Everything about NBFC Registration & Regulations - Obtain NBFC License

RBI has simplified the process of new NBFC Registration post-2016. RBI is coming with a Self-service NBFC licensing portal and hence it will boost the scope of ease doing business in India. We will discuss here, how to register NBFC in India with RBI.

The Reserve Bank of India regulates and supervises Non-Banking Financial Companies which are into the principal business of lending or acquisition of shares, stocks, bonds, etc., or financial leasing or hire purchase or accepting deposits. The principal business of financial activity is when a company’s financial assets constitute more than 50 percent of the total assets and income from financial assets constitute more than 50 percent of the gross income. A company that fulfills both these criteria must have obtain NBFC license. This test for the NBFC license is popularly known as the 50-50 test.

Therefore, companies engaged in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial activity in a small way, will not require NBFC registration.

NBFC Registration Procedure has been simplified by RBI by providing an online platform to applicants. An existing company or a newly incorporated Company under companies Act 2013/1956 needs to go through the following Registration process to get NBFC License from RBI

• The applicant company incorporated under the Companies Act 2013 is required to apply online. The application can be submitted online by accessing RBI’s secured website.
• The company can download a suitable application form from the above website, key in the data and upload the application form.
• After filing the online Application the company has to submit the hard copy of the application form (indicating the online Company Application Reference Number, along with the supporting documents, to the concerned Regional Office of RBI.
• The company can then check the status of the application from the above mentioned secure address, by keying in the acknowledgment number.
• The license will be granted only after a vigilant inspection of the application and documents attached to it.

All activities transactions and working of the NBFCs in India are regulated supervised and controlled by RBI Act 1934 and regulations and provisions as provided in the Chapter III B of RBI Act 1934.

However, in terms of the powers given to the Reserve Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI.

Venture Capital Fund/Merchant Banking companies

• Stock broking companies registered with SEBI,
• Insurance Company holding a valid Certificate of Registration issued by IRDA,
• Nidhi companies as notified under Section 620A of the Companies Act, 1956,
• Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,
• Housing Finance Companies regulated by National Housing Bank

The Reserve Bank has issued following detailed directions on prudential norms, of NBFCs However applicable regulations vary based on the deposit acceptance or systemic importance of the NBFCs.

• Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007,
• Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015
• Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015..

Further The RBI directions inter alia, prescribe guidelines on

• Income recognition of NBFCs.
• Asset classification and provisioning requirements applicable to NBFCs.
• Exposure norms, disclosures in the balance sheet.
• Requirement of capital adequacy.
• Restrictions on investments in land and building and unquoted shares.
• Loan to value (LTV) ratio for NBFCs predominantly engaged in business of lending against gold jewellery, besides others.
• Statutory liquidity requirements.

Also Read: Documents Required for NBFC Registration in India

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