The Reserve Bank of India defines NBFCs as “companies registered under the Companies Act 1956, or later Act of 2013, engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, and chit business. It does not include any institution whose principal business activity is that of agriculture, industrial, and sale/purchase/construction of immovable property.”

But below activities are not considered of having financial nature:

  • agricultural activity,
  • industrial activity,
  • purchase/sale of any goods and services (except securities), and
  • Sale/purchase/construction of an immovable property.

They are the financial institutions that are not entitled to accept deposits like banks, unless authorized from RBI to do so. Though they may raise money through deposits under some scheme or arrangement, whether in a lump sum or installments, by way of contributions or in any other. Their working and functions are regulated within the framework of the RBI Act, 1934.

RBI also defines a special type of NBFC— a residuary non-banking company (RNBC). It is also a non-banking institution and a company. Its principal business is receiving deposits under any scheme or arrangement, whether in one lump sum or instalments, by way of contributions or in any other manner.

Features of NBFCs

  • The interest rate that NBFC Companies can provide loans has the highest cap set by RBI. They cannot offer loans at rates higher than 12% (current ceiling) per annum.
  • NBFCs are allowed to accept deposits from 12-months to a maximum of 60-months,
  • They cannot accept deposits that are repayable on demand.
  • The deposits with NBFCs are not insured.
  • Any repayment of deposits with NBFCs is not guaranteed by RBI.
  • They are not allowed to offer any gift/incentive to its customers.
  • An NBFC is not required to maintain Reserve Ratios, such as CRR (Cash Reserve Ratio), SLR (Statutory Liquidity Ratio), etc.

Pre-Requisites to Become an NBFC

To be able to get an NBFC License from RBI, your business must be:

  1. A company registered with the requirements of the Companies Act, 1956 or 2013.
  2. Should have a Net Owned Fund of Rs. 2 crore, minimum.

Then, the company is required to submit an application for the registration in the prescribed format including documents for RBI’s consideration.

Once RBI is satisfied that conditions as stated in Section 45 I (a) of the RBI Act are fulfilled, it will issue a certificate of registration (CoR).

Registration Process of NBFCs

After the company has been established and the NOF deposited in a bank, you need to follow the below process to get the NBFC License:

  1. Submit the application, in the prescribed format, online along with the required documents. A Company Application Reference Number (CARN) is generated after submission. This number is to be used for all future inquiries and communications.
  2. The physical copies of the certificates and the application form as uploaded online above, are to be sent to the Regional Office of RBI.
  3. Once the submitted application is found to be ok, the Regional office shall forward the application to the central office of the RBI. There a thorough background check is conducted.
  4. If the company is adhering to all the terms and conditions stipulated in Section 45-I A of the RBI Act, the NBFC License is granted to the applicant.

Generally, the required minimum capital is kept in a fixed deposit account, free from all liens. RBI will verify this amount, before granting the CoR, as the deposit of the company with the concerned bankers.

Documents Required

  1. Incorporation Certificate of the Company
  2. Documents related to the Management and administration of the Company.
  3. The documents stating the Article of Association and Memorandum of Association of the Company.
  4. Documents verifying the location of the Company.
  5. Company Account which has been well audited since the beginning or at least last 3-years.
  6. Elaborate information of the Director and the members of the Company. Their KYC, income proof, credit reports, and net-worth certificates. Along with their education and qualification proof.
  7. Resolution from the board in favour of the formation of NBFC.
  8. A bank account with a minimum equity share capital of Rs. 2 Crore.
  9. Bankers report with the No Lien remark on this deposit.
  10. PAN Card & GST number of the Company.
  11. Copy of board resolution in favor of NBFC registration.
  12. Action plan and plan of the functioning of the organization, raising money to be lent, loan products, credit & risk assessment policies, etc.
  13. If an investment from abroad is expected, the company should comply with the FEMA Act.
  14. Any additional documents which may be asked at the time of verification.

NBFCs Returns Compliances

A. General Reporting

  • Audited Profit & Loss Account and Balance Sheet on the last date of each financial year, as passed by the company in general meeting. And a copy of the report of the Board of Directors at this meeting within 15-days of this meeting.
  • Annual return supporting the above statements, in RBI’s specified format.
  • Details to be filed, within 1-month of commencement of business:
    1. list of the names and the official designations of its principal officers,
    2. the names and addresses of the Directors of the Company, and
    3. specimen signature of the officers authorised to sign on behalf of the Company,
  • any change in the above details is to be intimated to RBI within 1-month from the occurrence of such change.
  • Any balance sheet, returns or information required to be submitted or furnished to RBI shall be submitted to the Regional Office of the Department of Non Banking Supervision (DNBS) within whose jurisdiction the registered office of the company is located.

Returns to be filed by NBFC-Ds

Sr. No.ReturnDetailsFrequencyReport WithinFinal Due Date
1.NBS-1Details of Assets And LiabilitiesQuarterly15 days15th of April, July, October & January
2.NBS-2Capital Funds, Risk Assets, Asset Classification etc.Quarterly15 days15th of April, July, October & January
3.NBS-3Statutory Liquid AssetsQuarterly15 days15th of April, July, October & January
4.ALM (NBFC-D)Short-term dynamic liquidity, Structural Liquidity, Interest Rate sensitivity etc.Half-Yearly30 days30th of April & October
5.Branch Information ReturnBranch DetailsQuarterly15 days15th of April, July, October & January
6.Statutory Auditor CertificateDetails of non-banking financial activitiesAnnually1-month from the date of finalising Balance SheetBy 31st December
7.Report to CRILCCredit information on all the borrowers with aggregate fund-based and non-fund based exposure of Rs. 5 croreQuarterly21 days21st of April, July, October & January
8.SMA-2 ReturnSpecial Mention Account details on all the borrowers with aggregate fund-based and non-fund based exposure of Rs. 5 croreWeeklyEvery Friday.

Returns to be filed by NBFC-ND-SIs

Sr. No.ReturnDetailsFrequencyReport WithinFinal Due Date
1.NBS-7Capital Funds, Risk Assets, Asset ClassificationQuarterly15 days15th of April, July, October & January
2.NBFC-ND-SI-500crDetails of Assets And LiabilitiesQuarterly15 days15th of April, July, October & January
3.ALM-1Short Term Dynamic LiquidityQuarterly15 days15th of April, July, October & January
4.ALM-2 & 3Structural Liquidity/
Interest Rate Sensitivity
Half-Yearly30 days30th of April & October
5.ALM (NBFC-ND-SI)Disclosure in Balance Sheet. CRAR, Exposure to Real EstateAnnually15 days15th of April
6.Branch Info ReturnBranch DetailsQuarterly15 days15th of April, July, October & January
7.Report to CRILCCredit information on all the borrowers with aggregate fund-based and non-fund based exposure of Rs. 5 croreQuarterly21 days21st of April, July, October & January
8.SMA-2 ReturnSpecial Mention Account details on all the borrowers with aggregate fund-based and non-fund based exposure of Rs. 5 croreWeeklyEvery Friday.
9.Statutory Auditor CertificateDetails of non-banking financial activitiesAnnually1-month from the date of finalising Balance SheetBy 31st December

Returns to be filed by NBFC-ARCs

Sr. No.ReturnDetailsFrequencyReport WithinFinal Due Date
1.ARC ReturnsDetails of financial parameters and various operationsQuarterly15 days15th of April, July, October & January
2.Statutory Auditor CertificateDetails of non-banking financial activitiesAnnually1-month from the date of finalising Balance SheetBy 31st December

Returns to be filed by NBFCs-ND Asset Size Rs. 100 Cr

Sr. No.ReturnDetailsFrequencyReport WithinFinal Due Date
1.NBS-8Details of Assets And LiabilitiesAnnually60 days30th May
2.Statutory Auditor CertificateDetails of non-banking financial activitiesAnnually1-month from the date of finalising Balance SheetBy 31st December

Returns to be filed by NBFCs-ND Asset Size Rs. 100-500 Cr

Sr. No.ReturnDetailsFrequencyReport WithinFinal Due Date
1.NBS-9Details of Assets And LiabilitiesAnnually60-days30th May
2.Statutory Auditor CertificateDetails of non-banking financial activitiesAnnually1-month from the date of finalising Balance SheetBy 31st December

Returns to be filed by RNBCs

Sr. No.ReturnDetailsFrequencyReport WithinFinal Due Date
1.NBS-1ADetails of Assets And LiabilitiesAnnually6-months30th September
2.NBS-3ADetails of Assets And LiabilitiesQuarterly15 days15th of April, July, October & January
3.Statutory Auditor CertificateDetails of non-banking financial activitiesAnnually1-month from the date of finalising Balance SheetBy 31st December

Other Returns for NBFCs

Sr. No.ReturnDetailsFrequencyReport WithinFinal Due Date
1.FDI ReturnsCompliance with the stipulated minimum capitalization normsHalf-Yearly30 days30th of April & October
2.Overseas InvestmentsDetails on overseas investmentQuarterly15 days15th of April, July, October & January

Prudential Norms for NBFCs

  1. Leverage Ratio: The leverage ratio of an applicable NBFC (other than NBFC-MFIs and NBFC-IFCs) shall not be more than 7 at any given point in time.
  2. Accounting Standards: Accounting Standards and Guidance Notes as issued by ICAI are to be followed if they are not inconsistent with any of the directives by RBI.
  3. Accounting of Investments: The Board of Directors shall specify investment policy for the company and the same shall be implemented, including the conditions applicable to classify the investments into the current and long-term.
  4. Need for Policy on Demand/Call Loans: The Board of Directors granting/intending to grant demand/call loans shall frame a policy for the company and the same shall be implemented.
  5. Asset Classification: Assets to be classified as: (a) Standard assets; (b) Sub-standard assets; (c) Doubtful assets; and (d) Loss assets.
  6. Standard Asset Provisioning: Each applicable NBFC shall provide for standard assets at 0.25% of the outstanding liabilities.
  7. Multiple NBFCs: All NBFCs belonging to one group shall be aggregated to check the limit of asset size of Rs. 500 crore.
  8. Disclosures: Each applicable NBFC is to disclose provisions for bad and doubtful debts and provisions for depreciation in investments, separately in the balance sheet.
  9. Schedule: Particulars in the schedule as set out by RBI Directions, to be added to its balance sheet, by each applicable NBFC.
  10. Loans against NBFCs own shares prohibited: No applicable NBFC shall be allowed to lend against its own shares.

Additional Compliances for NBFCs

Apart from the compliances required by RBI, all the NBFCs are also required to follow the various compliances of the Companies Act.

These are:

  • Statutory Board meetings
  • Preparation of Financial Statements
  • Maintenance of Books of Accounts
  • Maintenance of Statutory Registers
  • Income Tax Returns Filings
  • ADT-1: Appointment of Auditor
  • AOC-4, Filing of Financial Statement
  • MGT-7, Filing ROC Annual Returns

Penalties for Non-Compliance of NBFCs

RBI takes strict regulatory action if a financial institution having the principal business activity of lending, accepting deposits or making investments but not obtaining registration as an NBFC. A heavy penalty or fine can be imposed, or it can even be prosecuted in a court of law.

RBI invites commoners to report about any entity which does non-banking financial activity but does not figure in the authorized NBFC list on the RBI website. And, thereby, an appropriate action is taken for contravention of the provisions of the RBI Act, 1934.

RBI also reviews market intelligence reports, complaints, and exception reports from statutory auditors of the companies, information received through SLCC meetings, etc. to find out companies in violation of its norms. This information is also shared by BRI with all the financial sector regulators and enforcement agencies in the State Level Coordination Committee Meetings.

Looking to start your own NBFC or buy NBFC, come, register with us at NBFC License India, to get your NBFC License, conveniently, and fast. Let skilled professionals take your hand and guide you through it. Call us NOW at (+91) 8750008585.

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Frequently Asked Questions

Q. What is an NBFC?

NBFCs or Non-banking financial companies in India are the financial institutions providing banking services, and non-banking services.

Some of their activities are quite similar to banks, however, they do not require any banking licenses.

NBFCs in India are regulated under the Companies Act and RBI. Services provided by NBFCs include investment, giving loans and advances, leasing, insurance business, hire-purchase, chit-fund business, acquisition of shares, stocks, bonds, debentures, and Government or local authority bonds/ securities which are marketable, hire purchase, and chit funds.

Q. What is required for NBFC registration with RBI?

  1. An institution willing to start a business of non-banking financial activities as outlined u/s 45 I (a) of the RBI Act, 1934 should comply with:

    i. It should be a company established u/s 3 of the Companies Act, 1956 or 2013,

    ii. It should have a minimum NOF of Rs. 200 lakh. (The minimum NOF required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, and CICs is different).

Q. How to register NBFC?

Below steps need to be taken to register NBFC with RBI:

  • File the application form online with the RBI on its official portal, enclosing with the necessary documents. Applicant will get a CARN. This reference number is to be used during all further communications.
  • Hard copies of the application and the documents are sent to the regional office of RBI, nearest to the company. Here the accuracy of all tendered documents is checked.
  • If the documents are found to be all right, the regional office will send the application for NBFC License to the central office of the RBI.
  • The central office of RBI grants NBFC registration if the applicant is fulfilling the requirements laid down u/s 45-IA.

Q. What documents are required for an NBFC license application?

  •  Certificate of Company’s Incorporation
  • Documents related to the administration, financials and management of the company
  • MoA and AoA
  • Address proof of the company
  • Detailed information about Directors or Partners of the Company- PAN & other KYC, qualifications, etc.
  • Accounts of the company well-audited for at least past 3-years
  • Board Resolution favoring the formation of NBFC
  • Bank Account with a minimum paid-up equity share capital of Rs. 2 Crore
  • Net worth certificate
  • Clean banker report
  • Other relevant documents on request

Q. What compliances are required by the NBFCs?

 Compliances to be met differ according to the type of NBFC.

I. Returns to be submitted by NBFC-Deposit Accepting are:

1.     NBS-1: Quarterly returns on deposits in First Schedule.

2.     NBS-2: Quarterly returns on Prudential Norms.

3.     NBS-3: Quarterly returns on Liquid Assets.

4.     NBS-4: Annual returns of critical parameters by a rejected company holding public deposits.

5.     NBS-6: Monthly returns on exposure to capital market institutions with total assets of Rs. 100 crore and above.

6.     ALM: Half-yearly returns with companies having public deposits of over Rs. 20 crore or asset size of over Rs. 100 crore

7. Audited Balance sheet and Auditor’s Report.

8. Branch Info Returns.

II. Returns to be submitted by NBFCs-ND-SI

1.     NBS-7: Quarterly statement of capital funds, risk-weighted assets, risk asset ratio etc.

2. Monthly Returns on Important Financial Parameters.

3.     ALM:

a) Monthly statement of short term dynamic liquidity in format ALM [NBS-ALM1],

b) Half-yearly statement of structural liquidity in format ALM [NBS-ALM2],

c) Half-yearly statement of Interest Rate Sensitivity in format ALM – [NBS-ALM3].

4.     Branch Info returns.

5. Quarterly returns on important financial values and basic information such as the name of the company, address, NOF, profit/loss during the last 3-years of NBFC-NDs with assets between Rs. 50 crore and Rs. 100 crore.