NBFC Registration: An Overview

Non-Banking Financial Company, or NBFC, is a firm incorporated under the Companies Act of 2013, involved in the provision of loans and advances as well as the acquisition of shares, stocks, bonds, debentures, and other securities issued by the government or the local authority or other marketable securities of similar nature, leasing, hire-purchase, insurance business, and chit business. However, those institutions whose principal business is agriculture activity, industrial activity, the purchase or sale of goods (other than securities), or providing any services, as well as the sale, purchase, or construction of immovable NBFCs, are not included in the definition of property. Additionally, the term "non-banking financial company" also refers to a business that has the primary business of making deposits in any type of arrangement, whether in an instalment or in lump sums by means of contributions or any other method; it is a non-banking finance company (like a residuary non-banking company). So any non-banking entity that wants to be capable of pursuing such actions should apply for NBFC registration.

Types of NBFCs

Based on their activity
Based on obligations

NBFCs, based upon their activities Investment and Credit Company A business that provides its primary business-asset financing by providing financing is referred to as an "investment and credit company.

Cancellation of NBFC Registration

The business owner should be aware of the various reasons that could lead to NBFC registration being cancelled. A few of the reasons are listed below:

If an NBFC does not continue to conduct its business activities,
If the NBFC is not able to satisfy the requirements or terms stipulated in the law or any other compliance stipulated by the RBI, similar to capital requirements,
In the event that an NBFC does not meet or follow the guidelines given by the RBI at any time.
If an NBFC is not able to keep records of records or accounts as required by the RBI Act 1934 and fails to submit a book of accounts or records and other relevant documentation to the RBI for inspection purposes, the RBI may take action.
If the NBFC cannot repay its deposits, the registration could be cancelled, but the RBI will provide the NBFC with the opportunity to resolve its position before making the NBFC registration cancellation, since there could be a situation in which it is determined that the NBFC is in a bad financial position to repay its deposits.

Documents needed for NBFC registration

These papers ought to be kept in a secure location.

Company Incorporation Certificate;
Management information in detail and company brochures;
a copy of the PAN or corporate identification number (CIN) that belongs to the business;
Documents indicating the address or location;
A certified copy of the Memorandum of Association and Articles of Association;
Director's profiles on the list, which must be properly signed by the director;
Director's qualification certificate and their experience certificate
CIBIL/credit report of the directors of the company;
Board resolution on the fair practices code with a certified copy of the identical resolution;
Certificate issued by the auditor statutory declaring that the firm doesn't have any deposits in the public market and will not accept public deposits;
Certificate indicating the amount of funds owned on the date of request from a statutory auditor;
Shareholder KYC, CIBIL report, ITR, and banker's report;
Inform the bank about its account and balances, loans, credits, and more.
Balance sheet with audited balance along with P&L statement with auditor's report and directors' report for the three most recent years;
Self-certified copy of the bank statement as well as the ITR;

Prerequisites for NBFC Registration

The following conditions must be met prior to an NBFC being approved for registration:

The first step is that the financial institution in search of NBFC registration must be registered as a corporation pursuant to the Companies Act 1956/2013;
Second, a minimum of 1/3 of directors must have a minimum of 10 years of financial experience and be employed full-time as directors.
The company that is applying for the grant must have a comprehensive company plan of operation for the upcoming five years.
The company must maintain the net-owned fund to be eligible for registration. At present, the business must have two net-owned funds of crores of rupees. However, minor changes have been implemented following the RBI's implementation of the scalar-based regulations. (Note that you can see the updated net-owned fund requirements in the following.)
The CIBIL score of the business director, the company's directors, and its members must be satisfactory, which means that they have no record of insolvency when it comes to loans;
The clause on objects in the Memorandum of Association must be compatible with the company's business plans.
Directors should meet the necessary and appropriate requirements.

• In the event of NBFC P2P, NBFC AA, and NBFCs with no public funds and without an interface with customers, the net owned fund will be at least 2 crore rupees.
• In the event of NBFC P2P, NBFC AA, or NBFCs that do not have public funds or a user interface for customers, their net-owned fund will be at least 2 crore rupees.
• The NBFCs will have to recognize loans that are due for longer than 90 days as non-performing loans until March 2026. They will also be required to recognize loans over 150 days by March 2024.

Note: The guidelines will be in effect as of October 1, 2022. Additionally, the rules pertaining to the limit on IPO financing will come into effect on April 1, 2022.