Director Disqualification Delay Scheme

An NBFC, also known as Non-Banking Finance Company is a private or public limited company registered under Companies Act, 2013 and also has obtained COR (Certificate from Registration) from the reserve bank of India. The NBFC is primarily engaged in the business of providing loans and advances, acquisition of shares and stocks and other investible securities. RBI grants license to the NBFCs to carry out the business of providing various kinds of loans such as Personal Loans, Asset Financing, SME Lending, Gold Loans, Loan against Property, Loan against Shares, Short term Personal Loans, etc.

In India, the advantages of an NBFC Registration are: Save Time and Cost
In contrast to small banks, the process of incorporating an NBFC is much simpler. Opening of a bank involves a large amount of capital, time and cost, whereas, the same is not in the case of an NBFC. One just needs the assistance of a good NBFC consultant with prior experience to obtain NBFC Registration in India.
Easy Recovery of Loan
NBFCs work systematically and offer customised loan products, with achievable repayments. It becomes a convenient process for the borrowers as they can repay the loan amount quickly within the prescribed time period.
Economic Growth
Businesses and individuals look for an easy and reliable source of credit for their financial requirements. NBFCs provide affordable and secure credit facilities to an unserved market for their personal and business-related credit requirements. Therefore, NBFCs have contributed to the country’s economic growth by providing financial freedom to MSMEs, self-employed professionals and individuals.

Role and Functions of an NBFC

The role and functions of an NBFC in India can be summarised as:
To develop sectors like Infrastructure, Education and MSMEs;

To assist in wealth creation;
To generate substantial employment;
To provide financial assistance to the economically weaker section of the society;
To assist in the economic development of the country;
To contribute to the state exchequer;
To provide specialised credit;
To help in the growth of the financial market.

RBI Conditions for Issuing NBFC License

The following conditions must be fulfilled before undergoing the process of NBFC Registration:
The Non-Banking Financial Company must be able to pay claims to its present as well as future investors in full;
It cannot carry out any operation in a manner prejudicial to the interest of both its existing or future investors;
The general character of the Board and the management must not be detrimental to the interest of the public and depositors;
An NBFC must have an adequate capital structure and earning potential;

It must not be unfavourable to the functioning of the financial sector if the RBI decides to grant NBFC license to a company.
The company’s working must be consistent with the economic growth, monetary stability, and other related policies of RBI.

Minimum Capital Requirement for NBFC License Registration

The Minimum Capital Requirement for NBFC license registration are as follows:
The Minimum Paid-up Capital
The Net owned fund of NBFC-ICC (Investment Credit Company) must be more than Rs. 2 Crores over the life of the NBFC unless otherwise prescribed the RBI.
Gift From Family Members
Shareholders should introduce own 2 crores as share capital, However shareholders can give or take gifts from Close relatives or Spouse
No Blockage of Fund
It shall mandatorily hold Net owned funds of INR 2 crores at the time of registration and at all times thereafter. However, you can use the minimum capital for the lending or investment purpose.
Capital Must be Tax Paid
The Applicant will require to produce the Proof of tax payment against the capital invested in the NBFC.
Need to Qualify the Quality of Capital Test
RBI Conducts quality of capital test and ensure that Capital invested by the shareholders are free from any possible defects or non-compliance with Indian or international laws.
FATF Member Investment
RBI Only recognize and Approves NBFC Registration or takeover from FATF Member Country Investment in India
100% FDI is Allowed
In NBFC Sector 100% FDI is allowed from FATF member countries and under auto route.

Pre-Requisites for NBFC Registration

The Pre-Requisites for NBFC registration are as follows:
Capital Test
The Quality of Capital is equally important and as right composition of board. The seed capital should be obtained from the legitimate sources and shall be commensurate with the Net Worth declaration and certification of all the shareholders.
Profile of the Promoters
Directors, being the face of the Company, shall be the individuals of higher integrity and knowledge. It is not necessary for each of the Directors should be from the Banking or Finance background. However, it is expected that 25 % of the Board shall should have financial background.
High Level Business Plan
A detailed business plan is the life line of the NBFC license. It shall be in the form of a road-map for next 5 years. With the advent of a large number of lending institutions across the country, it becomes very important to grant license to genuine and capable promoters.

Area of Operation
Despite of the fact that many regions of the country are devoid of the adequate Banking facilities, there are certain high-priority regions which shall be looked into on an urgent basis. Coming up with an NBFC in Tier-2, Tier-3 and Tier-4 cities will make the way towards license little easier.
Targeting the Untouched Segment
The section of the population which is devoid of loan facilities due to their credit rating or lack of documentation shall be the targeted segment for the upcoming NBFCs. A well-planned risk management strategy shall be adopted to mitigate the risks at all the levels.

What are the Focus areas of NBFC?

NBFCs have grown rapidly as indicated by their asset growth pattern over the years:

Customised Loan Products: The need of one customer is different from other and so is the funds requirement;
Flexible rate of interest: To stand in par with the Banking channels, NBFCs shall strive to serve competitive interest rates to the customers;

Quick Disbursal of Funds;
Minimal documentation requirement;
Serving the underserved section; and
Efficient Recovery Mechanism.

Different Categories of RBI NBFC Registration

The Different Categories of RBI NBFC registration are as follows:
Investment and Credit Company (ICC)
ICC is one common license for all types of financing business in India. Prior to feb 2019 there were three different licenses namely Loan Company, Asset Finance Company and Investment Company. Now after merger into one single License defined as ICC, It allows the license holder to engage in various kinds of wholesale retail loans and Investment business. The ETA for NBFC ICC License estimated to 120 days.
NBFC-Microfinance Companies (MFIs)
The NBFC-MFIs disburse loans to the households whose annual income in rural areas does not exceeds ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000. Around 85% of the financial assets of MFIs shall lie in the nature of qualifying assets as above. The minimum Net owned funds of MFIs shall not be less than INR 5 crores. The ETA for NBFC CIC License could be 200 days.

NBFC-Factors
Engaged in the principal business of factoring, constituting at least 50 percent of its total assets and the income derived from factoring business should not be less than 50 percent of its gross income.
NBFC-Peer to Peer Lending (P2P)
P2P lending intermediaries provide an online platform consisting of highly secured credit and risk assessment fintech driven platforms that runs an automatic risk assessment checks of the applicant and determines credit risk of the borrowers and Artificial intelligence based Platforms, Automatically publish the loan requirement along with the borrowers profile and risk rating on the platform. With peer-to-peer lending market place, borrowers can take loans from individuals who are willing to lend their money for an agreed interest rate to the borrower. For P2P Lending License, it may take approximate 180 working days for the in-Principal Approval from RBI. And after In-Principal Approval the Applicant will require to undergo with the Mandatory CISA Audit.
NBFC-Account Aggregators
This is the newest category of NBFC. NBFC Account Aggregators enables sharing of data across multiple financial sector organizations and act as “consent brokers”, i.e., they intermediate data transfer among the financial organizations with the consent of the user. The activities of Account Aggregators involves accumulation of financial data that involves gathering of information on a single platform from varied accounts such as bank accounts, investment accounts, business accounts, consumer accounts and other related financial accounts. The Net-Owned Fund requirement for NBFC-AA is also INR 2 crores.
Infrastructure Finance Company (IFC)

This kind of NBFCs deploys at least 75 per cent of its total assets in infrastructure loans. Also, it has to maintain a minimum Net Owned Funds of ₹ 300 crore and shall also seek a minimum credit rating of ‘A ‘or equivalent with a CRAR of 15%. The ETA for NBFC IFC License could be 240 days.
Core Investment Companies (CIC)
These kind of NBFCs carry on the business of acquisition of shares and securities and also fulfill the following conditions:
1. Holding of 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
2. Not to carry out any other financial activity except as listed in point (a) above;
3. The ETA for NBFC CIC License could be 180 days.

Principal Business of an NBFC in India

The principal businesses of an NBFC in India are as follows:

Secured Loan (LAP);
Gold Loan;
Unsecured Personal and Business Loan;
Marketplace Lending (Digital Lending );
Investment in Shares or Mutual Fund or Debentures;
NBFC must maintain 50% of its assets as Financial Assets and 50% of its income must be generated from Financial Activity.

Which all Entities are not NBFC in India?

In India, an NBFC does not include the entities with the principle business as follows:
Agriculture Activity;
Industrial Activity;
Purchase and Sale of any goods;
Purchase/ Sale/ Construction of an Immovable Property.

Documents Required for NBFC Registration

The following documents are required for NBFC Registration as follows: KYC of All Shareholders and Directors
Business Profile of shareholders and Directors
FD Certificate Receipt
Bankers Report
Net Worth Certificates
Credit Rating Reports
Educational Qualification Certificates
Experience Certificates
Related party disclosure
Income Tax Returns
Business Plan for 3-5 years.

The steps involved in the process of NBFC Registration are as follows:
In the first step, there is a need for the applicant to incorporate a company in accordance with the provisions of the Companies Act 2013;
After that, arrange Rs 2 crores as the minimum share capital for the company;
Now, the applicant requires to create an FD (Fixed Deposit) of Rs 2 crores with any Nationalised Bank;
However, if there is any FDI (Foreign Direct Investment), the applicant needs to comply with the FDI Compliance based on the provisions of FEMA 1999;
Now, in the next step, there is a need to arrange all the documents needed for NBFC License;
After arranging the documents, the applicant needs to submit the FD Receipt and documents with the RBI;
Thereafter, the applicant needs to visit the official RBI portal, i.e., https://cosmos.rbi.org.in/COSMOS/rbilogin.do for filing the application for online NBFC Registration;
Now, download the filled NBFC Application Form from the portal and submit it online;
After submitting it online, the applicant needs to note down the Application Reference Number (ARN) issued by the Apex Bank to check and track the status of the application form. Further, it is always advised to keep a hardcopy of the e-form indicating ARN as well;
Now, the applicant requires to submit all the documents required and a hardcopy of the application form to the regional branch of the Apex Bank;
After proper checking and verification, the authorities will grant NBFC License to the company.

NBFC Business Commencement Process

Pre Loan Disbursal Requirements: Before a newly licensed NBFC starts its operations, it shall mandatorily seek registrations from all of the below:
Credit Rating agencies such as CIBIL, ICRA, Equifax and Experian;
Central-KYC
FIU-ND
CERSAI Registration
Registration under Anti-Money Laundering Act;
Adoption of fair practice code.
Apart from this, there should be in place all the agreements and policies concerning all types of loans and lending procedures, organisational structure, Recovery measures, etc.

Powers of RBI on NBFCs

In India, the powers of the RBI on NBFCs can be summarised as:
It regulates the process of NBFC Registration;
It lays down the polices and issues directions for NBFCs;
It inspects and exercises surveillance over NBFCs to verify whether they are complying with the provisions of the RBI Act, 1935 or not;
It penalises NBFCs for violating the rules of the RBI Act, which can also result in cancellation or suspension of NBFC License.

NBFC Compliances Post Approval from RBI

Apart from the one-time registrations, every non-deposit taking NBFCs shall be responsible for maintaining certain annual compliances as below:
Filing of NBS-9 on online RBI portal i.e. COSMOS;

ROC Filings such as Annual Returns, Balance Sheets, Profit and Loss Accounts, etc;
Maintenance of proper accounts;
Appointment of Statutory Auditor;
Income Tax Returns and GST Returns;
All such compliances as may occur from time to time.
Adopt Fair Practice code as prescribed the RBI and Also Adopt NBFC Prudential norms as prescribed the RBI. Always meet and Maintain 50:50 PBC Criteria

Does RBI regulate all the Financial Institutions?

No, the Reserve Bank of India (RBI) does not regulate or govern all kinds of financial institutions prevalent in India. The financial institutions which are treated as NBFCs but are exempt from the registration under Section 45-IA of the RBI Act, 1935 are as follows:
Housing Finance Companies;
Merchant Banking Companies;
Stock Exchanges;
Companies engaged in the activities of Stock Broking or Sub Broking;
Venture Capital Fund Companies,
Insurance Companies;
Nidhi Companies;
Chit Fund.

Punishment for Non-compliance of RBI Regulation

In India, the RBI has the power to impose a penalty on an NBFC for violating the provisions of RBI Act. These penalties include:
If a company carries out its operations without obtaining NBFC License, the RBI (Reserve Bank of India) can impose a fine of not less than Rs 1 Lakh, which can go up to Rs 5 Lakh or twice the amount involved in such violation, whichever is more; If a company carries out its operation without obtaining NBFC License, the directors of the company are punishable with imprisonment up to one year;
If the company in default continues to work, the RBI may impose a fine up to Rs 25000 per day after the first day of such default;
In case of any other contravention, the RBI can impose a fine up to Rs 5000 on the company; If an NBFC is not complying with the orders of the NCLT (National Company Law Tribunal), it is punishable with a maximum imprisonment of 3 years and a fine of up to Rs 50 per day till the time such non-compliance continues; If an auditor fails to abide by any direction or guideline given by the Reserve Bank of India, it would be punishable with a fine up to Rs 5000.

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