NBFC Registration Online – Time, Process, Fees, Documents, Status in India

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What is a Non-Banking Financial Company or NBFC?

An NBFC refers to a Non-Banking Financial Company. These are financial institutions that provide various banking services without holding a bank license. They play a crucial role in the financial system by offering credit and other financial services to individuals and businesses, particularly to those not served by traditional banks. NBFCs are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934, and are allowed to offer loans, credit facilities, savings products, and investment advice, among other services.

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NBFCs typically cannot accept demand deposits (deposits that can be withdrawn without notice) like traditional banks, and they are not part of the formal payment and settlement system, so they cannot issue cheques drawn on themselves. However, they significantly contribute to financial inclusion by serving the unbanked and underbanked sectors of the Indian economy. They often cater to niche market segments, including microfinance, vehicle financing, consumer loans, and housing finance. The regulations governing NBFCs in India ensure a framework for their operations, risk management, and capital requirements to maintain financial stability and protect the interests of their clients.

What are the categories of NBFCs?

The main categories of NBFCs in India are as follows:

Category Main Activity Key Regulatory Requirements
Asset Finance Company (AFC) Financing physical assets supporting productive/economic activity. Minimum NOF of ₹2 crore; CRAR of 15%; and other prudential norms.
Investment Company (IC) Acquisition of securities (shares, stocks, bonds, etc.). Minimum NOF of ₹2 crore; CRAR of 15%; and other prudential norms.
Loan Company (LC) Providing loans and advances for various purposes, excluding physical asset financing. Minimum NOF of ₹2 crore; CRAR of 15%; and other prudential norms.
Infrastructure Finance Company (IFC) Providing at least 75% of total assets in infrastructure loans. Minimum NOF of ₹300 crore; CRAR of 15%; minimum credit rating of ‘A’.
Systemically Important Core Investment Company (CIC-ND-SI) Holding not less than 90% of net assets in group company investments, with an asset size of ₹100 crore and above. Adjusted Net Worth of ₹100 crore; CRAR of 30%; and specific corporate governance norms.
Micro Finance Institution (MFI) Providing loans and advances to the low-income segment. At least 85% of total assets as qualifying assets; specific income and loan criteria for clients.
NBFC – Factors Engaged in the business of factoring. Minimum NOF of ₹5 crore; CRAR of 15%; and registration with RBI.
Non-Operative Financial Holding Company (NOFHC) Holding company for a bank and other financial services entities in a group. Must hold at least 51% of the total paid-up equity capital of the bank.
Mortgage Guarantee Companies (MGC) Providing mortgage guarantee. Minimum NOF of ₹100 crore; at least 90% of turnover or income from mortgage guarantee.
Housing Finance Companies (HFCs) Financing for housing, regulated by the National Housing Bank (NHB) but considered under NBFCs. Minimum NOF of ₹10 crore (varies based on registration date); compliance with NHB directions.

What is the eligibility criteria to start an NBFC business in India?

The eligibility criteria for some key NBFC types are as follows:

Criteria for types of NBFC General NBFCs Infrastructure Finance Companies (IFC) Housing Finance Companies (HFC) Microfinance Institutions (MFIs)
Company Registration Private or Public Limited Company under Companies Act, 2013 Private or Public Limited Company under Companies Act, 2013 Private or Public Limited Company under Companies Act, 2013 Private or Public Limited Company under Companies Act, 2013
Minimum Net Owned Funds (NOF) ? 2 Crore ? 300 Crore ? 5 Crore ? 5 Crore
Financial Activity as Principal Business > 50% of total assets and income from financial assets > 75% of total assets deployed in infrastructure loans
Directors’ Experience 1/3rd with at least 3 years of relevant financial experience 1/3rd with at least 5 years of experience in infrastructure finance 1/3rd with at least 5 years of experience in housing finance 1/3rd with at least 3 years of experience in microfinance
Clean CIBIL Record Required for company and all directors Required for company and all directors Required for company and all directors Required for company and all directors
Business Plan Detailed business plan for at least 5 years, including financial projections, target market analysis, and risk management strategies Detailed business plan for at least 5 years, with specific focus on infrastructure projects and risk mitigation strategies Detailed business plan for at least 5 years, focusing on housing affordability and loan delinquency management Detailed business plan for at least 5 years, outlining client outreach, loan collection strategies, and social impact goals
Regulatory Compliance RBI Master Directions on NBFCs (including NBFC-ND, NBFC-FI, NBFC-IDF, etc.), FEMA, KYC norms, AML/CFT regulations RBI Master Directions on NBFCs (NBFC-IFC), FEMA, KYC norms, AML/CFT regulations, sector-specific regulations (e.g., power, telecom) RBI Master Directions on NBFCs (NBFC-HFC), FEMA, KYC norms, AML/CFT regulations, Housing and Urban Development Corporation (HUDCO) guidelines RBI Master Directions on NBFCs (NBFC-MFI), FEMA, KYC norms, AML/CFT regulations, Microfinance Institutions (Development & Regulation) Act, 2011
Additional Criteria Minimum credit rating of ‘A’ or equivalent from SEBI-registered credit rating agency NOF:RWA ratio of 12% Comply with MFI Regulations on loan limits, client protection measures, and transparency norms

Steps to apply and get an NBFC license in India

Registering a Non-Banking Financial Company (NBFC) in India involves a series of steps, each governed by specific regulations under the oversight of the Reserve Bank of India (RBI). Here is a step-by-step guide in tabular format, including estimated time, the responsible authority, and applicable fees

Step Process Description Estimated Time Responsible Authority Fees (If Applicable)
1 Company Incorporation 1-2 weeks Ministry of Corporate Affairs (MCA) Varies based on capital structure; use the MCA fee calculator
2 Obtain a Permanent Account Number (PAN) & Tax Deduction and Collection Account Number (TAN) 1 week Income Tax Department PAN: ₹107 (Online), ₹110 (Offline); TAN: ₹65
3 Open a Bank Account Varies Chosen Bank Varies based on the bank
4 Increase Net Owned Funds (NOF) to ₹2 Crore Varies Internal Process (Company’s Funds) N/A
5 Obtain Credit Reports for Directors/Shareholders 1-2 weeks Credit Information Companies like CIBIL Varies based on the agency
6 Prepare Detailed Business Plan 2-4 weeks Internal Process N/A
7 Application for NBFC License 1 week (to prepare & submit) Reserve Bank of India (RBI) ₹3.5 lakh for application processing
8 RBI’s Due Diligence & Background Checks 3-6 months Reserve Bank of India (RBI) N/A
9 Receipt of Certificate of Registration (CoR) Upon approval Reserve Bank of India (RBI) N/A

Please note:

  • Company Incorporation: Register the company under the Companies Act, 2013, with the Registrar of Companies (RoC) via the MCA portal.
  • PAN & TAN: Mandatory for financial transactions and tax deductions.
  • Open a Bank Account: Necessary for transactions and to show the NOF.
  • Increase NOF to ₹2 Crore: Essential eligibility criterion for applying as an NBFC with the RBI.
  • Obtain Credit Reports: To ensure the directors and significant shareholders meet the “fit and proper” criteria.
  • Prepare Detailed Business Plan: Including financial projections, operational plans, and compliance strategies.
  • Application for NBFC License: Compile and submit the application online through the RBI’s COSMOS website, along with necessary documents.
  • RBI’s Due Diligence & Background Checks: The RBI will verify the documents, business plan, and compliance with the “fit and proper” criteria.
  • Receipt of Certificate of Registration (CoR): Upon satisfaction, the RBI issues the CoR, allowing the company to operate as an NBFC.

The above time estimates are indicative and can vary based on individual cases, document completeness, and the current workload of the RBI. The process from company incorporation to receiving the NBFC license can take anywhere from 6 to 12 months, depending on various factors, including the speed of document submission, RBI’s response time, and compliance with regulatory requirements.

What are the documents required to register an NBFC?

Below is a factual list of required documents and suggestions to ease the preparation process:

  1. Company Incorporation Certificate: Issued by the Ministry of Corporate Affairs (MCA) upon the registration of the company. Ensure all company details are accurate and reflect the current status.
  2. Memorandum of Association (MoA) and Articles of Association (AoA): Clearly stating the financial business as one of the main objectives. It’s advisable to have these documents prepared by a legal professional specializing in corporate law to ensure compliance with regulatory requirements.
  3. Board Resolution: Stating the company’s intent to operate as an NBFC, authorizing the submission of the application to the RBI, and committing to not accept deposits until obtaining a license. Having a board meeting with clear agenda items can streamline this process.
  4. Audited Financial Statements: For the last three years, if applicable, demonstrating the company’s net owned fund (NOF) of at least ₹2 crore. Engage a certified accountant or audit firm well-versed in financial regulations to prepare these documents.
  5. Bank Account with a Minimum NOF: Proof of NOF to be maintained in a fixed deposit and a certificate from the company’s auditor certifying the same. Opening a fixed deposit account specifically for this purpose can simplify the verification process.
  6. Directors’ Profile: Detailed profiles of each director, including their qualifications, experience, and any directorships in other companies. Keeping updated professional profiles of directors can expedite this process.
  7. Fit and Proper Criteria Certification: For all directors, based on RBI guidelines, including declarations by directors regarding any criminal background, financial soundness, etc. Regular internal checks and updates on directors’ status can help in maintaining compliance.
  8. Credit Reports of the Directors and the Company: Obtained from a recognized credit bureau like CIBIL. It’s advisable to check and improve credit scores before applying, if necessary.
  9. Detailed Business Plan: Including the business model, market analysis, operational plans, financial projections, and compliance framework. Engaging with financial consultants or business plan experts who understand the NBFC sector can enhance the quality and acceptability of the plan.
  10. KYC Documents: For directors and shareholders holding 10% or more in the company, including identity proof, address proof, and PAN. Keeping digital copies of these documents readily available can speed up submissions.
  11. Organizational Structure and Management Chart: Showing the hierarchical structure and decision-making process within the company. Using organizational chart software can help create a clear and professional representation.
  12. CERSAI Registration Certificate: If applicable, for companies involved in asset financing. The registration can be done online through the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) portal.
  13. Other Regulatory Compliances: Proof of compliance with other financial sector regulations, if applicable (e.g., SEBI, IRDA).

What are the softwares and platforms needed to run an NBFC effectively?

We can divide the softwares into two groups: “Must-Have” for essential operations and compliance, and “Good to Have” for enhanced efficiency, customer experience, and advanced analytics.

Must-Haves are:

  • Core Banking System (CBS): Supports day-to-day banking operations, integrating front-end and back-office tasks.
  • Loan Management System (LMS): Manages the entire loan lifecycle from origination to servicing, crucial for NBFCs focusing on lending.
  • Customer Relationship Management (CRM) Software: Essential for managing customer interactions, improving service, and maintaining relationships.
  • Accounting and Financial Management Software: Necessary for managing finances, ensuring accurate financial reporting, and compliance with accounting standards.
  • Compliance Management System: Aids in adhering to regulatory requirements, crucial for avoiding penalties and ensuring operational legitimacy.
  • Risk Management System: Identifies, assesses, and mitigates risks, essential for maintaining financial stability and customer trust.
  • Document Management System (DMS): Manages electronic and paper documents, vital for record-keeping and regulatory compliance.
  • Cybersecurity Solutions: Protects sensitive data and financial information from cyber threats, essential for customer trust and regulatory compliance.
  • Payment Processing and Gateway Solutions: Facilitates secure and efficient processing of payments and fund transfers, crucial for customer transactions.

Good to Haves are:

  • Business Intelligence (BI) and Analytics Tools: Offer insights into operations, customer behavior, and market trends, supporting informed decision-making.
  • Human Resource Management System (HRMS): Automates HR tasks, enhancing workforce management and operational efficiency.
  • Mobile and Online Banking Platforms: Enhance customer experience by providing convenient access to financial services anytime, anywhere.
  • Cloud Computing Services: Offer scalable and flexible IT infrastructure, facilitating data accessibility and remote work.
  • Artificial Intelligence (AI) and Machine Learning (ML) Tools: Improve decision-making in lending, risk assessment, and customer service through advanced analytics and chatbots.

Potential areas Roopya can help a new NBFC

  • Technology Solutions: Roopya offers technology solutions for various financial services, including loan origination, collections, and customer relationship management (CRM). These tools could streamline operations for a new NBFC, especially in areas like loan application processing, document management, and automated workflows.
  • Regulatory Compliance: Roopya platform is compliant to RBI regulations and which can be complex for new NBFCs.
  • Data and Analytics: Roopya has experience in data analytics and risk management for financial institutions. These could potentially help a new NBFC develop credit scoring models, assess potential borrowers, and manage risks effectively.
  • Market Reach and Partnerships: Roopya Network can give new NBFCs and instant access to other financial institutions or distributors that could help the new NBFC reach customers and distribute their products.

Best In-class Featuresimg

  • Easily create customized forms and applications
  • Track and monitor loan applications
  • Verify identities and documents
  • Provide a self-service portal for customers on both web and mobile platforms
  • Pre-built reporting and MIS capabilities
  • Designed with security and data privacy as a top priority
  • Configurable workflows to accommodate multiparty products
  • Credit risk assessment and modeling
  • Financial insights for underwriting and decision-making
  • Process enforcement and audit trails
  • Fully customizable to meet your business needs