Non-banking financial companies (NBFCs) are a vital part of the Indian financial service system. NBFC’s have multiplied in large numbers and serving the public at large to support the financial inclusion program with affordable credit at home. NBFCs are playing a key role in meeting the credit demands unmet by the traditional banks, specifically focusing on peer to peer lending. Corpseed is leading firm in India for NBFC registration.

It is a Company registered under the Companies Act engaged in the business(es) of providing financial services including loans & advances, leasing, hire purchase etc. They provide loans and advances and other credit facilities to business people or budding entrepreneur where Bank/Financial Institution are not comfortable, or say it is an alternative source of finance to businessman.  Thus, they have widened the spectrum and array of products and services offered by the financial sector. Progressively, NBFC’s are gaining increasing recognition due to their customer-oriented services; flexible products, abridged procedures; flexibility and timeliness in meeting the credit needs of the seekers of credit; etc.

NBFCs are regulated by the Reserve Bank of India (RBI) within the framework of the Chapter IIIB of the Reserve Bank of India Act, 1934 and any rules made thereunder or any directions issued by it under the Act. It is prima facie that the NBFC can be Companies registered under the Companies Act, 1956/2013 with the object clause of financial activity and the same need to take approval from Regulator Reserve Bank of India RBI) before commence the business of finance. Upon approval of RBI, Company can start the financial business and the entity should maintain the Principal Business Criteria (PBC) regularly.

FINANCIAL ACTIVITY as “Principal Business” implies that financial assets of the Company shall constitute more than 50% of the total assets of the Company and income from such financial assets shall constitute more than 50% of the gross revenue of the Company, is termed as “PBC”.

Types of Non- Banking Financial Company (NBFC) in India

• INVESTMENT AND CREDIT COMPANY (NBFC-ICC): Company registered under Companies Act, 2013 with its principal business of loans and advances, asset finance, providing the finance for any activity other than its acquisition of own securities; also not in any other category of NBFC is called Investment and Credit Company. It is merged version of previous form like Loan Company, Investment Company and Assets Finance Company, enabling a particular entity with all three activities in one Brand, called ICC. It required Net Owned Fund of INR 2 Crore to start with this business.
• INFRASTRUCTURE FINANCE COMPANY (NBFC-IFC): The Infrastructure Finance Company is specific NBFC Category, principally engaged in providing infrastructure loans. Such companies do business of credit facility (term loans, project loans, etc.) to its client. It required minimum of 75% of its total assets of the company should be invested in the infrastructure loans. It required Net Owned Fund of INR 300 Crore to be start with.
• INFRASTRUCTURE DEBT FUND (IDF)-NBFC: It is extended form of IFC and IFC can only be Sponsor for this Debt Fund. IDF as company register in Companies Act, 2013 regulated by Reserve Bank of India as IDF facilitates the flow of long term debt into infrastructure projects. It can raise resources through the issue of Rupee or Dollar denominated bonds of minimum 5 years maturity.
• MORTGAGE GUARANTEE COMPANY (MGC)-NBFC: MGC company' has a principle objective of providing mortgage guarantee. Such companies shall comply with at least 90% of the business turnover form mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business. It can be started with Net Owned Fund of INR 100 Crore.
• NBFC-NON OPERATIVE FINANCIAL HOLDING COMPANY [NOFHC]: A NOFHC is financial business entity through which Entities/groups will be allowed to set up a new bank, which will hold the bank and all other financial services companies regulated by RBI or other financial sector regulators.
• Non-Banking Financial Company (NBFC - MFI): Micro Finance Institution (NBFC-MFI) are the non-deposit taking financial company with Minimum Net Owned Funds of Rs.5 crore and above (for North Eastern Region of India, it will be Rs. 2 crores). It has criteria of Qualifying Assets not to be less than 85% of its total assets, to remain MFI. Qualifying assets are loan disbursed to borrowers with rural household income not exceeding 125k or urban and Semi-Urban household income not exceeding INR 200K. Loan to be extended without Collateral.
• NBFC – FACTORS (NBFC-FACTORS): NBFC-Factors is financial institution with minimum net worth of the Company is Rs 5 Crores, having the principal business of acquisition of receivables on discount or financing against such receivables by way of loans or advances or by the creation of security interest over such receivables but excludes normal lending by a bank.
• Core Investment Company (NBFC - CIC): CIC NBFC are engaged in the business of acquisition of securities and shares which its holds 90% of its total assets in the form of investment in shares and equity. The minimum requirement of asset size is INR 100 Crore.
• Peer to Peer Lending (NBFC-P2P): This is new generation tech driven NBFC, which in fact does not lending on its own instead manage common platform for Lender and Borrower. Both lender an borrower are participant of platform. Participant are onboarded in platform and thereafter they can make transaction via platform. It also requires net owned fund of INR 2 Crore to being with.
• Account Aggregator (NBFC-AA): It is NBFC based on technology. Technology to connect the financial information provider and financial information user to make financial decision more accurate and immediate. Unlike earlier to assess the information, precisely financial one do take time or validation is tough but with introduction of this concept the same has been addressed. The license platform Account Aggregator do connect User, Financial Information User and Financial Information Platform from one dedicated system and validate the financial information of user. It also required INR 2 crore as Net Owned Fund to start the business.

HOW NBFCs ARE DIFFERENT FROM A BANK?

An NBFC cannot accept demand deposits:

• NBFCs are not a part of the payment and settlement system
• NBFC cannot issue cheques drawn on itself;
• Unlike a bank, Deposit insurance facility is not available to the depositors of NBFCs.

An NBFC should:

• Be a Company registered under the Companies Act.
• Should have a minimum net owned fund of INR 2 Crores.

NBFC Registration Process

• Every company registered under the Companies Act, 1956/2013 with the object clause of financial activity need to obtain a certificate of Registration (CoR) from Reserve Bank of India (RBI) to commence the business as NBFC.
• For the purpose of registration of an NBFC, an application is to be submitted in the prescribed form along with the necessary attachments with the RBI for its scrutiny. 
• On being satisfied that the provisions of the RBI Act have been complied with then a CERTIFICATE OF REGISTRATION is issued to the entity.
• It is imperative to fulfill the following prerequisites for obtaining a certificate of registration of NBFC from RBI:

1. The applicant must be a Company registered under the Companies Act for the time being in force
2. The Company shall have a minimum NOF (Net Owned Funds) of INR 2 Crores who wish to set up an NBFC in India.
3. At least one of the directors shall have experience in the similar field of business or should be an experienced banker.
4. The CIBIL records of the Director and Shareholder should be free from any irregularities.
5. The Board of Directors should foster the intention of serve the public at large with financial inclusion policy been adopted by entity.
6. Every director of company should pass the “fit and proper” criteria set by RBI.

• On satisfaction of the aforementioned essentials, the Company should go for its registration as an NBFC in the form prescribed by the RBI along with all the mandatory documents and attachments. This application (COSMOS) can be filled on the website of RBI.
• On Successful submission of the application, an application reference number (ARN) is issued by the RBI to the applicant for the purpose of tracking the status of its application. Once, the ARN is obtained a physical copy of the application along with all the attachments should also be submitted with RBI.
• Once the application is received by the RBI, on scrutiny of Company Profile, Promoter/Director and Shareholder Profile then upon satisfaction the license of registration of NBFC is granted by the RBI.

• Certified copies of the Certificate of Incorporation of the Company.
• Certified copies of main object clause of the Memorandum of Association of the Company and Articles of Association.
• Board resolution(s) stating the following:

1. The company undertakes that it is not carrying on any NBFC activity or has not carried on and stopped any NBFC activities in the past activity and will not carry on or commence the same before getting registration from RBI
2. The company has not accepted any public deposit, in the past/does not hold any public deposit as on the date and will not accept the same in future without prior approval of Reserve Bank of India
3. The unincorporated bodies in the group where the director holds substantial interest or otherwise has not accepted any public deposits in the past; and does not hold any public deposit as on the date and will not accept any public deposits in the future
4. The “Fair Practices Code” as per RBI Guidelines has been formulated by the Company

• Copy of Fixed Deposit receipt & bankers certificate indicating Net Owned Fund.
• Experience Certificate, if any, in the financial services sector (including Banking Sector) in respect of all Directors 

1. Banker Report on Fixed Deposit and Current Account of Company
2. CIBIL Report of Director and Shareholder
3. Profile of Board of Director
4. Business plan of the company
5. Audited balance sheet along with annexures or provisional/unaudited, as the case may be

• Banker’s report regarding:

1. Directors of the applicant company having substantial interest in any other companies.
2. Applicant company along with the directors of its group, subsidiary, associate, holding company and related parties.
3. The Banker’s report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing entity.

Note: Bankers report is to be obtained from all the bankers of each of these entities. This report should specifically mention the details of deposits and loan balances as on the date of application and the conduct of the accounting.

You may have why, when, where and how kind of question in your mind before start this business. Further this business required ample of time, dedication, skills and knowledge to begin with in addition to good amount of fund. The entire query will be sorted by us in every aspect with no doubt on proper guidance to plan the incorporation and license activity from day one to till final result from Director of Reserve Bank of India.

Just to summarize, it can be understood as you are planning to enter in Financial Business of India which is mostly governed by RBI for which the seriousness, integrity, financial strength, adequacy of capital and well-planned planning is required to established with RBI officer in addition to serving public interest for easy go license process. The Board of Director has wide role to play and execute in the license process subject shareholder has infused clean money and taxed money only as borrowing money can’t be used as Equity money in proposed NBFC.

The returns promised by Financial Business is comparatively high in terms of other vertical, further the NBFC is itself entry level to reach at Banking level of India. Banking and Financial Services Industry (BFSI) is very promising Industry with various innovation going on day to day in market for better reach of financial services in India, so the right time is now if you are ready with your proposed Board of Directors and Minimum required fund to begin with this business.