How to get NBFC License in India?

Non-Banking Financial Companies (NBFCs) are financial entities registered under the Companies Act, 1956. Although NBFCs do not own a banking license, they still provide banking services to the public. Mainly, they are involved in activities such as lending loans, credit facilities, currency exchange, financing of assets, hire & purchase, shares acquisition, bonds acquisition, chit-fund business, insurance, fund hedging, peer to peer lending, etc. However, an NBFC cannot get engaged in certain activities such as industrial activities, agricultural activities, sale and purchase of goods, and services related to the sale or purchase or construction of the immovable property.

Before learning about the process of getting an NBFC license, let us understand its need and eligibility requirements.

Categories of NBFC Licenses in India

There are eight types of NBFC licenses in India:

  1. Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit-taking company engaged in microfinance lending activities to small and marginalized sectors. MFIs recognize borrowers under the PM-MUDRA scheme.
  2. Asset Finance Company: Any financial entity has a principal business that provides financing for physical assets like industrial machines, automobiles, tractors, lathe machines, generators, equipment for material handling, etc.
  3. Loan Company: A company involved in providing finance by lending loans or advances for any activity other than its own.
  4. Investment Company: Any financial institution acquiring shares, stocks, bonds, and other such financial securities needs an NBFC license.
  5. Systemically Important Core Investment Company: it refers to those companies with an asset size of more than Rs.100 crores. These NBFCs accept deposits and are also involved in securities acquisition under specific conditions.
  6. Infrastructure Finance Company: It is a non-banking finance company that deploys a minimum of 75% of its combined asset value in infrastructure sector loans. Other conditions for Infrastructure Finance Companies are like minimum net owned funds of Rs. 300 crores,15% Capital to Risk Assets Ratio, Credit rating of ‘A‘ or equivalent
  7. Infrastructure Debt Fund: A NBFC involved in facilitation long term debt flow into the infrastructure sector. They raise their monetary capital by issuing Rupee/Dollar-denominated bonds with at least a 5-year maturity period.
  8. NBFC Factor: They are non-deposit-taking NBFCs whose primary business is factoring. At least 75% of their total financial assets shall be invested in the factoring business, and the income derived from the factoring business should not be less than 75% of their gross income.

Why is an NBFC License with RBI Needed?

RBI regulates and supervises NBFCs involved with the primary business of lending and acquiring shares, stocks, and bonds. NBFCs are also engaged in financial leasing and accepting deposits. The 50-50 test is required to determine a company’s eligibility for an NBFC license. NBFC is said to be involved in the principal business of financial activity if

  • Its financial assets make up more than 50% of its combined assets.
  • Income from financial assets forms more than 50% of its gross income.

Any company that is fulfilling these criteria should obtain an NBFC license.  

Eligibility for NBFC License in India

RBI stipulates specific requirements to get registered as a Non-Banking Financial Company. The eligibility conditions are as follows:

  • Any company willing to get an NBFC license should register itself as a private or public limited company under the Companies Act, 1956 of the Companies Act, 2013.
  • The company should have a minimum net-owned fund (calculated based on the company’s last audited balance sheet) of Rs. 200 lakhs or more.
  • The company should have minimum assets worth Rs. 200 crores or more.
  • The company should have a business financial plan for a minimum of 5 years.
  • Good credit rating by credit agencies such as CRISIL, ICRA, CARE Ratings, Fitch Ratings, etc.
  • The company should be compliant with capital provisions under the Foreign Exchange Management Act, 2003.
  • At least 1/3rd of the directors of the company board should have credible experience in finance.

Documents Required for NBFC License

  • Company Management Information
  • Verified copies of Certificate of Incorporation
  • If it is a public limited company, then certified copies of the Certificate of Commencement of Business
  • Updated Memorandum along with the clause details
  • Articles of Association
  • Copy of PAN/CIN of the company.
  • Profile details of all the directors. These should be filled and signed by each director individually. A certificate from the NBFC from where the company’s director gained relevant experience.
  • CIBIL Data related to Directors
  • Suppose there are any unincorporated bodies where the director is holding a director position. In that case, financial statements of the immediate previous two years of such unincorporated bodies need to be attached.
  • Board Resolution approving the application submission.
  • Board Resolution about “Fair Practices Code” formulation.
  • Board Resolution stating that the company hasn’t accepted any public deposit in a specific period in the past and isn’t holding any public deposit on the application date and also will not take any public deposit in the future without RBI’s prior approval
  • The board resolution clarifies that the company is not engaged in any NBFC related activity/ceased any NBFC activity and will not continue until it receives RBI registration.
  • Statutory Auditors Certificate stating that the company does not accept public deposits.
  • Statutory Auditors Certificate stating company’s net owned fund on application date.
  • Details related to the company’s authorized share capital and the company’s updated shareholding details with percentages.
  • Details related to the company’s bank balances, bank accounts, and complete postal address and available credit facilities.
  • Updated Audited balance sheet of previous three years, profit and loss account coupled with directors’ & auditors’ report
  • Company business plan for the upcoming three years with details related to business projections, market segment, projected balance sheets, asset, and income pattern statement
  • Company’s startup capital source, along with evidence.

Registration Process for NBFC License

Step 1: If your company is not already registered, register the company under the Companies Act.

Step 2: Make sure that your company meets the basic eligibility requirements listed above.

Step 3: Now, you can find the application form on the official website of RBI.

Step 4: Fill in the correct details in the application form and submit the required documents along with the application form. The essential documents discussed above need to be submitted along with the application form.

Step 5: After the submission of the application form, the authority shall give a CARN number.

Step 6: Now, send the application’s hard copy to the RBI regional branch.

Step 7: Now, RBI will provide the NBFC license after the verification.

 


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