NBFC Registration Process: Step by Step Procedure

NBFC Registration Process: Step by Step Procedure

Nowadays, RBI is making its rules more stringent when compared to earlier, and the NBFC Registration Process is no exception. Whether it’s the complicated documentation process or it’s about fulfilling the minimum requirements, everything has changed.

There have been several amendments to the NBFC registration process in the past few months. Therefore, in this blog, we will make you aware of the new NBFC registration requirements and process so that you don't feel any difficulty in getting the license.

However, before we move to the registration process, it’s pretty crucial to understand the exact concept of the NBFCs. Hence, let’s begin with what NBFC exactly means.

What is NBFC?

NBFC, generally known as the Non-Banking Financial Company, is a company registered under the Companies Act, 2013.

Typically, an NBFC is an organization that offers similar services as that of the traditional banks. However, they can’t accept demand drafts and issue cheques as banks do.

Generally, a Non-Banking Financial Company is engaged in the business of loans and advances, acquisition of stocks/shares/debentures/bonds/security issued by the local authority or government.

Furthermore, such companies are also involved in the business of marketable securities of a like nature, chit business, hire-purchase, leasing, etc.

However, they don’t include any financial institution, whose prime function consists of the purchase or sale of any goods (other than securities), industrial activity, agricultural activity, etc.

How NBFCs differ from Banks?

Just like Banks, NBFCs too can lend and invest. Moreover, most of their activities are quite similar to those of the banks. However, there still exists some dissimilarity between both. They are the following:

  • Unlike banks, NBFCs can’t accept Demand Deposits;
  • Non-Banking Financial Companies can’t issue cheques drawn on itself; furthermore, they don’t form part of the payment;
  • Unlike in the case of banks, the depositors of NBFC cannot avail the facility of Deposit Insurance and Credit Guarantee Corporation.

Is it necessary for every Non-Banking Financial Company to be registered with RBI?

As per Section 45-IA of the RBI Act, 1934, no NBFCs can commence or engage in the business of non-banking financial institution without acquiring a COR (Certificate of Registration) form the RBI.

Furthermore, no NBFCs can carry on the financial activities until it has the net-owned fund (NOF) of Rs. 2 crores.

What are the criteria for obtaining an NBFC license in India?

As defined under Section 45-I (a) of the RBI Act, 1934, a company registered under the Companies Act, 2013 and desirous of opening the business of non-banking financial institution must meet the following requirements:

  • The company should be mandatorily registered under Section 3 of the Companies Act, 2013;
  • The applicant company must have the minimum net owned fund of Rs. 200 lakhs or 2 crores.

Checklists for NBFC Registration in India

As per the RBI Act, any company that wishes to register as an NBFC needs to satisfy the following condition:

  • At least one-third of the company’s director must have well experience in Finance Activities;
  • The shareholders and directors of the company must not have wilfully defaulted the repayment of loans to banks or NBFCs;
  • The company must contain a detailed business plan for the next five years;
  • In total, it is mandatory for shareholders to have a net owned fund of Rs. 2 crores;
  • The applicant must hire one experienced consultant who can take care of NBFC registration and its compliance after CoR.

Mandatory documents required for the NBFC Registration Process

For the NBFC registration process in India, the applicant must keep the following documents ready:

  • Copy of the Company’s Certificate of Incorporation;
  • Copy of CIN/PAN allotted to the company;
  • KYC of every director and shareholder of the proposed company;
  • A certified copy of the MOA (Memorandum of Association) of the company;
  • CIBIL data related to the Directors of the company;
  • Copy of AOA (Articles of Association) of the company;
  • Credit report of every shareholder and director;
  • Bankers’ report associated with no lien remark on a fixed report of Rs. 2 crores;
  • An exhaustive action plan of the proposed NBFC along with the organization's structure;
  • A NOF certificate from every shareholder and director of the company;
  • The highest qualification certificate of all the directors of the proposed Non-Banking Financial Company;
  • The company's financial statements which intend to incorporate as an NBFC;
  • The Auditor’s report;
  • Directors’ report;
  • Statutory Auditors Certificate which certifies the NOF as on the date of application;
  • Statutory Auditors Certificate which certifies that the company doesn’t hold or accept/is holding/accepting any public deposit;
  • Self-attested bank statement or Income Tax Returns, etc.
  • Other documents, if required.

Apart from the above-described documents, RBI may require some documents if they aren’t satisfied with the same.

What is the NBFC Registration Process in India?

Anybody who is willing to start an NBFC in India can apply for the NBFC license online. However, later on, the applicant needs to submit the physical copy of the application and documents to the Regional Office of the Reserve Bank of India.

Rest, you need to follow the steps as described below:

Step 1: Apply for Company Incorporation

First of all, the applicant needs to register itself either as a Private Limited Company or a Public Limited Company. The company must be registered with the MCA (Ministry of Corporate Affairs) under the Companies Act, 2013.

Step 2: Submit the application on COSMOS

Secondly, the applicant has to submit the application online on the RBI’s secured website known as COSMOS. Along with, the entity is required to submit the physical copy of the application and the required documents to the Regional Office of the RBI.

Step 3: Opt for Company Registration

Once the applicant company has accessed the RBI’s website, it is supposed to click on 'CLICK' for company registration on the login page of the COSMOS Application. 

Step 4: Download the excel form

In the next step, a new window will appear which will display the Excel Application form available for download. From there, the applicant needs to download the appropriate application form, which is SC/RC or NBFC from the website of COSMOS.

Step 5: Fill the particulars correctly

The company must fill the exact name of the Regional Office in the filed 'C-8' of the 'Annex-I Identification Particulars' in the Excel Application Form.

Step 6: The Company will receive a CARN number

Once the applicant has submitted the form, he will be allocated a Company Application Reference Number (CARN) for the CoR (Certificate of Registration) filed online.

Step 7: RBI will scrutinize the application

Once you have submitted the application, the RBI will examine it and then send it to the head office.

Step 8: Grant of NBFC License

If your application is correct, documents are complete, and records are clean, then the Head Office of RBI will issue the NBFC license within ninety days. The applicant can track the status of the NBFC application by entering the acknowledgment number.

Concluding Thoughts

An NBFC is a company that matches with traditional banks up to some extent. However, due to some dissimilarities and restrictions, NBFCs can’t carry on all the works as banks, and that’s what sets them apart.

Besides, the NBFC registration process in itself is a daunting task as it requires approval from the Reserve Bank of India. The reasons why it is so are many. One of them is the capital requirement, which is a minimum of Rs. 2 crores. Other reasons include the qualification of directors.

Apart from these, there are several compliances that an NBFC company must follow to operate successfully in the future and without any restriction from the RBI.

Therefore, if you are willing to incorporate your own NBFC, then you must hire a consultant who has an understanding of the same and deals with the RBI. If your documents are complete and records are clean, you may get the license within ninety days.

About Akash Kumar

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The author is Akash Kumar, working as Legal Associate with Enterslice Ites Private Limited, a Chartered Accountancy firm helping Startup & companies in setting up the business and complying with various tax laws applicable to Indian & foreign companies while establishing their business.

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