NBFC Registration

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NBFC Registration

NBFCs or Non-Banking Financial Company are registered under the Companies Act 1956/Companies Act 2013. Though these do not possess a banking license, yet are involved in various financial services. Some of the services include:

Loan and credit facilities
Asset Financing
Acquisition of shares/stocks/bonds
Hire-purchase
Insurance business
Chit business
Currency exchange
Peer to peer lending
Hedge funds

What is not included under NBFCs?

And if the company is engaged in other activities, then it is not registered as an NBFC. Some of the activities are:

Agriculture activity
Industrial activity
Purchase/sale of any goods
Providing any services and sale/purchase/construction of the immovable property

Classification of NBFC

The classification based on authorization to take deposits:

Type-1: Deposit-taking (NBFC-D)
Type-2: Non-deposit taking (NBFC-ND)

The classification based on their activities:

Asset Finance Company (AFC): If the primary business of the company is to finance the assets of a firm, such as machines, automobiles, generators, material equipment, industrial machines, etc. it is called Asset Finance Company.

Investment Company (IC): These companies deal primarily in securities.

Loan Companies (LC): The main business for these companies is to grant loans and advances. These loans are not for asset acquisition, but other purposes, such as working capital finance, etc.

Infrastructure Finance Company (IFC): The companies falling under this category owns at least Rs.300 Crore and deploys 75% of its total assets in infrastructure loans. It must also have credit rating A or above and CRAR of 15%.

Systematically Important Core Investment Company: In case a company owns assets worth Rs.100 crore or more and has deployed 90% of its assets in debt instruments or loans in group companies, then it is considered as CIS-ND-SI. Of the 90%, 90% should be invested in equity shares.

Infrastructure Debt Fund (IDF-NBFC): The investment of these companies is primarily in the infrastructure sector. These funds are crucial, as it is difficult to obtain these funds. It is because of its scale of the requirement of these funds, long gestation period and long-term requirements.
You could either register this as a trust or a company.
In case it’s a trust, then it would be a mutual fund which comes under SEBI regulations. It will then be called as IDF-MF.
And if it is a company, then it would be under RBI regulations. Then it will be called as IDF-NBFC.

Mutual benefit financial company: This is a type of company, whose main aim is to enable its members to pool their money with a pre-calculated investment objectives. The sources of this fund are share capital & deposits from its members and the general public.

Micro Finance Institution (NBFC-MFI): This is a non-deposit taking NBFC that has at least 85% of its assets in the form of microfinance.

Housing Finance Company: In the Memorandum of Association of these companies, there is a clause of housing finance mentioned. These provide mid-term capital loans to individuals or firms. Due to its less stringent regulations and flexibility, these companies are a much better alternative to commercial banks.

Core Investment Company: These are the business company that conducts the business of acquisition of securities and shares, these companies hold 90% of its asset in the form of bonds, equity shares, and preference shares. Also, these companies need to invest at least 60% in equity shares.

Regulations of NBFC

Company Type	Regulators
NBFCs registered with RBI	Regulation, supervision, surveillance and enforcement under RBI
NBFC regulated by other regulators	Depends on the type of institution
Housing Finance Institutions	National Housing Bank
Merchant Banking Company/Venture Capital Fund Company/Stock Broking/Collective Investment Schemes (CIS)	Securities Exchange Board of India
Nidhi Companies and Mutual Benefit Companies	Ministry of Corporate Affairs
Chit Fund Companies	State Government
Insurance Companies	Insurance Regulatory and Development Authority
Non-Banking Non-Finance Companies	Regulation, supervision, surveillance and enforcement under the Companies Act 1956.

Pre-requirements of NBFC

For a company to be considered an NBFC, it should be registered as per the rules, regulations, and provisions mentioned in the Companies Act 2013 of the Companies Act 1956.

The minimum owned fund for this should be Rs.2 crore and this shouldn’t be borrowed fund. (This limit is different in other cases like that of specialized NBFCs like NBFC-MFIs, NBFC Factors, CICs, as it is decided on the kind of NBFC). Any gift from spouse comes under owned-funds.

At least 1/3rd of the directors must have some experience in finance.

Also, there must be a detailed plan for the next 5 years.

NBFCs as sponsors of IDF-MF

For a company to be considered as IDF-MF, the minimum owned fund should be at least Rs.3 crore, CRAR of 15% and NPA not more than 3% of the net advances. Along with this, the company should be operational for the last 5 years and profitable in the last 3 years.