Non-Banking Finance Company (NBFC)

Non-Banking Finance Company (NBFC)

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NBFC Registration

Non- Banking Finance Company (NBFCs) is a finance company registered under the Companies Act,2013 and permitted by the Reserve Bank of India to offer financial products and related services to its customers. There are various types of NBFCs in India that provide various services like Loans and Advances, finance leasing, hire purchase, acquisition of shares, chit funds, investment companies, housing loans companies, etc. Non- Banking Finance Companies are not the bank and these cannot open saving or current accounts of its customers and even cannot issue checkbooks.

Types of NBFCs in India
In broad Categories there are two types of NBFCs:
(i) Deposit-Taking NBFCs
(ii)Non- Deposit Taking NBFCs
Non- Deposit taking NBFCs can be divided based on their Nature of Work or Activities which are as follows:
Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)
Loan Company (LC)
Asset Finance Company (AFC)
Infrastructure Finance Company (IFC)
Investment Company (IC)
Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
Systemically Important Core Investment Company (CIC-ND-SI)
Non-Banking Financial Company – Factors (NBFC-Factors)
Mortgage Guarantee Companies (MGC)
Non-Operative Financial Holding Company (NOFHC)

How to Register NBFC in India?
Stage 1: Incorporation of Company: 
It is a first stage to register at least a private limited company under the Companies Act, 2013 with at least 2 directors & Shareholders with an equity or Preference share capital of Rs. 2 crores (if you are opening a Non-Banking Finance Company under Micro Finance (NBFC-MFI).

Stage 2: Open a Bank Account of Company as Current Account: 
It is mandatory to deposit Rs. 2 crores in a company’s current account as capital or otherwise as Net Owned Fund (NOF).

Stage 3: Finance Background or experience with good CIBIL Score: 
There should be a finance background or experience of at least one director to apply for a license with RBI and the directors must have a good CIBIL Score.

Stage 4:  Preparation and Drafting of Required Documents: 
Along with the Application to RBI, there is a huge work of documentation that is to be prepared and drafted which is to be annexed with the License application.

Stage 5: Submission of Application to RBI: 
After preparation of all the documents, the application is submitted to RBI official website along with all the requisite documents. Whenever the application is submitted a CARN number is generated online which should be kept for further references.

Stage 6: Sending of Hard Copy of Application to RBI at Regional Branch: 
Reserve Bank of India has its branches at 31 offices; therefore, the hard copy of the application has to be delivered to the concerned branch of RBI that comes under the nearest jurisdiction.

Documents Required for NBFC Registration
There is a lengthy list of Documents that are required to Register an NBFC:
Company’ Documents:
(i)    Certificate of Incorporation
(ii)   Memorandum of Association (MOA)
(iii)  Articles of Association (AOA)
(iv)   PAN and TAN of Company
(v)    Office Location with Proof
(vi)   Banker Certificate for deposited the money into the bank account.
(vii)  Copy of Board Resolution in favor of Authorized Director.

Directors’ Documents: 
(i)    KYC of Directors (PAN, Aadhaar, Photo, Mobile, Email, Mobile, Bank Statements)
(ii)   Copies of Income Tax Returns of all directors.
(iii)  CIBIL Score Reports of all Directors
(iv)   Experience Letter in Finance Background
(v)    Affidavits that all the directors are not convicted in any offense of more than 2 years.
(vi)   Other Documents as demanded by the RBI from time to time.

Which NBFC should I Choose to Register?
There are various types of NBFCs as per their size and activities. Firstly, you should decide which type of work you want to start under NBFC. Moreover, if you want to do the lending business of loans & advances, the LOAN COMPANY (LC) and Micro Finance Company (NBFC-MFI) is the perfect solution for it.

What are the Interest rates in various Loan Companies?
Interest Rate in NBFC: The Interest rate in NBFCs is decided as per the mutual agreement to be executed between the Companies and Parties i.e., Lender & borrowers. However, a basic lending rate is decided by the RBI, which may vary from time to time.

Interest Rate in Micro Finance Company: The Interest rate will be whichever is lower—
a) 12% Margin plus the cost of borrowing of funds (for example the cost of borrowing is 14%    plus 12% Margin, the loan interest rate will be 26%);
b) 2.75 multiplied with the average base rate of 5 largest public sector banks (for example    if the average rate is 10% X2.75 = 27.5%)

The lower rate from (a) and (b) is 26%

Interest Rate in Micro Finance Company (registered under section 8): The above calculation is the same for section 8 microfinance company.
Interest Rate in Nidhi Company: Maximum rate offered of Deposits plus 7.5% Margin is the Loan Interest rate is Nidhi.