In India, most of the population lives in rural areas where our banking system does not reach. This makes growing businesses and satisfying their financial needs difficult for the people in these areas. This increases the demand for Non-Banking Financial Companies or NBFCs.
To start a business in the financing field, one can register an NBFC. The business of NBFC includes granting loans and advances, acquisition of shares or bonds issued by the government, leasing & hire-purchase, etc. it cannot provide finance to the business related to industrial activities, agricultural activities, sale or purchase of any goods other than securities, providing any services and sale, purchase or construction of an immovable property.
Basic Requirements For The NBFC Registration
For registration of NBFC in India, the basic requirements that need to be fulfilled are:
Steps for NBFC Incorporation
For NBFC incorporation, it is essential to first register a private company or a public company that complies with the provisions of the Companies Act, 2013. The procedure for NBFC Registration is:
Required documents for NBFC Registration under Companies Act, 2013
The documents required for registering the Company under the Companies Act, 2013 are:
Required documents for NBFC Registration with RBI
The following documents will have to be submitted to RBI for NBFC registration:
Advantages of NBFC Incorporation
Getting an NBFC License has the following advantages:
In the past, the banks have been the sole financial intermediaries and have accumulated heavy debts. Their lending capacity is declining with each passing day due to an increase in Non-Performing Assets. In these circumstances, NBFCs are marking their presence in the financial market and their demand has seen a rise.
Lower costs, wider reach, and strong risk management capabilities are the main reasons for the success of NBFCs. It is believed that NBFCs have a better understanding of the market than the banks. Their incorporations have also simplified in recent times. NBFCs have thus a large contribution towards the growth of the economy over the past few years and have a huge scope.
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For NBFC registration, there’s a requirement of minimum capital of Rs. 2 Crores therefore, an applicant must register a corporation with the prescribed capital alongside the requisite fees asked by the government.
Not every NBFC is required to be registered under RBI, but they are bound to register with their respective regulators. For instance, Nidhi, National Housing Bank, Chit, Insurance companies also are NBFCs, but they are regulated under different laws and bodies. NBFCs are managed by different financial regulatory organisations of India like RBI, IRDA, SEBI, and Department of Company Affairs. NBFCs deal in various aspects of financing, and thus they are regulated by different financial bodies as per their nature of the activity.
Non-banking financial companies’ aka NBFCs are financial organization dealing with various financial activities. NBFC institutions conduct various financial activities without having any banking license. They are allowed to get involve in financial activities under section 45-IA of the RBI Act and are required to get registered under RBI and obtain a license for operation in India.
NBFCs offer various banking, financial, and non-financial services to people in need. They do not have a banking license, but they follow the principles and regulations set by RBI. The Reserve Bank of India supervises the functions of NBFCs as per the provisions mentioned in Chapter III B of the RBI Act 1934. Only a registered NBFC can commence its operation within the Indian financial market.
NBFCs may accept or renew deposit for a minimum time of 12 months. However, an NBFC cannot accept deposit and is not susceptible to issue cheques.