NBFC COMPANY REGISTRATION
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Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 which is involved in the principal business of lending, investments in shares/stocks/bonds/debentures, leasing, hire-purchase, insurance business, chit business or involved in the receiving of deposits under any scheme or arrangement. NBFC are under the purview of power the Reserve Bank of India (RBI) and in this page we will discuss about the procedure of NBFC Registration in India and some of the regulations which govern its operations in India.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 with activities similar to that of a bank, except for the following differences:
- It cannot accept demand deposits
- It cannot issue cheque drawn on itself
- Bank deposits are insured by Deposit Insurance and Credit Guarantee Corporation. However, deposits in NBFC’s are not insured.
NBFC’s like banks except for the above differences are engaged in the business of making loans and advances, acquisition and trading of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. Also a company which is in the principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company.
NBFC’s are mainly categorized into deposit taking NBFC’s and non-deposit taking NBFC’s. Deposit taking NBFC’s and non-deposit taking NBFC’s are further classified based on their sizes. Within this broad categorization, there are again many types of NBFC’s like Asset Finance Company, Investment Company, Loan Company, Infrastructure Finance Company, Systemically Important Core Investment Company, Infrastructure Debt Fund, Micro Finance Institution and Factors.
As per Section 45-IA of the RBI Act, 1934, no company can commence or carry on business of a non-banking financial institution without obtaining a certificate of registration and without having a Net Owned Funds of Rs. 200 lakhs. The requirement for registration as a NBFC are a company incorporate under Section 3 of the Companies Act, 1956 and having a minimum net owned funds of Rs.200 lakhs. Net owned funds is the balance of “owned funds” minus the amount of investment in shares of subsidiaries, companies in the same group and all other NBFCs, book value of debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group. Owned funds is the aggregate of paid-up equity capital , preference shares which are compulsorily convertible into equity, free reserves , balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, after deducting therefrom accumulated balance of loss, deferred revenue expenditure and other intangible assets.
Application for becoming an NBFC must be made in the requisite form to Regional Office of the Reserve Bank of India. A list of documents required to be submitted along with the NBFC application can be accessed here: NBFC-List-of-Documents.
The Reserve Bank of India regulates and supervises companies which are engaged in financial activities as their principal business. A company which has financial assets of more than 50% of its total assets and derives more than 50% of its gross income from such assets is termed as a NBFC and regulated by the Reserve Bank of India. However, some financial businesses have specific regulators and are given exemption from Reserve Bank od India from its regulatory requirements. For instance, Insurance Regulatory and Development Authority (IRDA) regulates insurance companies, Securities Exchange Board of India (SEBI) regulates Merchant Banking Companies, Venture Capital Companies, Stock Broking companies and Mutual funds, National Housing Bank (NHB) regulates housing finance companies, Department of Companies Affairs (DCA) regulates Nidhi companies and State Governments regulate Chit Fund Companies.
Deposits are monies collected in any manner, other than that collected by way of share capital, contribution of capital by the partners of a partnership firm, security deposit, earnest money deposit, advance consideration for purchase of goods, services or construction, loans taken from banks, financial institutions and money lenders and subscription to chit funds. Monies collected in any manner other than these would be termed as deposits. All NBFCs cannot accept public deposits. Only NBFCs that hold a deposit accepting Certificate of Registration can accept deposits. Moreover, RBI is of the purview that only nationalized banks can accept deposits and hence has not authorized any NBFC started after 1997 to accept deposits.
Penalties for Deposit Taking without Authorization
If any unincorporated entity (Proprietorship / Partnership) or an NBFC without authorization to take deposit is found accepting public deposits, it is liable for criminal action. Also, if NBFCs associate themselves with proprietorship/partnership firms accepting deposits in contravention of RBI Act, they are also liable to be prosecuted under criminal law or under the Protection of Interest of Depositors (in Financial Establishments) Act, if passed by the State Governments.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company). Section 45-IA provides that no NBFC shall commence or carry on the business of Non- Banking Financial Institution without obtaining a Certificate of Registration issued under this Chapter (Chapter –IIIB) and not having a Net Owned Fund of rupees two hundred lakhs. Steps Required For Formation Of New NBFC:
Formation of Company: The first step is to form a new Company registered under the Companies Act, 1956. The name must reflect the character of an NBFC. Words such as Investment, Finvest, Finstock, Finance etc. may be used as part of the name. In general, RBI does not allow names which are not reflecting the characteristics of NBFC.
Minimum Net Owned Fund: After the incorporation of a new company the Paid up Equity Capital of the Company should suitably rose either at par or premium so as to attain a minimum Net Owned Fund of Rs. 2 crores. The Capital to be raised here should be Equity Share Capital and not Preference Share Capital.
Opening of a Bank Account: The entire sum of Rs. 2 crores should be kept in a bank in a Deposit Account free from all liens. Normally funds are kept in Fixed Deposit. The RBI at the time of considering the application for the grant of Certificate of Registration verifies the deposits held by the Company with the Bankers.
Apply for Certificate of Registration to RBI alongwith Required Documents: The NBFC Company is required to submit its application online for registration by accessing RBI’s secured website. The company can then download suitable application form (i.e. NBFC or SC/RC) from the above website, key in the data and upload the application form. The company would then get a Company Application Reference Number for the CoR application filed on-line. Thereafter, the company has to submit the hard copy of the application form (indicating the Company Application Reference Number of its on-line application) in duplicate, along with the supporting documents as prescribed in the form, to the concerned Regional Office. The company can then check the status of the application based on the acknowledgement number. The Bank would issue Certificate of Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied. The following documents are required to be filed alongwith the application form: Annexure-I, Annexure-II and Annexure-III to the application. Annexure-III is submitted in respect of all the directors of the applicant company. Certified copy of up-to-date Memorandum and Articles of Association of the company. The Memorandum of Association of the applicant company should have enabling clause/s for conducting of NBFI business by the company Certified copy of Certificate of Incorporation (bearing the signature of the Registrar of Companies) Banker’s Report in a sealed cover. A copy of the same should be send to the General Manager, RBI, DNBS, Kolkata by the bank at the request of the company Banker’s Reports in respect of companies in which the directors have substantial interest as indicated against items Nos. 14 & 15 of Annexures-III. Registration number and nature of business activities of the companies in which the Directors have substantial interest should also be furnished Banker’s Report in respect of group/subsidiary/holding companies if any, of the applicant company. Details of the interest held by Directors in such companies are to be furnished Certified copy of Board Resolution approving the submission of application for COR Certified copy of the audited balance sheet and profit & loss account of the company for the last three years (in case of existing companies intending to commence NBFI business) and proforma balance sheet and profit & loss account as on the date on which the statement of capital funds and risk assets is furnished in Annexure-II to the application is submitted. Brief history of Company along with summary of financial for last five years Business Plan of the company for the next three years giving details of its thrust of business, market segment and projection of investments and income together with projected Balance Sheet and Profit & Loss Account for the next three years. Auditors’ Certificate and extracts of Bank statement regarding receipt of share premium, if any. Certified copy of Board Resolution that the company has not accepted any public deposits in the past/does not hold any public deposits as on date and will not accept the deposits in future without prior approval of the Bank Certified copy of Board Resolution that the company has not conducted/commenced NBFI business and also shall not conduct/commence NBFI business without obtaining Certificate of Registration from the Bank Auditors’ Certificate to the effect that the Auditors’ Certificate to the effect that the Company has not accepted/is not holding any public deposits as on date and will not accept such deposits in future without prior approval of the Bank Company is not carrying on any NBFI activity as on date Company has an NOF of Rs.200 lakh as on date A certificate of Chartered Accountant regarding details of group/associate/subsidiary/holding companies along with details of investments in other NBFCs as shown in the Proforma Balance Sheet Details of Book Value of bonds/debentures/outstanding loans and advances (including hire purchase & lease finance) made to and deposits with § Subsidiaries § Group companies as on the Proforma Balance Sheet (Annexure-II) duly certified by the Auditor Details of cost and market/Break Up Value of Quoted/unquoted investments including current investments as on the Proforma Balance Sheet (Annexure-II) duly certified by the Auditor The details of experience of directors in NBFI business as indicated against Item No. 12 of Annexure-III are to be submitted Name of the companies indicated against Item No. 9 of Annexure-III, in which the directors of the applicant company are the directors, are NBFC registered with the Reserve Bank The Declarations of the directors regarding their non-association with the unincorporated bodies under Section 45S of the Reserve Bank of India Act, 1934 are submitted The particulars of approval of Foreign Exchange Department (FED) if any obtained/copies of Foreign Inward Remittance Certificates in respect of Foreign Direct Investment if any, received by the applicant company are to be furnished A Board Resolution to the effect that the company has formulated a Fair Practise Code and copy whereof should be enclosed and the same would be implemented on grant of COR If Company does not have a website it can submit information through e-mail or any other mode through internet – a statement in this regard Documentary evidence like certified Xerox copy of electric bill/telephone bill in the name of the applicant company. Whether the Company is regulated by other regulators like SEBI, IRDA etc Income Tax PAN in respect of the company as well as all the directors. Copies of Form 2,5,18,23,29 & 32 and Annual Return filed with Registrar of Companies, West Bengal with Registrar of Companies money receipt. In case of amalgamation with other companies, copy of High Court Order allowing the above amalgamation together with copies of Form No 21 filed with Registrar of Companies, West Bengal including Registrar of Companies money receipt Reason for setting up NBFC. The current Net Owned Fund (NOF) of all the NBFCs subscribing to the capital of the applicant company, the computation being duly certified by the Statutory Auditor Documents called by this Deptt. In respect of § NBFCs having common Directors with the applicant company and § subscriber/investor NBFCs, must be submitted to the satisfaction of Company Monitoring Division
Filing of some additional Documents: In addition to the documents required to be enclosed along with Application Form the following should also be enclosed: Copy of Form-32 of all present directors with receipt Copy of Form-18 of present situation of Registered Office, with receipt. Copy of Form-2 Return of allotment of Shares, with receipt. Experience Certificate or Details of Experience of Directors, if any, in NBFC Business. Bankers Report in the format prescribed by RBI with the request to Bank that original should be directly sent to RBI. Bankers Report of all the Firms/Company/ Proprietorship Concern in which director holds substantial interest Board Resolutions in the matter of Application for granting Certificate of Registration, Non- Acceptance of Public Deposits and Non Carrying business of Non-Banking Financial Institution without Certificate of Registration. Board Resolution adopting a Fair Practices Code and a copy of the said Code. Declaration from Directors to give affect that they are not associated with unincorporated bodies U/s 45-S of RBI Act, 1934 Specimen declaration is enclosed herewith marked The application is to be filed with the Regional Office of RBI whose jurisdiction, the registered office of the Company falls.
Granting of Certificate: After the application is filed, the same is examined by RBI and further documents and clarifications may be sought from time to time. Finally if RBI considers that the application is complete in all respects and all required documents and information is furnished to its satisfaction , it may grant Certificate of Registration to carry on the business of NBFC not accepting public deposits or else the application is returned. It may be noted that when applications are filed at the Regional Office, they vet the application and if everything is found by them in order they send the same to Central Office for further examination and approval. However if the application is not in order they send back the application and pointing out the defects. At this stage the applicant should not be disheartened and the defects should be cured and the application should again be filed. Finally if Central Office approves the Application, the Regional Office will issue certificate of Registration.