HOW DOES NBFC WORK? – Onickexperts


Financial institutions that provide a range of banking services without a banking license are referred to as nonbank financial businesses (NBFCs), often known as nonbank financial institutions (NBFIs). Typically, the public’s readily accessible monies, including those in checking or savings accounts, cannot be accepted as demand deposits by these organizations. This restriction keeps them out of the purview of traditional federal and state financial regulator scrutiny.

Role and Functions of an NBFC

Following is a summary of an NBFC’s responsibilities in India:

  • fostering the growth of industries including infrastructure, education, and MSMEs;
  • to aid in the creation of wealth;
  • to significantly increase employment;
  • to give money to the economically less fortunate people in society;
  • faster loan processing
  • a digital lending platform leveraging cutting-edge technology;
  • to aid in the nation’s economic development;
  • to make a donation to the state treasury;
  • specialized credit is offered;
  • to aid in the financial market’s expansion.

Pre-Requisites for NBFC Registration

The following are the prerequisites for NBFC registration:

  • Firm Registration: The Companies Act of 1956 or the Companies Act of 2013 requires that the company be registered.
  • Experience as a Director: One-third of the board of directors of the company must have at least 10 years of experience in the financial sector and must hold a full-time position.
  • A company applying for funding must create a thorough business strategy for the following five years.
  • Minimum NOF: The applicant must have at least Rs. 2 crores in Net Owned Funds (NOF) and must have paid tax on it. However, the entrance point standards were intended to be amended from Rs. 2 crores or 20 crores based on the rise in prices, GDP, and regulatory judgment. Instantaneous new Registration and current Registration may be allowed a grace period of five years.
  • The Reserve Bank of India conducts a quality-of-capital test to ensure that invested capital is free of violations of the applicable regulations.
  • Capital Quality: A corporation applying must adhere to all regulations.
  • Credit History: The Company’s directors, shareholders, and credit history must all be good, and none of them should have intentionally missed loan payments to banks or NBFCs.
  • Compliance with the FEMA Act: If there is foreign investment, the company must comply with the FEMA Act. All FDI from FATF member nations is permitted.

Documents Required for NBFC Registration

The following papers are necessary for NBFC registration in the manner described below:

  1. MOA (Memorandum of Association), AOA (Articles of Association), and COI (Certificate of Incorporation) certified or original copies;
  2. Certificates of Net Worth for Shareholders, Directors, and the Company;
  3. business backgrounds of shareholders and directors;
  4. return of income taxes;
  5. certifications of education for the suggested directors;
  6. KYC information, including the company’s PAN, GST number, and address verification;
  7. certificate of most experience;
  8. Information on the company’s bank account, the format of the board resolution regarding NBFC registration, and the IT policy;
  9. loan and organizational structure;
  10. the credit report for shareholders and directors;
  11. most recent three years’ audited balance sheet;
  12. disclosures of related parties;
  13. a thorough action plan, including a risk assessment policy and fair practice code, for the upcoming five years;
  14. No liens are present on fixed deposits, according to a banker’s report.

Procedure for NBFC Registration

The following are the steps involved in NBFC registration:

  • The applicant should make sure that the minimum NOF of the firm is maintained in line with the type of NBFC. The applicant must first incorporate a company in accordance with the rules of the Companies Act 2013.
  • Next, you must complete the application form located on the RBI’s official website;
  • submit the application along with the necessary documentation for NBFC registration;
  • You can track the application status by using the CARN Number that is generated when the application and supporting documents are submitted;
  • Then, the applicant must mail the application to the RBI’s regional office;
  • The Registration will be granted if your application satisfies the minimal conditions established by the regulatory authorities.

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