NBFC – An Easy Simple Process

As per the provisions of section 251(c) of the RBI Act, ‘any organization dealing with the business of any financial institution would be considered as an NBFC’. An NBFC is governed by the RBI (Reserve Bank of India) as well as the MCA (Ministry of Corporate Affairs).

Basic procedure for the incorporation and registration of an NBFC and the basic requirements

  • Company Registration: A company should be registered under the Companies Act, 2013 or 1956 Act, as the case may be, as a Pvt. Ltd. or a Ltd. Company.
  • Minimum NOF (Net Owned Fund) Requirement: The minimum net owned funds of the Company should be Rs. 200 lakhs or Two crores.
  • Director’s Experience: 1/3rd of the Directors must possess strong financial background out of the total the total number of directors which are prescribed and as per the normal legal requirement for the incorporation of a Pvt. Ltd. or a Ltd. company (as in Point No.1).
  • Credit History: The CIBIL records of the Company, directors & shareholder should be clean.
  • Five Year Business Plan: The company must have a DPR detailed project report and a business plan for the next five years as on date.
  • FEMA Compliances: The NBFC must comply with the requirements for capital compliances and FEMA (in case foreign investment is involved).
  • RBI Registration: After all of the above conditions are satisfied, an online application is filed before the RBI (Reserve Bank of India) submitting all the requisite documents and a CARN Number will be generated for further tracking and inquiry about the status of the application. (CARN is just an acknowledgement number for tracking of the application).

After this, duplicate hard copies are submitted to the concerned regional office of RBI where the regional office shall check the accuracy of the documents submitted, thereafter shall send the application for NBFC registration to the central office of RBI.

The central office of RBI grants NBFC registration only when applicant company fulfills prescribed requirements under section 45-IA.

  • Commencement of Business: NBFC must commence its business within 6 months from the date of Certificate of Registration.

Few guidelines to be kept in mind by NBFC (not an exhaustive list)

  • The criteria is called the 50-50 test and is as follows:
    • The company’s total assets must be comprised of atleast 50% in the form of financial assets.
    • The total income must constitute atleast 50% income from the financial assets.
  • Every year, the company also has to submit its audited balance sheet.
  • A credit rating report has to be submitted with RBI every six months.
  • The ceiling limit for charge of rate of interest on loans as prescribed by the RBI has to be religiously followed.
  • Any change in its composition of the company or the master data of the company relating to its incorporation and management has to be supplied to the RBI.

Documents required (not an exhaustive list)

  • Certified copy of the Certificate of Incorporation along with Memorandum and Articles of Association (along with KYC details, PAN of the company, GST number, address proof of the company) ;
  • Net Worth Certificate of all Directors, Shareholders & the Company ;
  • Educational qualification documents and experience certificates of the directors (to prove strong finance background) ;
  • Profile along with credit report of all directors & shareholders ;
  • Bank account details of the company [Rs. 2 Cr must have deposited as NOF]
  • Audited balance sheet of last 3 years or from the date of incorporation along with Related Party Disclosures, Income Tax returns (ITR) ;
  • Banker clean certificate stating no lien on fixed deposit ;
  • Format of board resolution regarding NBFC registration
  • Information System/Technology Policy.

CA Arvind Kumar Jain & CA Arjun Arvind Jain

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Author Bio

Qualification: CA in Practice
Company: A.K.J. & Associates, Chartered Accountants
Location: DELHI, Uttar Pradesh, India
Member Since: 04 May 2020 | Total Posts: 1
Arjun Jain is a Chartered Accountant by profession and a lawyer from CCSU. He is practicing in the field of Audit having immense experience in Bank Audits and Statutory Audits under the provisions of Companies Act and Tax Audits as per Income Tax Act, 1961 and GST Audits as per the provisions of CGS View Full Profile

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