NBFC License

A Non-Banking Financial Company is a company registered under the Companies Act 2013 involving financial and micro-financial activities. Though they are similar to a bank, they have certain differences. NBFC must obtain a license from the Reserve Bank of India to carry out the business. NBFC licenses apply depending on the kind of NBFC business the company wishes to do.

What is an NBFC License?

A Non-Banking Financial Company (NBFC) is a company that is involved in a financial business of providing loans and advances, acquiring stocks or shares, depositing money, lease, insurance, hire-purchases, chit funds, and similar companies. 

The NBFC was established under the Companies Act 2013 and still acts similar to the banks; the difference is that NBFC can actively deposit lending money but cannot issue cheques. Moreover, the NBFC deposits are neither covered by insurance for deposits nor by the Credit Guarantee Corporation.

How do I obtain an NBFC license?

Under the Reserve Bank of India, an NBFC license is required for the supervision of the NBFCs. For an NBFC license, fulfill the following requirements:

• The company must be registered in India following the Company Act 2013 as a private limited company or a limited liability company.
• The minimum owned-up fund of the company should be Rs. 2 Cr. 

The net owned fund is calculated based on the last audited balance sheet of the company, consisting of paid-up equity capital, capital reserves, and balance in share premium account, which sums up the profit from the sale using the asset. However, this does not include the reserves made by the re-valuation of the assets. 

From the aggregate above, the loss accumulated and the book value of the intangible assets are deducted to get the metric of the net owned funds.

What are the types of NBFC licenses?

There are eight categories of NBFC licenses, which are listed as follows:

• Asset Finance Company: The financial institution whose principal business involves the financing of financial assets is called Asset Finance Company(AFC). The AFC includes automobiles, tractors, generator sets, lathe machines, earthmoving equipment, and industrial machines for general purposes.
• Investment Company: The financial institution carrying on the business of acquiring the securities such as stocks, shares, bonds, and other financial securities, is called an investment company.
• Loan Company: The company running a financial institution providing financial support in loans, advances, or any other manner to others, is called a loan company. However, it is a bit different from an Asset Finance Company.
• Infrastructure Finance Company: This is a non-banking finance company that disposes of a minimum of 75% of the total asset as an infrastructure loan. An Infrastructure Finance Company should have a Net Owned Fund of INR 300 crores minimum for maintaining a credit rating of ‘A’, otherwise an amount equivalent to 15% Risk Asset Ratio to the Capital.
• Systemically Important Core Investment Company: An NBFC with an asset size of more than Rs. 100 crores and accepts deposits, manages the acquisition of shares and securities under certain conditions and is called a systemically Important Core Investment Company.
• Infrastructure Debt Fund: The NBFC, registered under the Companies Act 2013, to regulate the flow of debt for the long term to projects for infrastructure, is called an Infrastructure Debt Fund. This is their source for issuing Rupee and Dollar-denominated bonds with a maturity period of 5 years or more.
• Micro Finance Institution: This is the most popular form of the NBFC that involves only microfinance activities and does not deposit.
• NBFC Factor: An NBFC engaged in factoring and did not take any deposit is known as the NBFC factor.

After determining the type of NBFC, the application is filed online or offline with prescribed documents submitted to the RBI regional office.