NBFC or Non-Banking Financial Company is a financial company in India that is registered under the Companies Act, 1956. NBFCs in India provide financial services similar to banks but it doesn't hold any banking license. These financial companies play a vital role in the country’s economy by providing various financial services to parties usually not served by any traditional banks in India. NBFCs are mainly involved in lending activities, providing credit & loan facilities to businesses and individuals. Also, they can offer various types of loans, including personal, housing, vehicle, business & more.

 In India, Non-Banking Financial Companies often specialize in specific sectors or types of lending, catering to niche markets/underserved segments. To run an NBFC in India, it is mandatory to get NBFC Registration under RBI. However, if a financial company/individual fails to do so & claims to be regulated by the Reserve Bank of India has to face a penalty, or fine & can be prosecuted under the Court of Law.

What are the Different Categories of NBFCs Registered with RBI?

In India, NBFCs are categorized into 3 different parts:

• In terms of the type of Liabilities in Deposit & Non-Deposit accepting NBFCs;
• Non-Deposit taking NBFCs by their size into systemically important & other non-deposit holding companies (NBFC-NDSI & NBFC-ND);
• By the type of activity they conduct.

Deposit Taking NBFCs

An NBFC is a company that has the principal business of receiving deposits under any scheme or arrangement in installments by way of contributions/in any other way like Deposit Taking NBFCs.

Non-Deposit Taking NBFCs

A Non-Banking Company or Institution that is not involved in the principal business of receiving deposits is a Non-Deposit Taking NBFCs and under this there are 2 types of Non-Deposit Taking NBFCs:

• NBFC-ND-SI (Non Deposit Taking NBFCs – Systematically Important): It is for those whose asset size is of Rs. 500 crores or more as per last audited balance sheet.
• NBFC-ND: It is Non-Deposit Taking NBFCs whose asset size is less than Rs. 500 crores as per the last audited balance sheet are considered Systematically Important NBFCs.

NBFCs as per Activities

1) AFC or Asset Finance Company: It's a Company that is a financial company carrying on as its principal business the financing of physical assets supporting productive or economic activity like automobiles, machinery and equipment. The main business for this purpose is defined as the aggregate of financing physical assets supporting economic activities & income arising therefrom is not less than 60% of its total assets & total income respectively.

2)Investment Company: It's a company that is carrying on as its principal business the acquisition of securities.

3) Loan Company: It’s a financial institution carrying on as its main business the providing of finance by making loans or advances or otherwise for any activity other than its own but doesn’t include an AFC (Asset Finance Company).

4) IFC or Infrastructure Finance Company: It's a non-banking finance company that deploys a minimum of 75% of its total assets in infrastructure loans, which has a NOF of at least Rs. 300 crores, which has a minimum credit rating of A and a CRAR of 15%.

5) MGC or Mortgage Guarantee Companies: These are financial companies for which at least 90% of the business turnover is Mortgage Guarantee Business or a minimum of 90% of the gross income is from mortgage guarantee business & NOF is Rs. 100 crores.

6) NBFC-MFI (Micro Finance Institution): It's a non-deposit-taking NBFC having not less than 85% of its assets which fulfills the following criteria:

• The loan amount should not be more than Rs. 50,000 in the 1^st cycle & Rs. 1 lakh in subsequent cycles.
• Loan disbursed by this NBFC to a borrower with a rural household annual income not more than Rs. 1 lakh or urban & semi-urban household income not more than Rs. 1.6 lakh.
• Loan to be extended without any collateral.
• The loan amount is repayable in weekly or monthly installments at the borrower's choice.
• Loan tenure is not less than 24 months or 2 years for loan amounts in excess of Rs. 15,000 with prepayment without penalty.
• The total indebtedness of the borrower doesn't exceed Rs. 1 lakh.
• The aggregate loan amount given for income generation is not less than 50% of the total loan amount given by the Micro Finance Institutions.

7) NBFC-IDF (NBFC-Infrastructure Debt Fund): It's a company registered as an NBFC in India to simply provide the flow of long-term debt into infrastructure projects. This NBFC raises various resources via the issuer of Dollar/Rupee denominated bonds of minimum 5-year maturity. Only IFC can sponsor NBFC-IDF.

8) CIC-ND-SI (Systemically Important Core Investment Company): This NBFC carrying on the business of acquisition of shares & securities which satisfies the following criteria:

• It doesn't trade in its investments in shares, loans, or debt in group companies except via block sale for the purpose of disinvestment or dilution;
• The asset size is Rs. 100 crores or above;
• It also accepts public funds;
• It holds not less than 90% of its Total Assets in the investment form in equity shares, preference shares, loans, or debt in group entities;
• It also doesn’t carry on any other financial activity mentioned in Section 45I(c) & 45I(f) of the RBI Act, 1934 except investment in bank deposits, government securities money market instruments, loans to & investments in debt issuances of group companies or guarantees issued on behalf of group companies;
• Its investments in the equity shares (comprising instruments, compulsorily convertible into equity shares within a period not surpassing 10 years from the issue date) in group companies constitute not less than 60% of its Total Assets.

9) NBFC-NOFHC (Non-Operative Financial Holding Company): It’s a financial institution via which promoter or promoter groups will be permitted to set up a new bank. It is a wholly-owned NOFHC which will hold the bank and all other financial services companies regulated by the Reserve Bank of India or other financial sector regulators, to the extent permissible under the applicable regulatory instructions.

10) NBFC-Factors: It's a non-deposit-taking NBFC engaged in the business of factoring. The financial assets in the factoring business should constitute a minimum of 50% of its total assets & its income derived from the factoring business shouldn't be less than 50% of its gross income.

Major Changes in the Regulatory Framework for NBFCs in India by RBI

RBI has implemented important changes in the regulatory framework for NBFCs. The Master Direction – RBI (NBFC-Scale Based Regulation) Directions, 2023 categorized NBFCs into 4 different layers, impacting their operations & compliance requirements such as:

• Base Layer: Non-Deposit taking Non-Banking Financial Companies below the asset size of Rs. 1000 crores.
• Middle Layer: All Deposit-taking NBFC-Ds irrespective of asset size, non-deposit-taking NBFCs with asset size above Rs. 1000 crore.
• Upper Layer: Those Non-Banking Financial Companies that are specifically identified by the RBI.
• Top Layer: The top layer of NBFC can be populated if the RBI is of the opinion that there is a substantial increase in the potential systemic risk from particular NBFCs in the Upper Layer.

There are some other vital changes are as under:

• Change in NOF: Now, for NBFCs in India NOF has been increased from Rs. 2 crores to Rs. 10 crores in a phase manner with some following exceptions:

Moreover, for NBFC-AA, NBFC-P2P & NBFCs with no public funds & no customer interactions, the NOF shall continue to be Rs. 2 Crores. It is clarified that there is no change in the current regulatory minimum NOF for NBFCs-MGCs, NBFC-IFC, NBFC-HFC, NBFC-IDF, and NBFC-SPD.

• Change in NPA Classification: The present NPA Classification norm stands changed to the overdue period of more than 90 days for all NBFCs in a phase manner as we mentioned below:

• Numerous NBFCs in a Group: Categorization in Middle Layer NBFCs that are part of a common Group or are floated by a common set of promoters shall not be checked on a separate basis. The overall assets of all the Non-Banking Financial Companies in a group shall be consolidated to determine the threshold for their classification in the middle layer.
• Risk Management Committee (RMC): If the Board is able to focus on risk management, NBFCs shall establish a Risk Management Committee either at the Executive or Board Level. The Risk Management Committee shall be accountable for evaluating the total risks faced by the NBFC including liquidity risk & report to the Board.
• LR or Leverage Ratio: LR of NBFCs except NBFC-ML, NBFC-MFIs & above shall not be more than 7 at any point in time.
• Disclosures: The requirements for Disclosure shall be prolonged, inter alia, to include types of exposure, related party transactions, loans to Senior Officers or Directors & customer complaints & others.
• Standard Asset Provision (except NBFC-ML & Above): NBFC-BL shall make provision for standard assets at 0.25% of the outstanding which shall not be calculated for arriving at net NPAs. The provision towards standard assets need not be achieved from gross advances but shall be shown distinctly as Contingent Provisions against Standard Assets in the balance sheet.
• Board Experience: Considering the requirement for professional experience in managing all NBFCs’ affairs at least 1 Director shall have relevant experience in a bank or an NBFC.
• Loans to Senior Officers, Directors & Directors’ Relatives: NBFC-BL shall have a Board Approved Policy on grant of loans to Senior Officers, Directors, and Directors’ Relatives & to entities where Directors or their relatives have majority of shareholding.

What are the Benefits of NBFC Registration in India?

The following are the benefits of NBFC Registration in India:

• These Financial Companies can trade in money market instruments;
• NBFCs in India can provide loans & credit facilities to its clients;
• Due to its digital advancement, the reach of the NBFCs in India has broadened & it can reach an extensive audience within seconds;
• Property investments with NBFCs are profitable due to their flexible rates, easy repayment, acceptable property collateral with fast & simple processing;
• These companies can also take part in wealth management like managing a portfolio of shares & stocks;
• A credit score doesn't become a hindrance in getting a loan;
• The loan processing feature takes very little time as compared to traditional banks;
• Also, the process of NBFC Registration is way simpler than other banks or lending institutions.

Pre-Requirements for NBFC Registration in India

For NBFC Registration under the Companies Act, of 1956, a company should abide by:

• A Company should be incorporated under Section 3 of the Companies Act, 1956;
• A company should have a minimum NOF of Rs. 2 crores & this fund should not be borrowed fund. (Note: This limit is different in other instances like that of specialized NBFCs like NBFC-MFIs, NBFC-Factors, and CICs, as it is decided on the type of NBFC). Any spouse gift comes under owned funds;
• There must be a detailed business plan for the next 5 years;
• Minimum 1/3^rd of the Directors must have some good experience in finance.

Documents Required for NBFC Registration

If you want to establish an NBFC in India, then there are certain documents that you need to submit at the time of the NBFC Registration process and these documents play a vital role in determining the eligibility & credibility of your NBFC:

• Certified copies of the CoI (Certificate of Incorporation) of the Company;
• PAN or CIN of the Company;
• Copy of MoA to show the main clause regarding financial business;
• Details of Company’s Directors along with their signatures;
• Copy of cost of the fixed deposit receipt & banker certificate stating balances in the support of minimum NOF of Rs. 2 crores;
• CIBIL data of all the Directors of the Company;
• If the company already exists then you need to submit:

a) P&L Account;

b) Audit Balance Sheet;

c) Directors & Auditors Report of the last 3 years of the Company or the overall period of the company's existence, whichever is less.

• Board Resolution in favor of the formation of NBFC;
• Documents mentioning the Company’s location.

How to Register a NBFC in India? – Step by Step Online NBFC Registration Process

The following is the procedure for NBFC Registration online in India:

• First, the company should be registered under the Companies Act, 2013 or should already be incorporated under the Companies Act, 1956 as either a Private Limited/Public Limited Company;
• The minimum NOF of the Company should be Rs. 2 crores;
• 1/3^rd of the Directors must hold finance experience;
• The company’s CIBIL records should be clean;
• The Company also must have a detailed business plan for 5 years;
• The company must comply with the requirements for capital compliance & FEMA;
• Once all the above criteria have been fulfilled the online application on the RBI website should be filed & submitted along with the requisite documents;
• Then, a CARN Number will be generated;
• A copy of the application has to be sent to the Regional Branch of RBI;
• Once the application for NBFC Registration is properly examined, then the License will be given to the Company.

Note: To know more about the process of NBFC Registration, then you have to contact us. We have a team of experts who understand your business & give you the solution to your query regarding NBFC Registration.

New NBFC Return Applicability and Filing

Recently RBI has introduced XBRL Returns for fling all NBFC Returns:

• NBFC has asset size between Rs. 2 crores and Rs. 100 crores:

• NBFC has asset size between Rs. 100 crores and Rs. 500 crores:

• NBFC has asset size between Rs. 500 crores and Rs. 1000 crores:

Important Guidelines an NBFC needs to follow after getting a valid License

Once the Company gets a valid license it has to follow some guidelines as mentioned below:

• They can’t receive deposits that are payable on demand;
• All the details regarding the Company and any change in the Company's composition have to be provided by RBI;
• A Quarterly Return on the liquid assets of the Company has to be provided;
• A Certificate from the Auditors had to be taken informing that the Company is in a position to pay back all the money taken from the public;
• A half yearly ALM or Asset Liability Management return has to be given by the Company which has a Public Deposit of Rs. 20 crores & more or has assets worth Rs. 100 crores & more;
• A minimum of 15% of the Public Deposits should be maintained by the Company in Liquid Assets;
• The deposits taken by the general public will be unsecured;
• A statutory return on the deposits taken by the Company has to be provided in Form NBS-1 yearly;

Note: If the NBFC defaults in the payment of any amount taken from the consumer, then the consumer has the right to go to the National Company Law Tribunal (NCLT) or the Consumer Forum to file a suit against the Company.

Difference Between Traditional Bank and NBFC in India

You can check out the comparison table below:

How can we help you in the NBFC Registration Process?

• We will help you in the process of evaluation & documentation of NBFC Registration in India.
• Our experts will give you complete assistance in application filing for the NBFC Registration;
• Our experts will also coordinate with RBI officials to make sure the coordination is in order to avoid inaccuracy in NBFC Registration which may result in the application rejection;
• We will help you in keeping track of your application status.