What are NBFC Companies?

The financial sector in India has various players and institutions facilitating diverse financial services. From traditional commercial banks in India to organizations like NPCI providing UPI, the Indian financial sector is full of amazing services.

One such significant players are Non-Banking Financial Companies (NBFCs) that play a pivotal role in extending financial services to underserved areas by the traditional banks.

NBFCs can offer a wide array of services such as loans, investments, asset financing, wealth management, and more.

Unlike banks, NBFCs cannot accept demand deposits and typically do not form part of the payment and settlement system.

In this article, we will discuss What are NBFC Companies, different types of NBFCs, the eligibility of NBFCs, and much more.

What is NBFC?

NBFC stands for Non-Banking Financial Company which are the financial institutions offering banking services like loans, advances, and credit facilities, but do not hold a banking license.

They are regulated by the Reserve Bank of India (RBI) but do not operate like traditional banks in terms of accepting deposits from the public. Instead, they raise funds through various means such as issuing bonds and debentures or borrowing from banks.

NBFCs play a significant role in providing financial services to sectors and segments underserved by traditional banks, contributing to financial inclusion and economic growth.

Different Types of NBFCs

The following are the different types of NBFCs-

On the nature of their activity:

• Asset Finance Company (AFC): Provides finance for the purchase of physical assets such as machinery, equipment, vehicles, etc.
• Loan Company (LC): Primarily lends money for any purpose other than the purchase of physical assets or for providing any service.
• Investment Company (IC): Primarily deals with investments in shares, stocks, bonds, securities, etc.
• Infrastructure Finance Company (IFC): Provides long-term finance for infrastructure projects.
• Microfinance Institution (MFI): Extends small loans, mainly for micro-entrepreneurs and low-income individuals.
• Housing Finance Company (HFC): Provides finance for the purchase or construction of residential properties.
• Core Investment Company (CIC): Engages in the acquisition of shares and securities and holds them as investments.

Based on deposits:

• Deposit Accepting NBFCs: NBFCs that accept deposits from the public. They are further classified based on the size of deposits they can accept:
• Non-Deposit Accepting NBFCs: NBFCs that do not accept deposits from the public. They rely on other sources of funding such as borrowings and capital infusion for their operations.

Eligibility to obtain NBFC license:

The following are the eligibility to obtain NBFC License-

• The company must be registered under the Companies Act, 2013
• The minimum net owned funds requirement varies depending on the type of NBFC:
  • Rs.2 crores for non-deposit-taking NBFCs
  • Rs.100 crores for deposit-taking NBFCs
• The RBI conducts background checks on the promoters, directors, and key managerial personnel to ensure their integrity and financial soundness
• The company must present a detailed business plan outlining the proposed activities, target market, financial projections, risk management policies, etc.
• All the compliance and regulatory requirements specified by the Reserve Bank of India (RBI) and other authorities must be fulfilled
• The RBI may impose additional requirements or conditions based on the nature of activities proposed by the NBFC.

List of Financial Organisations which do not need a NBFC license

Financial organizations that do not require an NBFC license typically include:

• Banks: Commercial banks, cooperative banks, and regional rural banks are regulated by the Reserve Bank of India (RBI) and do not need a separate NBFC license
• Insurance Companies
• Stock Exchanges and Clearing Corporations
• Payment Banks and Small Finance Banks
• Microfinance Institutions (MFIs)
• Pension Funds
• Mutual Funds

How to incorporate a Non-Banking Financial Corporation (NBFC)?

Incorporating a Non-Banking Financial Corporation (NBFC) involves several key steps:

• The NBFC must be registered with the Registrar of Companies (RoC) under the Companies Act, 2013 as Private Ltd or LLP
• Ensure that your company meets the minimum capital requirement specified by the Reserve Bank of India (RBI) for NBFCs
• Obtain Digital Signature Certificates (DSC) for all the directors of the company along with the Director Identification Number (DIN)
• Choose a unique name for your NBFC and apply for name approval with the RoC. Ensure that the proposed name complies with the naming guidelines specified by the RoC
• Now, you’ll have to draft a Memorandum of Association (MOA) and Articles of Association (AOA) of the company which are essential documents for incorporating a company
• Prepare the incorporation documents, including Form SPICe (Simplified Proforma for Incorporating Company Electronically) and other required forms, and file them with the RoC along with the prescribed fee.
• Upon verification of the incorporation documents, the RoC will issue a Certificate of Incorporation, confirming the formation of the NBFC
• After incorporation of the NBFC, you’ll have to apply for registration as an NBFC with the RBI
• Now, Apply along with the necessary documents, including the Certificate of Incorporation, MOA, AOA, details of directors, and other required information
• After obtaining NBFC registration from the RBI, you can commence the business of the NBFC and start offering financial services as per the approved business plan

Documents Required for Incorporation of an NBFC

The following are the documents required for incorporation of a NBFC-

• Memorandum of Association (MOA)
• Articles of Association (AOA)
• Identity Proof- Aadhar card, passport, or driver’s license
• Address proof such as utility bills or bank statements for all directors and shareholders
• Director Identification Number (DIN)
• Digital Signature Certificate (DSC)
• Proof of Registered Office
• Board Resolution
• Banker’s Report
• Auditor’s Certificate
• Additional documents may be required depending on the specific nature of the NBFC’s activities and the regulatory requirements, such as business plans, details of promoters, sources of funds, etc.

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