- 1 NBFC Regulation Requirements in India
- 2 Types of NBFCs
- 3 Registration Process under NBFC Regulation
- 4 Documents Required under NBFC Regulation
- 5 Returns Required to be Filed by NBFC-D
- 6 Returns for NBFC-ND Regulation
- 7 Post Incorporation Compliances under NBFC Regulation
- 8 NBFC Regulation for Public Deposits
- 9 Frequently Asked Questions
Our Reserve Bank of India has been entrusted with the responsibility of supervising and controlling the Non-Banking Financial companies. Such financial institution, also commonly known as the NBFC come under the purview of RBI Regulation.
NBFC is a company incorporated under the Companies Act, 1956 or 2013 that is involved in providing loans and advances, acquisition of stocks/shares/securities/bonds/debentures issued by the government or any local authority or any other market securities of a like nature, hire-purchase, leasing, insurance business, chit fund business, as its primary activity.
The principal business of the NBFCs is to raise capital funds from public depositors & investors and then lend to borrowers.
In India, NBFCs provide a variety of banking and non-banking services to people. They do not hold a banking license but NBFCs are an alternative to the banking and financial sector. They have to follow the provisions laid down under Chapter III B of the RBI Act 1934. The essential requirements to be met during NBFC registration are provided in Section 45-IA of the RBI Act 1934 regulation.
NBFC Regulation Requirements in India
NBFC can commence its business operations only after receiving a “Certificate of Registration” or CoR from the RBI, by following its regulation.
Basic requirements to be registered as an NBFC are:
- the business to be registered as a company under the Companies Act, and
- a minimum net owned fund of Rs. 2 Crore. The Net Owned Funds are to be calculated based on the last audited balance sheet of the company.
Post Registration Basic Requirements of NBFCs
- NBFCs can accept/renew public deposits for a minimum period of 12 months and a maximum period of 60 months.
- They cannot accept deposits repayable on demand without taking approval from the RBI.
- NBFCs cannot offer interest rates that are higher than the ceiling rate prescribed by RBI.
- Offering gifts/incentives or any other additional perks to the depositors is not allowed.
- A minimum investment-grade credit rating is necessary to be maintained.
- Repayment of deposits in NBFCs is not guaranteed by RBI.
Types of NBFCs
RBI has categorized NBFCs based on the activities which they perform and whether they accept deposit or not. RBI mentions below types of NBFC and has set regulation accordingly:
Based on Liabilities:
- Deposit Accepting NBFCs (NBFCs-D)
- Non-Deposit Taking NBFCs (NBFCs-ND)
- Systematically Important NBFCs-ND (NBFCs-ND-SI)
- Others NBFCs-ND
Based on Activities:
- Asset Finance Company (NBFC-AFC)
Its principal business is Asset Finance, the providing of finance whether by making loans or advances or otherwise for any activity other than its own and the acquisition of securities.
- Infrastructure Finance Company (NBFC-IFC)
IFC has to have a NOF of Rs. 300 Crore, Credit rating ‘A’ or equivalent, CRAR of 15% and 75% in infrastructure loans.
- Systemically Important Core Investment Company (SI-CIC-ND)
With assets of Rs. 100 crore or more and at least 90% of it deployed in the form of investment in shares or debt instruments or loans in group companies. Out of which, at least 60% should be invested in equity shares or those instruments which can be compulsorily converted into equity shares. These companies can accept public funds.
- Infrastructure Debt Fund (NBFC-IDF)
Can be set up either as a trust or as a company and are meant to infuse funds into the infrastructure sector.
If the IDF is set up as a trust, it would be a mutual fund (IDF-MF) regulated by SEBI.
When the IDF is set up as a company, it would be an NBFC-IDF, and be regulated by the RBI. It is a non-deposit taking NBFC with a minimum NOF of Rs. 300 crores. It would invest only in Public-Private Partnerships (PPP) and operations of infrastructure projects after their having completed at least 1-year of satisfactory commercial operation and become a party to a Tripartite Agreement.
- Micro Finance Institution (NBFC-MFI)
A non-deposit NBFC with 85% of assets in the form of microfinance. Microfinance should be in the form of loans given to those with an annual income of Rs. 1.25 lakh in rural areas and Rs. 2 lakh in urban areas. Loans should not exceed Rs. 1.25 lakh and its tenure should not be less than 24 months.
- Factors (NBFC-Factors)
This is separate from normal lending by a bank against the security of receivables. In this, there is an acquisition of receivables by way of assignment of such receivables or financing, either by way of loans or advances or by the creation of security interest over such receivables.
The company should have a minimum NOF of Rs. 5 Crore and its financial assets in the factoring business should constitute at least 75% of its total assets. And the income obtained from the factoring business should not be less than 75% of its gross income.
- Housing Finance Company
The principal business of such an NBFC is the financing of acquisition or construction of houses which includes the development of plots of lands for the construction of new houses.
- Equipment Leasing Company
Principal business being the leasing of equipment.
- Hire Purchase Finance Company
Company carrying on the activity of hire purchase transactions.
- Residuary Non-Banking Company
Its principal business activity is the acceptance of deposits, under any scheme or arrangement or in any other manner and not being an investment, asset financing, and loan company. These companies are required to maintain a minimum ratio of investments as per directions of RBI, in addition to liquid assets.
Registration Process under NBFC Regulation
- Acquire DSC and DIN for the Directors
- File an application for Name-approval
- An affidavit from Directors to meet RBI provisions
- Draft MOA & AOA
- Filing incorporation forms with necessary documents
- Obtain a Certificate of Registration from the RoC (Registrar of Companies)
- Deposit NOF in the company’s bank account
- Apply for registration
- Applicant has to file an online application with the RBI
- On successful submission, a CARN (reference number) will get generated to facilitate inquiry in the future.
- Now send the hard copies of all the submitted documents and the application to the regional office of RBI.
- The regional office shall check the accuracy of the documents.
- It will forward the application to the head office.
- The head office of RBI grants NBFC License only if the company is fulfilling the requirements u/s 45-IA.
- The company must commence its NBFC business within 6 months from the date of Certificate of Registration (CoR)
Documents Required under NBFC Regulation
For Registration as Type I – NBFC-D
Following Documents required to be submitted to RBI along with the prescribed application form for NBFC registration of Type I – Deposit Accepting – NBFC for obtaining certificate and Registration from RBI as NBFC:
- Certified copies of Certificate of Incorporation (COI) and, in case of public limited companies, Certificate of Commencement of Business.
- Certified copies of the summary of the main object clause in the MOA.
- A certified true copy of Board resolution declaring that:
- The company will not commence the NBFC activities before getting CoR from RBI.
- The company has not accepted public funds in the past, does not hold any public funds as on the date and will not accept the same in the future without the approval of RBI.
- Declaration that the company does not have any customer interface as on date and will not have any in the future either, without the approval of RBI.
- The Unincorporated Bodies (UIBs) in the group where the Director holds an interest has not accepted any public deposit in the past. Does not hold any public deposit as on the date and will not accept the same in the future.
- The company has formulated the “Fair Practices Code” as directed by the RBI Guidelines.
- Copy of Fixed Deposit receipt.
- Bankers certificate of no claim and indicating balances in support of the NOF.
- Audited financial statements along with Director’s & auditor’s report from the date of incorporation of the company, or for the last 3-years, whichever is less.
- Banker’s report about Applicant Company, its group, associate, holding company, subsidiary, related parties, Directors of the applicant company having a substantial interest in other companies. The Banker’s report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing entity. (Report from all the bankers of each of these organizations. The details of deposits and loan balances as on the date of application and the conduct of the account should be specified.
For Registration as Type II – NBFC-ND
In addition to the above listed documents, below are required to be enclosed with the prescribed application form for NBFC License as Type II – NBFC to RBI, as per Regulation:
- Copy of the certificate of educational and professional qualifications of all the Directors.
- Copy of experience certificate, if any, in the financial services industry of the Directors.
Documents for NBFC-MFI Registration
- Certified True Copy of the Board resolution declaring that:
- The company will become a member of all the Credit Information Companies. And, also, will become a member of at least one Self-regulatory organization.
- It will adhere to the regulations concerning the pricing of credit, Fair Practices in lending and non-coercive method of recovery as per RBI Guidelines.
- The company has fixed exposure limits, internally, to avoid concentration in a specific geographical location.
- The company is not licensed u/s 8 of the Companies Act, 2013, as a NIDHI company.
- Roadmap proposed for reaching 85% qualifying assets.
For NBFC-Factor Applicant
Additionally to the above documents:
- Board Resolution enclosing project plans on how the company will achieve financial assets in the factoring business constituting at least 50% of its total assets and its income obtained from factoring business will not be lower than 50% of its gross income.
- Accompanied by time frame.
For NBFC-IDF Registration:
- NOC (No Objection Certificate) from RBI issued to NBFC-IFC which is sponsoring the NBFC-IDF.
- Copy of Tripartite Agreement between the NBFC-IDF, concessionaire, and the Project Authority.
- Details of alteration in the management of the sponsor company during the last financial year to date, if any, and reasons thereof.
- Source of start-up funding for the company with documentary proof.
- The company would raise resources through the issue of either Rupee or Dollar denominated Bonds maturing in at least 5-years.
Returns Required to be Filed by NBFC-D
Below is the list of Returns required to be submitted by a Deposit Accepting NBFC, as per NBFC regulation:
- NBS-1: Quarterly returns on deposit in the first schedule.
- NBS-2: Quarterly returns on prudential norms.
- NBS-3: Quarterly returns on liquid assets.
- NBS-4: The annual returns of important parameters by a rejected company holding deposits from the public.
- NBS-6: Monthly returns on exposure to the capital market by deposit-accepting NBFC having total assets of Rs. 100 crore or more.
- ALM Returns: Half-yearly by NBFC holding public deposits over Rs. 20 Crore or asset size over Rs. 100 Crore.
- Audited Balance Sheet and Auditor’s Report.
- Branch Info Return.
Returns for NBFC-ND Regulation
Given below are the Returns required to be submitted by a Non-Deposit Accepting NBFC, under RBI regulation:
- NBS-7: Quarterly statement of capital funds, risk-weighted assets, risk assets ratio, etc.
- NBS-2: Monthly returns on important financial parameters of the company.
- ALM Returns: Monthly statement of short-term dynamic liquidity in format NBS-ALM-1. 6-monthly statement of structural liquidity in format NBS-ALM-2. And another 6-monthly statement of interest rate sensitivity in format NBS-ALM-3.
- Branch info return: Quarterly return on important financial parameters of ND-NBFCs with assets over Rs. 50 crores, but less than Rs. 100 crores. Basic information like name of the company, address, NOF, profit/loss in the last 3-years.
Annual Compliances for NBFC-ND as per Regulation
|Unaudited Returns filed in March/NBS7||On or before 30th June|
|Audited Returns/NBS7||Once completed|
|Statutory Auditor’s Declaration on Income & Assets||On or before 30th June|
|Information about FDI/Foreign Funds, if any||On or before 30th June|
|Board Resolution of Non-acceptance of Public Deposit||Before the new Financial year has started|
|Audited Annual Balance Sheet and P&L Account||One month from the date of sign-off|
|Declaration of Auditors to Act as Auditors of the Company||Annual basis|
Monthly Compliances for NBFC-ND in RBI Regulation
|Monthly Returns||By 7th of every month|
Periodical Returns for NBFC-ND in Regulation
|Appointment of Director (Annexure-III)||Within 30 days of appointment|
|Resignation of Director||Within 30 days of resignation|
Compliances Required by NSE for NBFC-ND
|Listing Agreement of Issued Series||Within 30 days of issuance|
|Publishing of Unaudited Half-yearly Result in two newspapers||Within 30 days from the end of Half-year|
|Half-yearly Audited Result with NSE via mail||Within 30 days from the end of Half-year|
|Quarterly result (Balance Sheet and P&L) via mail||Within 90 days from the end of Quarter|
|Umbrella Information Memorandum/Shelf Offer Document + below letters:|
1. Letter from CRISIL for filing UIM.
|At the end of the Financial Year|
Post Incorporation Compliances under NBFC Regulation
- Registration to become a member of all CICs
- Registration under CERSAI or Central Registry of Securitisation Asset Reconstruction and Security Interest
- FIU-IND Registration
- Central KYC Registration
- Adoption of Fair Practice Code
- Submission of Financial Information to Information Utilities
- Adoption of Anti Money Laundering Policy & IT Policy
- Filing of timely return with RBI
- Convene Statutory Meetings
- Maintenance of Accounts
- Income Tax Return Filing
- GST Return Filing
- MCA Compliances
NBFC Regulation for Public Deposits
All NBFCs are not allowed to accept public deposits. Only those that have a specific authorisation from RBI and have an investment grade rating are allowed to accept/hold public deposits. Up to a maximum of 1.5 times of its NOF. The NBFC regulation in detail are:
- An NBFC can offer a maximum of 12.5% rate of interest to its customers. This interest can be paid or compounded at a frequency of at least a month.
- NBFCs can renew/accept public deposits for a minimum period of 12 months and the maximum period of 60 months.
- They cannot accept deposits repayable on demand.
- Deposits are not insured.
- Repayment of Deposits is not guaranteed by RBI.
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Frequently Asked Questions
Q. What is NBFC?
NBFC is a company registered under the Companies Act 1956 or 2013. NBFC is a company with its primary business of receiving deposits. It raises funds from the public (Directly or indirectly) and lends them to the small enterprises. NBFCs provide credit facilities and are preferred more than banks. They are not allowed to run their business without getting a license from RBI.
NBFCs are an important source of financing for the Indian small scale industries.
Q. What is the process of NBFC registration?
- The applicant company is required to apply for online for NBFC registration to the RBI. On successful submission of the application form and relevant documents, a CARN number is generated. This number is to be used for reference during all future conversations and enquiries.
- After that, the company is to submit the hard copies of the online application, and the supporting documents uploaded, to the nearest regional office of the RBI.
- After verifying the documents, the regional office forwards the application to the head office of the RBI. There, a more thorough examination is conducted.
- If all legal conditions are being met, the company will be registered as an NBFC. And the NBFC license will be issued.
Q. What documents are required for NBFC registration?
The documents to be attached with the application form for NBFC registration are:
- Company’s Incorporation Certificate
- Company’s Bank Account with a minimum paid-up equity share capital of Rs. 2 crore
- MoA & AoA
- Address proof of the company
- Duly filled up and signed Annexure I, II, and III
- Details about the Directors
- Documents of administration and management of the company
- Audited financial accounts for last 3-years
- Board resolution approving the company’s registration as an NBFC
- A brief overview of the company’s works and activities in the past 3 years
- Income tax, PAN, etc.
- Any other relevant documents.
Q. Does RBI regulate all financial institutions?
No, RBI does not regulate all financial institutions. Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Insurance companies, Nidhi Companies, and Chit Fund Companies are NBFCs but they are exempt from registration u/s 45-IA of the RBI Act, 1934.
Q. What if the financial institution does not get registration with RBI?
If a financial institution, whose principal business is lending, investment or accepting deposits, that should get NBFC registration with RBI, but it does not have such a license. RBI can penalize or fine it. The company and its members can even be sued in a court of law. Members of the public are encouraged to report such businesses to the nearest Regional Office of RBI. And use suitable action for violation of the provisions of the RBI Act, 1934.
Q. What powers does RBI have on NBFCs?
RBI is the registration and regulatory authority for NBFCs. It lays down policy, monitors, governs, issues directions, inspects, and exercises surveillance over NBFCs in India. It can penalize NBFCs for breaching the rules of the RBI Act or the provisions issued under it. The penalty can also result in the suspension of the CoR (Certificate of Registration) issued, or ban them from accepting deposits and their assets can be disengaged or a winding-up appeal can be filed.