Non-Banking Financial Company and Its Compliances

by Simran Aahuja Marketing Professional

Non-Banking Financial Companies are financial establishments that are involved in the business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities issued by the Government or other marketable securities of leasing, insurance business.

What are the benefits of Non-Banking Financial Companies?

They contributegrowth in the country’s economy
They help in the accomplishment of the financial requirement of customers
They fulfill thefinancial needs of the Micro, Small and Medium Enterprises (MSMEs)
They provide bank credit to individuals that belong in the under developed sections of society where banking facilities are unavailable
They accelerate wealth creation
They provide opportunities that help in the creation of employment opportunities

What is the registration process for NBFC Registration?

Following is the registration process that is followed by individuals who want to establish an NBFC company –

Company Registration as per the Act - The company must be registered under the Companies Act 2013.

Ownership of Net Owned Funds - A minimum amount of INR 2 crores must be submitted as Net Owned Funds (NOFs) by the company.

Minimum requirement of Directors in NBFC - There must be at least one individual in the NBFC who is appointed as the director. This person must follow all guidelines and undertake all duties of a director.

Maintain a CIBIL Score - Maintaining a Good CIBIL score is significant as it fulfills the eligibility requirements to register as an NBFC. Thus, the applicant must maintain CIBIL score of the required number.

Filing of the Application form - NBFC Registration process involves filling of the application form. The copy of the form is on RBI’s website.

Submission of all documents - The next step in the NBFC registration process is the submission of all documents. The applicant must submit the required documents with the application form before the prescribed duration.

Submission of the application form - After the application form is filled and all documents are prepared, all of them must be submitted to the regional branch of RBI.

Acquire CARN Number - After submitting the application form and the documents, CARN number will be provided to the applicant.

Receive NBFC License - After the application is approved and verified by the authority, the registrar issues NBFC License to the company.

What are the categories of Non-Banking Financial Companies?

Following are the types of NBFCs that are taken into consideration before applying for NBFC Registration –

On the basis of liabilities -

Deposit Accepting NBFCs (Deposit Taking)
Non Deposit NBFCs (Non-Deposit Taking)

The non-deposit NBFCs are further divided into systematically important NBFCs-ND and other NBFC-ND

On the Basis of Activities -

NBFC Investment and Credit Company (NBFC-ICC)
NBFC Infrastructure Finance Company (NBFC-IFC)
NBFC Systematically Important Core Investment Company (CIC-ND-SI)
Infrastructure Debt Fund – NBFC (IDF-NBFC)
NBFC-Micro Finance Institution (NBFC-MFI)
NBFC Factor
NBFC-Non Operative Financial Holding Company (NOFHC)
Mortgage Guarantee Company (MGC)
NBFC Account Aggregator
NBFC-Peer to Peer Lending Platform (NBFC-P2P)

What are the eligibility requirements for NBFC Registration?

Following are the minimum requirements for the registration of non -banking financial company –

The company must be registered under Section 3 of Companies Act.
The companymusthold minimum net owned funds (NOFs) of Rs2 crores.
The funds must not be burrowed; the company must have full ownership of the funds.
At least 1/3 of the Directors must have previous experience in the finance industry.
There must be a detailed plan of the next five years.

What documents are required for NBFC Registration?

Copies of Certificate of Commencement of Business and Certificate of Incorporation of the company.
Copies of Articles of Association (AOA) ad Memorandum of Association (MOA) of the company
Copies of PAN/CIN made for the company
Director’s profile filled and signed by every director
Experience certificate of the directors from the NBFCs from where the directors have gained experience related to NBFC
The CIBIL Data concerning the directors of the company
Certified copy of the Board Resolution for the presentation of ‘Fair Practices Code’
Board Resolution in particular that approves the submission of the application and authorizing signatory
Board Resolution which specifies that the company does not have any deposits and has not accepted any public deposits. Also, it must mention that it will not accept any in the future without an approval from Reserve Bank of India.
Board resolution which states that the company does not own any NBFC without proper registration.
Financial Statements of 2 years of Unincorporated Bodies
Details of Authorized Share Capital and shareholding pattern of the company.
Copies of Fixed Deposit receipt
Bankers certificate with details of balances of Net Owned Funds.
The details of Profit and Loss account and Audited Balance Sheet of three years along with directors and auditors report.
Details related to bank accounts/ postal address of the branch/bank, loan/credit facilities.
Self-attested Bank Statement or Income Tax returns
The business plan of the company for the next three years specifying essential details about the business, market segment and balance sheets, cash flow statement, asset or income statement without any inclusion of public deposits.

What are the compliances of Non-Banking Financial Companies?

Following are certain compliances that the NBFCs must follow before company incorporation –

Registration with 4 Credit Rating Agencies namely CIBIL, ICRA, Equifax and Experian
Central KYC
CERSAI Registration
FIU-IND Registration
Initiate Fair Practice Code
National E-Governance Registration
Adoption of Anti Money Laundering Policy
IT Policy
Submission of Financial Information

What are the annual compliances of Non-Banking Financial Companies?

Filing of annual return with RBI
Statutory compliances with the registrar of companies (ROC) such as annual return filing, filing of financial statements
Tax filing – Income Tax Returns and GST Returns

Conclusion

NBFCs are major contributors and they allow several opportunities that eventually results in boosting country’s economy. Following various NBFC compliances is important, thus all them must be followed in a proper manner. The most important step in company establishment is NBFC Registration. Individuals register their companies as per guidelines and once the company is established, they undertake business activities.