Registration of NBFC

NILESH RANJAN 06 Feb 2020 8,355 Views 0 comment Print Fema / RBI | Articles

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on the business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of ₹ 200 lakhs (₹ Two crores since April 1999).

Following categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI:-

Venture Capital Fund/Merchant Banking companies/Stockbroking companies registered with SEBI,
Insurance Company holding a valid Certificate of Registration issued by IRDA,
Nidhi companies as notified under Section 406 of the Companies Act, 2013,
Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,
Housing Finance Companies regulated by the National Housing Bank,
Stock Exchange or a Mutual Benefit company

Requirements for registration with RBI

1. A company incorporated under section 3 the Companies Act, 2013 or the previous Companies Act 1956

2. It should have a minimum net owned fund(NOF) of ₹ 200 lakh.

3. The CIBIL score of the company, its Directors and its members must be good. They must not have any write-offs or wilfully default on the repayment of loans to NBFC/Bank

4. If any foreign investment is anticipated, the company should be in compliance with the FEMA Act.

NET OWNED FUND:

Sum of paid-up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset get deducted with reserves created by revaluation of asset, after deducting therefrom accumulated balance of loss, deferred revenue expenditure and other intangible assets, the amount of investments of such company in shares of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group, to the extent it exceeds 10% of the owned fund

A. Owned Fund

1. paid-up equity capital

2. (+) free reserves as disclosed in the latest balance-sheet

3. (-) accumulated balance of loss

4. (-) deferred revenue expenditure

5. (-) other intangible assets

B. Net Owned Fund

Owned Fund
(-) investments of such company in shares of: –

- its subsidiaries
- companies in the same group
- all other non-banking financial companies

(-) the book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with: –

- subsidiaries of such company
- companies in the same group

to the extent, such amount exceeds ten percent of Owned Fund above in point A

Process of Applying for NBFC License

For getting the registration certificate from RBI, the company need to follow the below procedure:-

An application is to be submitted online. With the following required documents.

- Certificate of Incorporation
- Updated KYC of the Shareholders and Directors
- Net-Worth Certificate of Directors, Shareholders, and the Company
- Education and qualification proof of the Directors
- Company’s PAN & GST number. Documents in support of the address of the company.
- Details of the bank account of the company. This must have at least Rs. 2 crores deposited as the minimum NOF requirement. And well audited for the last 3-years.
- A report to be obtained from the bank confirming the No Lien remark on the Initial Fixed Deposit of Rs 2 crore
- The board’s resolution approving the formation of NBFC.
- A detailed action plan, for the next 5-years, about the loan products, complying with the Fair Practices Code, credit, and risk assessment policy
- Complete plan of the organization hierarchy and decision-making process. The proposed criteria on which a loan application will get approved or rejected.
- The planned system and Information technology policy.
A Company Application Reference Number (CARN) is generated upon successful submission. This reference number is of use during all future inquiries and communications.
The hard copies of the documents and the form as uploaded online, are to be sent to the Regional Office of RBI, under whose jurisdiction your company falls.
Once the submitted documents are found to be ok, the regional office sends the application to the central office of the RBI. There, the application and the documents are verified and a thorough background check is conducted.
If the company meets all the terms and conditions specified in Section 45-I A of the RBI Act, the NBFC License shall be granted.

RBI Conditions for Granting NBFC License

RBI looks after the following before granting NBFC License

that the NBFC can pay its present or future investors in full as and when their claims accrue.
that its operations are not likely to be carried in any manner detrimental to the interest of its existing or future investors.
the general character of the management and the Board shall not be prejudicial to the interest of the public or depositors.
it has sufficient capital structure and earning potential.
public interest shall be served by licensing this company as an NBFC.
the grant of license from RBI shall not be unfavorable to the operation of the financial sector. And is consistent with monetary stability, economic growth and considering such other relevant policies of RBI.

Other Registration required for NBFC