What are NBFCs and explain NBFC registration process?
A company registered under the Companies Act of 1956 and engaged in the business of making loans and advances as well as purchasing shares, stocks, bonds, debentures, securities issued by local or federal governments, as well as other marketable securities, is known as a non-banking financial company (NBFC).
NBFCs are regulated by the Indian banking regulator, the Securities and Exchange Board of India (Sebi).
What are the benefits of using NBFCs?
One of the key benefits of using NBFCs is that they are able to provide banking and financial services to a broader range of customers than traditional banks. This includes customers who are not eligible for traditional banking services, such as small businesses and rural residents. Additionally, NBFCs are able to provide these services at a lower cost than traditional banks.
NBFC Registration Process:-
NBFC must adhere to a number of RBI-mandated compliances. Prior to and after registration, it must satisfy the following requirements:
Pre- Requisites for NBFC Registration
Before an NBFC is registered, the following requirements must be satisfied:
- First, the financial institution shall be incorporated as a company under the Companies Act 1956/2013 before applying for NBFC Registration;
- Second, at least one-third of the Directors must have at least 10 years of financial experience, and they must be hired as full-time Directors;
- The applying company must have a thorough business plan for the following five years;
- To receive the registration, the company must have net-owned money. Currently, the corporation must have a net-owned fund of 2 crore rupees, however since the RBI implemented the scalar-based regulation, a few minor amendments have been made. (Note: The new net-owned fund requirements are listed below.)
- The business, its directors, and its members should have acceptable CIBIL scores, indicating that they have never defaulted on a loan;
- The business plan must align with the object clause in the memorandum of association;
- The directors must adhere to the appropriate and fit standards.
Documents required for NBFC Registration
- Keep the following paperwork on hand:
- Certificate of Incorporation; Comprehensive managerial information and a company brochure;
- a replica of the company’s PAN or Corporate Identity Number (CIN);
- documents containing the address or place;
- a certified copy of the articles of association and memorandum;
- a list of the director profiles that need to be properly signed;
- certification of directors’ qualifications and certification of their work history;
- credit reports from CIBIL for the company’s directors;
- a verified copy of the board’s fair practices code resolution;
- statutory auditor’s certificate stating that the company does not keep any public deposits and does not accept them;
- a Statutory Auditor’s certificate detailing owned funds as of the application date;
- shareholder Know Your Customer (KYC), CIBIL, ITR, and banking reports;
- provide details about the bank account, including balances, loans, and credits;
- a P&L statement that has been audited, along with the directors’ report and the auditors’ report for the previous three years;
- a self-certified copy of your ITR and bank statement;
Post- Requisites for NBFC Registration
It is crucial for the applicant to gather all the necessary paperwork before the NBFC Registration procedure can begin. The applicant is required to submit the application to the RBI after gathering the necessary documentation. The steps for registering an NBFC are listed below:
Application and Documents for Verification Are Submitted
The applicant must next submit their application and all the supporting documentation to the authority in order for it to be verified. The authorities will examine the application and supporting documentation to ensure that the applicant’s contributions are accurate.
Certificate of Registration Issue
The authority will issue the registration certificate after conclusively confirming the application and supporting papers.
Reclassification of NBFCs
According to the updated framework, the Base layer, Middle layer, Upper layer, and Top layer are the four scale-based tiers that the RBI has said will regulate NBFCs.
Framework for Scalar-Based Regulation of NBFCs through 2021
In order to maintain strict monitoring of the industry, the Reserve Bank of India announced on October 22, 2021, a scale-based updated regulatory framework for NBFCs. There will be more NBFC categories with strict regulations under the scale-based regulatory framework for non-banking financial companies.
The following are the main revision highlights:
- There will be a maximum loan amount of one crore rupees per borrower for financing IPO subscriptions.
- NBFCs’ regulatory structure will consist of four tiers:
An NBFC that does not take deposits and has an asset size of less than 1,000 crore rupees;
A group of NBFCs with assets above 1000 crore rupees that take deposits, as well as non-deposit-taking NBFCs
This layer will include the top 10 NBFCs based on the size of their assets;
The regulator may impose this layer if it believes that the upper layer NBFCs have a substantial risk of default.
3. With certain exceptions, all NBFCs must have a net-owned fund of 10 crore rupees.
Yes, It provides loans online.
Yes, it provides a personal loan.
A non-banking financial company (NBFC) is a business registered under the Companies Act of 1956 that engages in the business of loans and advances, the acquisition of shares/stocks/bonds/debentures/securities issued by the government or a local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, and chit business
NBFC can provide loans against the collateral of gold jewelry.
Yes, it gives you a fixed deposit facility like a bank.
Agri-financing enables farmers and other participants in the agricultural value chain to safely store their harvest while simultaneously obtaining funding against collateral.
There is a total of 9680 NBFCs registered with the Reserve Bank of India.
Bajaj Finance Limited, Mahindra & Mahindra Financial Services Limited, etc are some famous NBFCs.
Both banks and non-banking financing organizations offer home loans (NBFCs). NBFCs include Housing Finance Companies (HFCs). By contrasting the duration, interest rate, and processing costs of each offer, you can decide between a bank and an HFC.
Yes, it is safe if it is registered under RBI’s guidelines and complies with all its rules.
The provisions of the RBI Act, 1934 and the recommendations published in this regard by the Reserve Bank of India govern all loans, including loans against the security of gold and gold ornaments, granted by NBFCs registered with the Reserve Bank of India under Section 45-IA of the said Act.
No, it can’t.
The NBFCs may accept external commercial borrowings from individuals, FIIs, foreign overseas corporate bodies, and other trusts or persons, subject to the Exchange Control Regulations.
In contrast to banks, depositors of NBFCs do not have access to the Deposit Insurance and Credit Guarantee Corporation’s deposit insurance program.
When a company’s financial assets make up more than 50% of its total assets and its revenue from financial assets makes up more than 50% of its gross income, it is considered to be engaged in financial activity. A business that satisfies both requirements will be registered as an NBFC by RBI.
Education loans are available from NBFCs including Avanse, Tata Capital, and HDFC Credila.
Reliance Capital is the most well-known NBFC for house loans in India.