plan for next 5 years, including Risk Assessment Policy & Fair Practice Code;
16. Report of Banker confirming no lien on fixed deposit.

Procedure for NBFC Registration

The steps involved in the process of NBFC Registration are as follows:

1. In the first step, the applicant needs to incorporate a company in accordance with the provisions of the Companies Act 2013;
   
2. The applicant should ensure that the minimum NOF of the company is maintained as per the type of NBFC;
   
3. Then you need to fill out the application form at the official website of the RBI;
   
4. Submit all the vital documents required for NBFC Registration along with the application;
   
5. When the application is submitted along with the documents, CARN Number will be generated, which will aid you in tracking the application status;
   
6. Then the applicant needs to dispatch the application form to the regional office of the RBI;
   
7. If your application fulfils the minimum requirements prescribed by the regulatory authority, the Registration will be granted.
   

Revised Categorisation of NBFCs 2021

According to the revised framework, the Reserve Bank of India has notified 4 scale-based layers to regulate NBFCs, namely, the Base layer, upper layer, middle layer, and top layer. Below is the table that categories NBFCs into different layers:

Revised Regulatory Framework for NBFCs – 2021

On October 22, 2021, the RBI introduced a scale-based revised regulatory framework for NBFCs with a view to having a tight oversight of the sector. According to this revised framework, there will be more categorised of NBFCs as per their activity with strict rules.

The key highlights of the revised regulatory framework for NBFCs: