NBFC (Non-Banking Financial Institution) and its specific guidelines

NBFC is an institution under the Companies Act 2013 or 1956 who is basically engaged in the business of loans and advances, equities, acquisition of stocks, debt etc issued by the government or any local authority. The objective behind the NBFC registration is to accept deposits under any scheme or manner.

As per section 45 (c) of the RBI Act, a Non-Banking Company engaging in the business of a financial institution will be an NBFC. The Ministry of Corporate Affairs and the Reserve Bank of India govern this kind of institutions.

Which NBFCs are not required to obtain any registration with the Reserve Bank of India?

  1. Merchant Banking Companies
  2. Core Investment Companies (assets < 100 crore or public funds are not taken)
  3. Companies those who are engaged in the business of stock-broking
  4. Companies those who are engaged in the business of Venture Capital.
  5. Housing Finance Companies
  6. Insurance companies which are having a certificate of registration issued by IRDA.
  7. Chit Fund Companies under the Sec 2 clause (b) of the Chit Fund Act, 1982
  8. Nidhi Companies

Types of NBFCs

On the basis of the Activity nature

  1. Asset Finance company
  2. Investment Company
  3. Loan Company
  4. Infrastructure Finance company
  5. Core Investment Company
  6. Micro-Finance Company
  7. Housing Finance Company
  8. Mortgage Guarantee Company

On the basis of the Deposits

  1. Deposit accepting NBFCs
  2. Non-deposit accepting NBFCs

What are the requirements and procedure for incorporating NBFCs?

Following are the procedure and requirements for commencing new NBFC in India:

  1. First and foremost, the company must be registered under the Companies Act 2013 or under Companies Act 1956.
  2. 2 crores should be the minimum net owned fund of the company.
  3. There must be at least one director from the same background or a senior banker as a full-time director in the company.
  4. The CIBIL score of the company must be crystal clear.
  5. Then, fill the online application on the website of RBI and submit it along with the requisite documents.
  6. CARN number will be generated.
  7. Application's hard copy has to be sent to the regional branch of the Reserve Bank of India.
  8. When the application is properly scrutinized, the License will be granted to the company.

What are the specific guidelines for an NBFC?

The following guidelines must be adhered by the company after getting NBFC license:

  • NBFC can't receive deposits which are payable on demand.
  • The minimum period for public deposit is for 12 months and the maximum time period is 60 months.
  • The interest rate of NBFC can't be more than the ceiling prescribed by the RBI (Reserve Bank of India).
  • Any repayment of the amount taken by the company will not be guaranteed by the RBI.
  • The composition of the company and the information about the company has to be furnished to the RBI.
  • All the deposits taken by the public will be unsecured.
  • Every year, the company needs to submit its audited balance sheet.
  • Every statutory return on the deposits taken by the company has to be furnished in the form NBS- 1 every year.
  • Every quarterly return on the liquid assets of the company has to be furnished.
  • A Certificate must be drawn from the auditors stating that the company is in a position to pay back all the deposits or money taken from the public.
  • Half-yearly ALM return must be given by the company which has a Public Deposit of Rs. 20 crores and above or has assets worth Rs. 100 crore and above.
  • In every 6 months, the credit rating has to be taken and submitted to the RBI.
  • Public deposits up to the level of 15% have to be maintained by the company in Liquid Assets.

In case the NBFC defaults in the payment of any amount taken, then the consumer can go to the national company law tribunal or the consumer forum to file a suit against the company.

This article has been contributed by Sarubpreet Kaur who is a content writer with LegalRaasta. Legal Raasta is an online portal that assists companies and startups with Company registration, NBFC Registration, GST registration, ISO Certification, and ITR filing.


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