The Non Banking Financial Companies (NBFC) is a Company incorporated under the provisions of the Companies Act that provide financial services and banking facilities without meeting the legal definition of Bank. They are covered under the prudential norms laid down by the Reserve Bank of India and provide various banking services like loans, credit facilities, TFCs, retirement planning, investing and stocking in money market. There are a number of NBFCs Companies prevailing in our country like Power Finance Corporation Limited, Shriram Transport Finance Company Limited, Bajaj Finance Limited, etc.

To start with, let us understand that there are following kinds of NBFCs:

  • Asset Finance Company (AFC)
  • Investment Company (IC)
  • Loan Companies (LC)
  • Infrastructure Finance Company (IFC)
  • Systematically Important Core Investment Company (CIC-ND-SI)
  • Infrastructure Debt Fund (IDF-NBFC)
  • Non Banking Financial Company-Micro Finance Institution (NBFC-MFI)
  • Non Banking Financial Company-Factors (NBFC-Factors)

Coming to our topic, loan companies means any company which is a financial institution 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. They are further categorized as following:

NBFC Company- Loan Company

In this write up, we shall particularly discuss about the various aspects of the Category B Loan Companies. The NBFCs are further categorized into following on the basis of asset size:

  • With asset size less than Rs. 500 Crore: Non Systematically Important Non Banking Financial Companies
  • With asset size of more than Rs. 500 Crore: Systematically Important Non Banking Financial Companies

I. PRE-REQUISITES OF INCORPORATION

Any entity intending to take NBFC license from the Reserve Bank of India shall ensure the following pre conditions: 

  • It should be a registered Company under the provisions of the Companies Act, 2013.
  • Minimum net owned fund of Rs. 2 crore i.e. 200 lakhs
  • Minimum one Director having experience in the field of banking or senior banker as full time Director in the Company.
  • Clear and clear CIBIL, SEBI records.
  • Next five year plan for running and setting up of business as an NBFC.

Once the Company has been incorporated under the provisions of the Companies Act, 2013, the nest step is to make an online application for granting of RBI license online through RBI COSMOS portal. Thereafter, a CARN number will be generated which shall be preserved for inquiring about the status of the application. The application will then be scrutinized by the RBI Mumbai Head Office. However, the hard copy of the application shall be submitted to the regional branch of the RBI as well like in case if the registered office of the Company is at Delhi, the application shall be submitted to RBI Delhi and the like.

For obtaining license from Reserve Bank of India, a lot of documentation shall be submitted mainly the following:

  • Brief profile about the proposed objects of the Company and its next five year plan;
  • Brief profile about the proposed Directors
  • Brief profile about the proposed shareholders
  • Sources of funds of the proposed shareholders
  • CIBIL record and the bankers statements of the proposed shareholders, etc.

Now, we shall discuss about the compliances of an NBFC Loan Category A Company:

S. No. Compliances Applicability/Timeline Relevant Circular
1. Filing of NBS-8 Company with asset size between Rs. 100-500 crore. To be filed within 30 days of closing of FY i.e. by 30th April RBI Circular No. DNBS (IT).CC.No. 02/24.01.191/2015-16
2. Filing of NBS-9 Company with asset size below Rs. 100 crore. To be filed within 30 days of closing of FY i.e. by 30th April RBI Circular No. DNBS (IT).CC.No. 02/24.01.191/2015-16
3. Statutory Auditor Certificate Within one month from the date of finalisation of Balance Sheet Para 15(1) of the prudential norms
4. Provision of standard asset Every NBFC to make a provision of standard assets at 0.25% of the outstanding asset Para 10 of the prudential norms
5. Statutory Reserve Every NBFC shall create statutory reserve fund and transfer  a sum not less than 20% of its net profit as disclosed in the P&L Account Section 45-IC of the RBI Act, 1934
6. Registration with Financial Intelligence Unit (FIU-IND) As per Master Circular- ‘Prevention of Money Laundering Act, 2002 – Obligations of NBFCs in terms of Rules notified there under”
7. Registration with CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India As per RBI Circular DBR.Leg.No.BC.15/09.08.020/2018-19 dated December 27, 2018

 

8. Registration with C-KYC (Central KYC Registry) As per notification no. G.S.R. 544(E) dated July 7, 2015 of the Ministry of Finance
9. Registration with Credit Information Companies (CICs) Renewal on an annual basis. The four CICs are:

 

·         CRIF

·         Experian

·         CIBIL

·         Equifax

All NBFCs are required to obtain the registration and membership of all 4 RBI notified Credit Information Companies (CIC) and updated the credit information regularly on a monthly basis or at such shorter intervals as may be mutually agreed upon between the Company and the CIC.
10. Submission of resolution that the Company shall not accept deposit Master Director – Non Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016
11. Submission of information w.r.t. change of address, directors, auditor, etc. Within one month of occurrence of change In accordance with Para 26 of the prudential norms
12 Adoption of Fair Practice Code Vide Master Circular DNBS (PD) No. 054/ 03.10.119 / 2015-16 dated July 1, 2015

Further, it is important to note that the following events/transaction shall required prior approval of Reserve Bank of India:

  • Any acquisition or change in control of NBFC may or may not result in the change in the management;
  • Any change in the shareholding of an NBFC resulting in acquisition/ transfer of shareholding of 26 percent or more of the paid-up equity capital, excluding shareholding going beyond 26% due to a buyback of shares/ reduction in capital by the approval of a competent Court;
  • Any change in the management resulting in a change of more than 30 percent of the directors, excluding independent directors.

In conclusion, we can say that the government has come with much leverage to encourage NBFC Registration at the present time. However, the Act, rules, regulations and various circulars has been issued by the government to govern NBFCs more systematically though making its complex with the only reason that the governing laws are not available in any complied form.

{The author is a Company Secretary in Practice and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}

Author Bio

Qualification: CS
Company: Kajal Goyal and Associates
Location: Delhi, New Delhi, IN
Member Since: 11 Jun 2018 | Total Posts: 72
KAJAL GOYAL AND ASSOCIATES, is a Company Secretary proprietorship firm, offering its expertise and one stop solutions for all Corporate compliance requirements to the clients with a strong emphasis on ethics and ‘being on toes’. Capable delivering services related to Companies Act, FEMA, Re View Full Profile

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