NBFC Advisor

How to Apply an NBFC Registration in India

  • 08-May-2024
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A Non-Banking Financial Company (NBFC) provides various financial services such as loan facilitation, stock acquisition, hire-purchase, and insurance, contributing significantly to the nation’s financial growth. To establish an NBFC in India, understanding the legalities and key aspects is crucial.

When is an NBFC License with RBI Required? The Reserve Bank of India (RBI) governs the establishment and operations of NBFCs in India. An NBFC license is required when:

  1. The company's total assets comprise more than 50% of financial assets.
  2. The company's gross income comprises more than 50% of income arising from financial assets. Companies meeting both conditions need to secure an NBFC license, known as the "50-50" test. However, entities primarily engaged in non-financial activities may not require NBFC registration.

Entities Exempted from NBFC License Requirement Certain entities are exempted from obtaining an NBFC license, including insurance companies, collective investment scheme operators, housing finance companies, stockbrokers, mutual funds, venture capital firms, merchant banking companies, nidhi companies, and chit fund companies.

Requirements for Obtaining an NBFC License in India To apply for an NBFC license in India, you need to meet the following requirements:

  1. Register a company in India (Private Limited Company or Limited Company).
  2. Maintain Net Owned Funds of at least Rs. 10 Cr as per the last audited balance sheet.

Types of NBFC Licenses in India NBFCs exist in various forms, each with its own application process:

  1. Asset Finance Company (AFC): Provides financial services related to automobiles and machinery.
  2. Investment Company: Primarily acquires securities such as stocks, bonds, and other financial instruments.
  3. Loan Company: Facilitates loans or advances, distinct from an Asset Finance Company.
  4. Infrastructure Finance Company: Focuses on infrastructure loans with specific capital and credit rating requirements.
  5. Systemically Important Core Investment Company: Manages assets over Rs. 100 crores, with provisions for accepting deposits.
  6. Infrastructure Debt Fund: Funds infrastructure projects through long-term debt.
  7. Non-Banking Financial Company: Offers microfinance services to eligible credit-seekers.
  8. NBFC Factor: Facilitates factoring services.

Applying for an NBFC License To apply for an NBFC license, submit the following documents to the Reserve Bank:

  • Management details
  • Company incorporation and commencement of business certificates
  • Memorandum and Articles of Association
  • PAN/CIN copy
  • Directors' profiles and experience certifications
  • Financial statements of group entities
  • Various board resolutions and auditor's certificates
  • Business plan for the next three years
  • Documentation evidencing startup capital source
  • Bank statements and other financial records

Establishing an NBFC requires strict adherence to RBI guidelines. Non-compliance can lead to penalties or license revocation. NBFC Advisor can assist you in navigating the complex regulatory landscape, ensuring a smooth NBFC establishment process.

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