How to Register an NBFC in India: A Step-by-Step Guide

Registering a Non-Banking Financial Company (NBFC) in India is a meticulous process that involves multiple steps and adherence to various legal requirements. This guide will walk you through the entire process, making it easier to understand and follow.

What is an NBFC?

A Non-Banking Financial Company (NBFC) is a financial institution that offers various banking services but does not hold a banking license. NBFCs provide services such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activities.

Why Register an NBFC?

Registering as an NBFC allows you to legally provide financial services, expand your business, and build trust with clients. It also ensures compliance with the Reserve Bank of India (RBI) regulations, which can protect your business from legal issues.

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Step-by-Step Guide to Registering an NBFC in India

Step 1: Incorporate Your Company

1. Type of Company: First, you need to incorporate a Private limited company or a Public limited company under the Companies Act, 2013.
2. Minimum Capital Requirement: Ensure that the company has a minimum net owned fund of ₹10 crore .

Step 2: Meet the RBI Requirements

1. Directors’ Qualification: At least one of the directors must have experience in finance. The RBI scrutinizes the credentials of the directors to ensure they have a sound financial background.
2. Minimum Net Owned Fund (NOF): Maintain a minimum NOF of ₹10 crore and it should be deposited with Nationalised Bank.
3. Clean Credit Records: Ensure that none of the directors are involved in any financial crime or have a bad credit history.The company must have a clear CIBIL record.

Step 3: Prepare the Necessary Documents

1. Incorporation Certificate and PAN of the company
2. Board Resolution
3. MOA and AOA of the Company
4. Auditors’ Report
5.  Signed List of Directors by each Director of a Company
6. A certificate stating that a company is not holding any kind of public deposit issued from the concerned authority and also not accepting the same.
7. Applicant’s company Net owned fund statement.
8. Bankers’ Report: A bankers’ report confirming the no-lien status of the company’s deposit.

Step 4: File the Application with RBI

1. Online Application: Visit the RBI’s official website and fill out the online application form (COSMOS).
2. Upload Documents: Upload all the necessary documents, including the business plan, income statement, and balance sheet.
3. CARN Number: After submitting the application, you will receive a Company Application Reference Number (CARN).

Step 5: Submit the Physical Copy

1. Hard Copy Submission: Submit a hard copy of the application along with the uploaded documents to the regional office of the RBI.
2. Covering Letter: Attach a covering letter mentioning the CARN number.

Step 6: RBI Scrutiny and Approval

1. Verification: The RBI will scrutinize the application and documents submitted.
2. Meeting Compliance: Ensure all compliance and conditions are met as per RBI norms.
3. Approval: If everything is in order, the RBI will issue a Certificate of Registration (CoR).

Step 7: Post-Registration Requirements

1. Compliance with Regulations: After receiving the certificate of Registration, the NBFC must comply with all RBI regulations, including periodic returns and maintaining the required capital adequacy.
2. Appointment of Key Personnel: Appoint a compliance officer and other key managerial personnel as per RBI guidelines.
3. Operational Guidelines: Follow operational guidelines related to lending, borrowing, and financial reporting as mandated by the RBI.

Difference between Bank and NBFC

Criteria For Comparison	Non-banking Financial Corporation	Banks
Act of regulations	Governed by the Companies Act, 2013	Regulated by the Banking Regulation Act, 1949
Maintenance of Reserve Ratios	Not compulsory	Compulsory
Drawing of a Cheque	Cheques cannot be independently issued	Cheques can be issued
Statutory Reserve Ratio (SLR)	15% SLR for deposit-taking NBFCs	SLR maintenance is compulsory
Deposit Insurance Facility	NBFC deposits are not insured	Bank deposits are insured
Foreign Direct Investment (FDI)	Allowed up to a specified limit	Permissible
Demand deposits	Not permitted to accept demand deposits	Permitted to accept demand deposits
Loan sanction	Faster and more flexible	More stringent
Asset restructuring	Permitted	Not permitted
Product Offering	Primarily property loans	Variety of loan products

Compliance Requirements for NBFCs in India

After registration, NBFCs must adhere to various compliance requirements set by the RBI. These are crucial for the continued operation and legal standing of the NBFC.

1. Capital Adequacy

• Capital to Risk Assets Ratio (CRAR): Maintain a CRAR of 15%, with Tier-I capital at least 10%.

2. Financial Reporting and Returns

• Annual Returns: File annual returns and financial statements with the RBI.
• Statutory Audits: Conduct regular audits by an RBI-approved auditor.
• NBS-1 Return: Submit a quarterly return on financial indicators.
• NBS-2 Return: Submit a quarterly return on Prudential Norms.
• NBS-7 Return: Submit a quarterly return for Asset-Liability Management (ALM).

3. Asset Classification and Provisioning

• Asset Classification: Classify assets into standard, sub-standard, doubtful, and loss assets.
• Provisioning Norms: Follow RBI’s guidelines for provisioning against sub-standard, doubtful, and loss assets.

4. Fair Practices Code

• Customer Transparency: Follow a fair practices code ensuring transparency in terms and conditions.
• Grievance Redressal: Establish a grievance redressal mechanism for customers.

5. Corporate Governance

• Board Committees: Form mandatory committees such as Audit Committee, Nomination Committee, and Risk Management Committee.
• Fit and Proper Criteria: Ensure directors meet the RBI’s fit and proper criteria.

6. KYC and Anti-Money Laundering

• KYC Norms: Adhere to Know Your Customer (KYC) norms and Anti-Money Laundering (AML) standards.
• Periodic Updates: Regularly update KYC information of customers.

7. Customer Grievance Redressal

• Complaint Resolution: Implement a robust customer complaint resolution system.
• Ombudsman Scheme: Participate in the NBFC Ombudsman Scheme for resolving customer complaints.

8. Credit Information Reporting

• Credit Reporting: Report borrower details to credit information companies (CICs) like CIBIL, Equifax, Experian, and CRIF High Mark.

9. Statutory Reserve Fund

• Reserve Fund: Create a statutory reserve fund by transferring at least 20% of the net profit every year until the reserve fund is equal to the paid-up capital.

10. ALM and Risk Management

• ALM System: Implement an Asset-Liability Management (ALM) system to manage liquidity and interest rate risks.
• Risk Management Framework: Develop a comprehensive risk management framework covering credit risk, market risk, operational risk, and liquidity risk.

Conclusion

Registering an NBFC in India is a structured process that ensures your business operates within legal boundaries. By following the steps outlined in this guide and adhering to the compliance requirements, you can navigate the registration process efficiently and maintain a legally compliant NBFC. Always consult with legal and financial experts to ensure compliance with all regulatory requirements and to address any specific concerns related to your business.

For further details and updates, you can visit the RBI official website and stay informed about the latest guidelines and notifications related to NBFC registration.

Feel free to reach out to us with any queries or for assistance with the registration process. We are here to help you every step of the way!