NBFC Definition

As per the Companies Act 2013, a Non-Banking Financial Company or NBFC is a type of company engaged in the business of receiving Loans and Credit Facilities, Acquisition of Bonds, Stocks or Shares, Hire-Purchase, Leasing, Insurance, Assets Financing, Currency Exchange, Peer to Peer Lending, Hedge Funds, Chit Business, etc. NBFC Registration is done under the Companies Act. And they are further regulated by the provisions in Section 45-IA of the RBI Act 1934.

NBFCs are those companies that are in the business of:

  • Loans and Advances,
  • Investments in Stock/Equity/Shares/Bonds/Debentures and other Govt. securities,
  • Hire-Purchase,
  • Chit Fund,
  • Lease,
  • Insurance Business.

But companies engaged in the below activities cannot become NBFCs:

  • Agricultural,
  • Industrial,
  • Purchase or Sale of any goods and services (excluding securities), and
  • Sale, Purchase, or Construction of immovable property.

Types of NBFCs

Basically, NBFCs can be classified broadly under either of these 2 categories:

A) On the basis of their liabilities:

  1. Deposit Accepting NBFCs
  2. Non-Deposit Accepting NBFC

Non-Deposit taking NBFCs can further be categorized by their size into

  1. Systemically Important (NBFC-NDSI), and
  2. Non-Deposit holding companies and NBFC-ND) and

B) By the kind of activity they conduct:

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

1. Asset Finance Company (AFC): A company which is a financial institution (FI) that has its principal business of financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earthmoving, and material handling equipment, moving on own power and general-purpose industrial machines. The principal business is defined as an aggregate of financing real/physical assets supporting economic activity and income arising from them must not be less than 60% of its total assets and total income respectively.

2. Investment Company (IC): IC is a financial institution carrying on as its principal business the acquisition of securities,

3. Loan Company (LC): A FI carrying on as its principal business the providing of finance whether by making loans or advances or otherwise, for any activity other than its own but does not include an Asset Finance Company.

4. Infrastructure Finance Company (IFC): IFC is an NBFC that: a) deploys at least 75% of its total assets in infrastructure loans, b) has at least Rs. 300 crores as Net Owned Funds, c) has a minimum credit rating of “A” or similar, and d) a CRAR (Capital to Risk-weighted Assets Ratio) of 15%.

5. Systemically Important Core Investment Company (CIC-ND-SI): This is an NBFC carrying on the business of acquisition of shares and securities.

6. Infrastructure Debt Fund (IDF): IDF-NBFC is a company registered as an NBFC facilitating the flow of long term debt into infrastructure projects. It raises resources by issuing Rupee or Dollar denominated bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF.

7. Micro Finance Institution (NBFC-MFI): MFI is a non-deposit taking NBFC with at least 85% of its assets like qualifying assets which satisfy the following criteria:

  • loan disbursed by an NBFC-MFI to a borrower in a rural household annual income not more than Rs. 1,00,000 or urban and semi-urban household income not more than Rs. 1,60,000,
  • the loan amount is not over Rs. 50,000 in the first cycle and Rs. 1,00,000 in subsequent cycles,
  • the total indebtedness of the borrower is not more than Rs. 1,00,000,
  • the duration of the loan not to be less than 24 months for loan amount above Rs. 15,000 with prepayment without penalty,
  • loan to be extended without any security,
  • the aggregate amount of loans, given for income generation, is not less than 50% of the total loans given by the MFIs,
  • the loan is repayable on weekly, fortnightly, or monthly installments as chosen by the borrower.

8. Factors (NBFC-Factors): NBFC-Factor is a Non-Deposit Accepting NBFC having the principal business of factoring. The financial assets in the factoring business should be at least 50% of its total assets and its income derived from factoring business should not be less than 50% of its gross income.

9. Mortgage Guarantee Companies (MGC)MGCs are those FIs for which not less than 90% of the business turnover is mortgage guarantee business or not less than 90% of the gross income is from mortgage guarantee business and the net owned fund is Rs. 100 crore.

10. Non-Operative Financial Holding Company (NBFC-NOFHC): These are FIs through which promoter/promoter groups will be permitted to set up a new bank. It’s a wholly-owned NOFHC that will hold the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.

NBFCs not to be registered under RBI

The following NBFCs are not required to obtain any registration with the Reserve Bank of India:

  1. CIC– (assets are less than Rs. 100 crore or public funds not taken),
  2. Companies which are engaged in the business of stock-broking,
  3. Merchant Banking Companies,
  4. Housing Finance Companies,
  5. Companies having the principal business of Venture Capital,
  6. Nidhi Companies,
  7. Insurance companies registered under IRDA,
  8. Chit Fund Companies registered with Chit Fund Act, 1982.

Process of Incorporating an NBFC

The procedure to obtain an NBFC License is:

  1. The business should first be registered under the Companies Act 2013 or 1956.
  2. Its minimum net owned funds should be Rs. 2 Crore.
  3. At least 1/3rd Directors must have experience in the finance sector. And at least one of them should be working as a full-time Director.
  4. The company should have clean CIBIL records.
  5. After satisfying all the above conditions, an online application form is to be filed on the website of RBI. And supporting documents to be uploaded along with it.
  6. Successful submission generates a CARN (Company Application Reference Number).
  7. Hard copies of the application and the uploaded documents are to be sent to the regional branch of the RBI, where that business is located.
  8. First, the regional office, then the central office of the RBI will scrutinize the application. If found complying with the requisite provisions, the NBFC License & Certificate of Registration (CoR) will be issued to the Company.

Documents Required

Below are the documents required to get your NBFC registration:

  • Certificate of Company incorporation
  • MoA and the AoA
  • Documents describing the location of the company
  • Documents related to the administration, management of the company
  • Detailed information about Directors or Partners of the Company
  • Accounts of the company well-audited for last three consecutive years
  • Board Resolution in favor of NBFC formation
  • Bank Account with a minimum paid-up equity share capital of INR-2 Crore
  • Income tax PAN, etc.
  • Latest KYC
  • Net worth certificate
  • Clean banker report
  • Education proof
  • Other relevant documents on request

RBI Guidelines for NBFCs

The Company on getting its CoR has to adhere to the following guidelines:

  1. They cannot receive deposits that are payable on demand.
  2. The deposits should be for a minimum time of 12 months and a maximum period of 60 months.
  3. The interest on loans and advances cannot be more than the ceiling prescribed by the RBI.
  4. The repayment of any deposits made in the company is not guaranteed by the RBI.
  5. All the information about the company as well as any change in the composition of the Company has to be furnished to the RBI.
  6. The deposits taken by the Public are unsecured.
  7. The company has to submit its audited balance sheet every year, in compliance with the Companies Act.
  8. A statutory return on the deposits taken by the company has to be furnished annually, in Form NBS.
  9. A quarterly return on the liquid assets of the company has to be filed.
  10. A minimum level of 15% of the Public Deposit has to be maintained by the Company in Liquid Assets.
  11. A declaration from the auditors is required, stating that the company is in a position to repay all the deposits or money taken from the Public.
  12. A half-yearly ALM (Asset Liability Management) return has to be given by those companies that have Public Deposits of Rs. 20 Crore and above or have assets worth Rs. 100 Crore and above.
  13. The credit rating has to be taken twice a year and submitted to the RBI.

Looking to start an NBFC? Let our experts guide you through hassle-free NBFC Registration. The well-experienced professionals in our team will help you through the process of getting approval for change in management, compliances with various laws. Also, NBFC for sale is listed on this portal, if you wish to save time and buy NBFC. You can seek our assistance for restructuring, change in object or name, assets valuation.

For more information about the vast range of services that we provide, please visit our website at NBFC License India.

You can also call us on +91 8750008585.

Also Go Through:

What are NBFC Companies, Principal Business, Financial Assets, etc.

NBFC Regulation: A Complete Guide For You

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?

  1. The applicant company is required to apply 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 inquiries.
  2. 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.
    1. After verifying the documents, the regional office forwards the application to the head office of the RBI. There, a more thorough examination is conducted.
  3. 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:

    1. Company’s Incorporation Certificate
    2. Company’s Bank Account with a minimum paid-up equity share capital of Rs. 2 crore
    3. MoA & AoA
    4. Address proof of the company
    5. Duly filled up and signed Annexure I, II, and III
    6. Details about the Directors
    7. Documents of administration and management of the company
    8. Audited financial accounts for the last 3-years
    9. Board resolution approving the company’s registration as an NBFC
    10. A brief overview of the company’s works and activities in the past 3 years
    11. Income tax, PAN, etc.
    12. Any other relevant documents.

Q. Does RBI regulates 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.