NBFC Registrations

NBFC registration with the RBI is mandatory for companies engaging in financial activities such as lending, investment, or asset financing. Affluence Advisory provides end-to-end assistance in obtaining NBFC licenses, ensuring full regulatory compliance.

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Based on the ability to accept Deposits:

  • Deposit Taking NBFC (NBFC-D)
  • Non-Deposit Taking NBFC (NBFC-ND)
    • Type I: – NBFC-ND not accepting public funds/ not intending to accept public funds in the future and not having customer interface/ not intending to have customer interface in the future.
    • Type II: – NBFC-ND accepting public funds/ intending to accept public funds in the future and/or having customer interface/intending to have customer interface in the future. NBFC-MFI, NBFC-factor, NBFC-IDF etc. are categorized as Type II.

Types of NBFCs by Business Activity for NBFC Registration

NBFCs play a crucial role in India’s financial sector by providing services like loans, asset financing, and investment management to individuals and businesses underserved by traditional banks. They are categorized into different types based on their functions and activities for NBFC registration.

  • Investment and Credit Company (ICC)
  • Investment Finance Company (IFC)
  • Core Investment Company (CIC)
  • Infrastructure Debt Fund (IDF-NBFC)
  • Micro-Finance Institution (MFI)
  • Factor (Factoring NBFC)
  • Mortgage Guarantee Company (MGC)
  • Peer-to-Peer Lending Platform (P2P)

Types Of NBFCs By Regulatory Norms Of RBI

NBFCs in India are classified based on the regulatory norms established by the RBI, with each category having distinct compliance requirements. The types of NBFCs under RBI regulations include:

Regulatory structure for NBFCs shall comprise the four layers as defined in the pyramid below:

NBFC- Top layer (NBFC-TL)

The top layer to be populated only if RBI is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the upper layer. There will be enhanced and intensive supervisory engagement with these NBFCs.

NBFC-Upper layer (NBFC-UL)

NBFCs would be specifically identified by RBI through parametric analysis of certain quantitative and qualitative criteria. The top 10 eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of any other factor.

NBFC - Middle layer (NBFC-ML)

All deposit taking NBFCs (NBFC-Ds), Non-deposit taking NBFCs with asset size of s. 1000 crore or more, Standalone Primary Dealers (SPDs), Infrastructure Debt Fund - NBFCs (IDF-NBFCs), Core Investment Companies (CICs), Housing Finance Companies (HFCs), Infrastructure Finance Companies (NBFC- IFCs) and certain government owned NBFCs.

NBFC - Base layer (NBFC-BL)

Non-deposit taking NBFCs with asset size of less than s. 1000 crore, NBFC- Peer to Peer Lending Platform (NBFC-P2P), NBFC- Account Aggregator (NBFC-AA), Non-Operative Financial Holding Company (NOFHC), NBFCs not availing public funds and not having any customer interface and certain government owned NBFCs.

Eligibility criteria for NBFC Registeration

The eligibility criteria for NBFC registration vary depending on the jurisdiction and regulatory authority governing non-banking financial companies. In India, the Reserve Bank of India (RBI) regulates and oversees the registration and operations of NBFCs. The eligibility criteria for NBFC registration in India typically include the following:

  • Incorporation: The applicant company must be registered under the Companies Act, 1956 or 2013, as a public company or private limited company. The company’s Memorandum of Association (MoA) must include the objective of carrying on the business of non-banking financial activities.
  • Minimum Net Owned Funds: The applicant company must have a minimum net owned funds (NOF) as prescribed by the RBI. The NOF requirement may vary depending on the type of NBFC and its proposed activities.
  • Management: The management of the applicant company must be fit and proper, with individuals possessing relevant qualifications, experience, and integrity to run a financial institution. The RBI may scrutinize the background and track record of the directors and key management personnel
  • Business Plan: The applicant company must submit a detailed business plan outlining its proposed activities, target market, financial projections, risk management framework, and compliance mechanisms.
  • Compliance with Prudential Norms: The applicant company must agree to comply with prudential norms prescribed by the RBI, including capital adequacy requirements, asset classification, provisioning norms, and liquidity management standards
  • Regulatory Compliance: The applicant company must undertake to comply with all applicable laws, regulations, and guidelines issued by the RBI, including Anti-Money Laundering (AML) and Know Your Customer (KYC) norms.
  • No Objection Certificate (NOC): If the applicant company proposes to undertake financial activities in collaboration with a foreign entity or as a joint venture, it may require a No Objection Certificate (NOC) from the relevant authorities, such as the Ministry of Finance or Foreign Investment Promotion Board (FIPB).
  • Submission of Application: The applicant company must submit a formal application for NBFC registration to the RBI, along with all necessary documents and fees as prescribed by the regulator.

Documents Required for NBFC Registeration?

The specific documents required for NBFC registration may vary depending on the jurisdiction and regulatory authority governing non-banking financial companies. However, in India, where the Reserve Bank of India (RBI) regulates and oversees NBFCs, the following are typically the documents required for NBFC registration:

  • Incorporation Documents:
    • Certificate of Incorporation issued by the Registrar of Companies (RoC).
    • Memorandum of Association (MoA) and Articles of Association (AoA) of the company.
    • Board resolution authorizing the application for NBFC registration.
  • Company Profile:
    • Details of the promoters, directors, and key management personnel.
    • Organizational structure and shareholding pattern of the company.
    • Business plan outlining proposed activities, target market, and financial projections.
  • Net Owned Funds (NOF) Certificate:
    • A certificate from a Chartered Accountant confirming the company’s net owned funds (NOF) as per the RBI’s prescribed requirements.
    • A certificate from any statutory auditor stating that the Company is not holding any public deposit and also do not accept it
  • Management Profile:
    • Curriculum Vitae (CV) of directors and key management personnel, highlighting their qualifications, experience, and expertise in financial services.
  • Compliance Documents:
    • Undertaking to comply with all applicable laws, regulations, and guidelines issued by the RBI, including but not limited to prudential norms, KYC/AML guidelines, and 
 regulatory reporting requirements.
    • Declaration of fit and proper status of directors and key management personnel.
  • Infrastructure and IT Systems:
    • Details of the company’s infrastructure, including office premises, IT systems, and security measures in place to safeguard customer data and financial transactions
  • Financial Statements:
    • Audited financial statements for the past three years, including balance sheet, profit and loss account, and cash flow statement.
    • Financial projections for the next three to five years, including income statement and cash flow projections.
  • Application Form and Fees:
    • Completed application form for NBFC registration as prescribed by the RBI.
    • Payment of requisite application fees as specified by the regulator.

Tentative checklist for NBFC registration

Checklist for the NBFC License from RBI Registration

  • Minimum net worth requirement – Rs. 10 crores
  • Capital must be injected as Tier 1 capital
  • Borrowed capital is not permitted
  • 10+ years of experience must for Management
  • Experience required in credit, risk, and retail
  • Submitting a robust business plan
  • The business plan should benefit the public at large
  • RBI grants licenses based on the business plan
  • A clear credit history is a must
  • No loan defaults by directors or shareholders
  • Associate companies must have a clean history
  • Clean credit history of foreign subsidiaries
  • Registration under Companies Act 2013 is must
  • Can be a private limited or a public limited company
  • Adherence to RBI regulations is a must

Checklist for Directors & Shareholders for NBFC

  • Minimum of two directors required
  • Minimum of two shareholders required
  • Must be financially sound
  • Must have a clean legal history
  • Should meet the Fit and Proper eligibility criteria
    set by the RBI
  • Should meet transparency in the source of funding
  • Foreign individuals/entities can become shareholders
  • Directors and shareholders must adhere to RBI guidelines

Part of NBFC Compliance

As an entrepreneur, you must ensure that your NBFC adheres to all mandatory rules, regulations, laws, and compliances, as violations can lead to penalties and impact its operations and reputation. The RBI has strict benchmarks to ensure that NBFCs follow all regulatory requirements.

The penalties for non-compliance with NBFC registration guidelines are listed below for your understanding:

  • Repeated non-compliance by an NBFC can lead to RBI canceling its license, resulting in the suspension of operations.
  • Failure to comply with RBI guidelines can result in hefty fines for NBFCs.
  • Persistent non-compliance may lead the RBI to restrict an NBFC’s business activities and limit its service offerings.
  • The RBI can take legal action against the NBFC and its directors for major regulatory violations.
  • Non-compliance can severely impact an NBFC’s goodwill, causing a loss of customer and investor confidence.

Post registeration compliance for NBFC license Certificate

Since 2020, the RBI has introduced various mandatory post-registration compliances for NBFC license certificates, which include the following:

  • Registration to become a member of all four CICs (Credit Information Companies)
  • FIU-IND Registration
  • Registration under CERSAI (Central Registry of Securitization Asset Reconstruction and Security Interest)
  • Central KYC registration (CKYC)
  • Compliance with the Fair Practice Code
  • Submission of financial information to Information Utilities
  • Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Training
  • Risk Management Policy approved by the Board
  • Filing of various RBI Returns – DNBS01, DNBS02, DNBS03, DNBS04A, DNBS04B, DNBS06, DNBS10 etc as per applicability
  • Form A Certificate Return Filing
  • Fulfilment of Ratios:
    • Capital to Risk-weighted Assets Ratio (CRAR)
    • Liquidity Coverage Ratio (LCR)
    • Leverage
    • CA Certificates

FAQ's

Central KYC Registry is a centralized repository of KYC records of customers in the financial sector with uniform KYC norms and inter-usability of the KYC records across the sector with an objective to reduce the burden of producing KYC documents and getting those verified every time when the customer creates a new relationship with a financial entity.

Central KYC Registry has the below salient features:

  1. Facilitates uniformity & inter-usability of KYC records & process across the financial sector.
  2. Unique KYC identifier linked with independent ID proofs.
  3. Substantial cost reduction by avoiding multiplicity of registration and data upkeep.
  4. KYC data and documents stored in a digitally secure electronic format.
  5. Facilitates KYC Search, Upload, Download, Update.
  6. Secure and advanced user authentication mechanisms for system access.
  7. Data de-duplication to ensure single KYC identifier per applicant.
  8. Real time notification to institutions on updation in KYC details.
  9. Seamless file exchange processes without the need for manual intervention.
  10. API’s for search and download allow for real time account opening for CKYC compliant customers.

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