non-banking-finances

Non-Banking Financial Corporations

(NBFC) Registration

A Non–Banking Financial Corporation is a company incorporated under the Companies Act 2013 or 1956. According to section 45-I (c) of the RBI Act, a Non–Banking Company carrying on the business of a financial institution will be an NBFC. It further states that the NBFC must be engaged in the business of Loans and Advances, Acquisition of stocks, equities, debt etc issued by the government or any local authority or other marketable securities.

A non-banking institution that is a company and has principal business of receiving deposits under any scheme or arrangement by any mode is also a non-banking financial company (Residuary non-banking company).

Exclusions from the definition: 

The NBFC business does not include business whose principal business is the following:

  • Agricultural Activity
  • Industrial Activity
  • Purchase or sale of any goods excluding securities
  • Sale/purchase/construction of any immovable property – Providing of any services

Meaning of Principal Business: The Reserve Bank of India has defined financial activity as principal business to bring clarity to the entities that will be monitored and regulated as NBFC under the RBI Act. The criteria s is called the 50-50 test and its as follows:

  1. The company’s financial assets must constitute 50% of the total assets.
  2. The income from financial assets must constitute 50% of the total income. It is governed by the Ministry of Corporate Affairs as well as the Reserve Bank of India. The License for operation is obtained from the RBI and it is incorporated as a company under applicable laws of the land.

The NBFCs are categorised on the basis of liabilities and activity. Following are the types of NBFCs:

nbfc

Procedure to Incorporate an NBFC

  • A company should first be registered under the Companies Act 2013 or should already be registered under the Companies Act 1956 as either a Private Limited or a Public Limited Company.
  • The minimum net owned funds of the Company should be Rs. 2 Crore.
    1/3rd of the Directors must possess finance experience.
  • The CIBIL records of the Company should be clean.
  • The company must have a detailed business plan for five years.
  • The company must comply with the requirements for capital compliances and FEMA.
  • After all of the above conditions have been satisfied the online application on the website of RBI should be filled and submitted along with the requisite documents.
  • A CARN Number will be generated.
    A hard copy of the application also has to be sent to the regional branch of the Reserve Bank of India.
  • After the application is properly scrutinized, the License will be given to the Company.

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