NBFC registration
NBFC registration is a certificate from the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934. Company Suggestion first incorporates the company, then prepares the application. The company does not lend until the certificate is issued.
What is an NBFC?
A non-banking financial company is a company whose principal business is finance: loans, advances, or the acquisition of shares and securities. It is not a bank. It cannot take savings or current-account deposits, it cannot issue a cheque book on itself, and its depositors are not covered by bank deposit insurance.
The usual new certificate is for an Investment and Credit Company that does not accept public deposits. Accepting public deposits is a separate permission. It is not included in an ordinary new licence. A later change in control needs the Reserve Bank’s prior approval.
When is the certificate required?
Two tests decide whether the company must apply.
- Financial assets are more than 50 per cent of total assets, and income from those assets is more than 50 per cent of gross income.
- A new applicant shows Net Owned Funds of ₹10 crore. The ₹2 crore figure is not the threshold for a fresh certificate.
The applicant is a company incorporated under the Companies Act. A private limited company can be the applicant. The directors have to meet the fit-and-proper criteria the Reserve Bank applies to the people who will run it.
Which papers does the application need?
The file shows that the money is in place and that the company has not already started lending.
- The certificate of incorporation, the memorandum, and the articles, with finance as the object
- A board resolution that the company has not started NBFC business and will not start it before the certificate
- The statutory auditor’s certificate of Net Owned Funds
- Directors’ profiles and their credit information
- A three-year business plan, with projected financials
What are the registration steps?
Company Suggestion takes the application through four steps.
- The company is incorporated, and ₹10 crore of Net Owned Funds is in place.
- The application is filed with the Reserve Bank under section 45-IA.
- Any query from the Bank is answered. The company still does not lend.
- The certificate of registration is received. Only then does the financial business start.
Frequently asked questions
4 questions cover the rules that decide this registration.
What Net Owned Funds does a new NBFC need?
₹10 crore for a new Investment and Credit Company. The older ₹2 crore figure is not the requirement for a fresh certificate. Net Owned Funds are the owned funds after the deductions the Reserve Bank applies.
Can an NBFC take savings deposits?
No. An NBFC cannot accept demand deposits, and it cannot issue cheques drawn on itself. Deposit insurance of the kind a bank’s depositors have does not apply. A new certificate is ordinarily for business that does not accept public deposits.
What is the principal-business test?
Financial assets are more than 50 per cent of total assets, and income from financial assets is more than 50 per cent of gross income. A company on the wrong side of that test is not carrying on finance as its principal business.
Can the company lend before the certificate?
No. Section 45-IA requires the certificate before the company commences or carries on the business of a non-banking financial institution.