Freezing of Folios of physical shareholders... Last date for KYC is 30th September 2023... Act now Ref: SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/37


Things You Need to Know about a Non-Banking Financial Company!


Things You Need to Know about a Non-Banking Financial Company!

Types of NBFC Registrations

Type of Registration Can MUDS Support?
Based on Liability
Deposit Accepting NBFC (NBFC-D) NO
Non-Deposit Accepting NBFC (NBFC-ND) Yes
Based on Size
Systematically Important NBFC-ND (NBFC-NDSI) Yes
Other Non-Deposit Holding NBFC-ND Yes
Based on Nature of Activity
Asset Finance Company Yes
Investment Company (IC) Yes
Loan Companies (LC) Yes
Infrastructure Finance Company (IFC) Yes
Infrastructure Debt Fund- NBFC (IDF-NBFC) Yes
NBFC- Micro Finance Institution (NBFC-MFI) Yes
NBFC- Factors Yes
Mortgage Guarantee Companies (MGC) Yes
NBFC- Non-Operative Financial Holding Company (NOFHC) Yes

Shweta Gupta (Founder, MUDS)- “MUDS has served 500+ clients in past 48 months. 80% of our business is through referrals. I dedicate this success to my team of experienced professionals !”

Do you want Free Consultation regarding NBFC registration?

Call / Whatsapp us Now at +91 9599653306 or Send us an Email at [email protected]

Requirement 1: Documents Checklist (Submit to RBI)

  • Certificate of Incorporation (Certified Copy Issued by ROC)
  • Extract of Main Object Clause in MOA (Clearly depicting Financial Business)
  • Board of Resolution stating the following before getting NBFC registration with RBI:
    • Adherence to the “Fair Practices Code (As per RBI Guidelines)
    • Non-carrying out any NBFC activity
    • Non-carrying out of acceptance of any public deposit
  • Audited Balance Sheet & Profit & Loss account along with directors and auditors report (for entire period of company’s existence or last 3 years, whichever is less)
  • Director’s Highest Educational & Professional Qualification (Copy of certificate)
  • Director’s experience in Financial Services Sector, including Banking Sector (Copy of certificate)
  • Details of deposits & loans balances as on date of application & conduct of account (Bankers report)

Requirement 2: Prerequisites for Registration with RBI

  • Company should be registered under the Companies Act, 2013 OR Companies Act, 1956
  • Company should have Minimum Net Owned Fund of INR 2 crore

Steps to Incorporate NBFC

  • Step No.1: Form a company with Minimum Net Owned Fund of INR 2 crore (Equity Share Capital & not Preference Share Capital)
  • Step No.2: Open a Bank Account (Keep entire sum of INR 2 crores in a bank’s deposit account which is free from all liens)
  • Step No.3: Apply Online for Certificate of Registration to RBI
  • Step No.4: Submit documents to the Regional Office of RBI (Refer to ‘Documents Checklist’ in Requirements 1 section)
  • Step No.5: Certificate is Granted !

Note: Application once filed, is reviewed by RBI. Further documents/clarifications may be sought from time to time. If application is considered complete in all respects and all required documents/information are furnished to its satisfaction. RBI grants Certificate of Registration to carry on business of NBFC

Shweta Gupta(Co-Founder, MUDS)- “In one of our testimonials, a client from Gurgaon thanked us for not only giving quick service at a cost lower than industry rates, but also hand-holding throughout the entire process”

Do you want Free Consultation regarding NBFC registration?

Call / Whatsapp us Now at +91 9599653306 or Send us an Email at [email protected]

Classification of NBFC- Based on Liability


Subject NBFCs-D NBFCs-ND
Definition NBFC’s accepting public deposits are called NBFCs-D NBFCs not accepting/holding public deposits are called NBFCs-ND
Types NBFC-D type has no further classification NBFC-ND can be classified into the following based on size:- 

1. Systematically Important NBFC-ND (NBFC-NDSI)

2. Other Non-Deposit Holding NBFC-ND

Returns to be submitted 1. NBS-1 Return on deposits in First Scheduled (Quarterly submitted) 

2. NBS-2 Return on Prudential Norms (Quarterly submitted)

3. NBS-3 Return on Liquid Assets (Quarterly submitted)

4. NBS-4 Return on critical parameters by a rejected company holding public deposits (Annually submitted)

5. NBS-5 This return is withdrawn as submission of NBS-1 has been made quarterly. Thus, ignore

6. NBS-6 Return on exposure to capital market by deposit taking NBFC with total assets worth INR 100 crore and above

7. ALM Return by NBFC holding public deposits worth more than INR 20 crore OR asset size worth more than INR 100 crore (Half-yearly submitted)

8. Audited Balance Sheet & Auditor’s Report

9. Branch Info Return

1. NBS-7 Statement of capital funds, risk weighted assets, risk asset ratio etc (Quarterly submitted) 

2. Return on Important Financial Parameters (Monthly submitted)

3. ALM Returns:-

a. Statement of short-term dynamic liquidity in format of NBS-ALM1 (Monthly submitted)

b. Statement of structural liquidity in format of NBS-ALM2 (Half yearly submitted)

c. Statement of Interest Rate Sensitivity in format of NBS-ALM3 (Half yearly submitted)

4. Branch Info Return

Classification of NBFC- Based on Nature of Activity

Type of NBFC Meaning
Asset Financial Company A company (financial institution) whose principal business is financing physical assets that supports productive/economic activity such as:- 

● Automobiles

● Tractors

● Lathe Machine

● Generator Sets

● Material Handling Equipments

● General Purpose Industrial Machines

Investment Company (IC) A company (financial institution) whose principal business is acquisition of securities
Loan Company (LC) A company (financial institution) whose principal business is providing finance through loans or advances or any activity other than its own (does not include Asset Finance Company)
Infrastructure Finance Company (IFC) A company (NBFC) that meets the following criteria:- 

● Deploys minimum 75% of Total Assets in Infrastructure Loans

● Has Minimum Net Owned Fund of INR 300 crore

● Has Minimum Credit Rating of ‘A’ or equivalent

● Has Capital-to-risk weighted assets of 15%

Infrastructure Debt Fund- NBFC (IDF-NBFC) A company (NBFC) registered to facilitate flow of long term debt into infrastructure projects. 

● Raises resources through issue of INR or USD denominated bonds of Minimum 5 Years maturity

● Only Infrastructure Finance Company (IFC) can sponsor IDF-NBFC

NBFC- Micro Finance Institution (NBFC-MFI) A company (NBFC-ND) with minimum 85% of its assets in the nature of qualifying assets & meet the following criteria:- 

● Borrower Type: Rural. Household Income should be below INR 1 Lac

● Borrower Type: Urban or Semi-Urban. Household Income should be below INR 1.6 Lac

● Loan amount in first cycle should be below INR 50k

● Loan amount in subsequent cycles should be below INR 1 Lac

● Total Indebtedness of borrower should be below INR 1 Lac

● Tenure of Loan should be minimum 24 months for loan amount of minimum INR 15k with prepayment without penalty

● Loan to be extended without collateral

● Aggregate amount of loans given for income generation should be more than 50% of total loans given by MFI’s

● Loan repayment timeline as per borrower’s choice (weekly, fortnightly or monthly)

NBFC- Factors A company (NBFC-ND) whose principal business is factoring. 

● Financial assets in this business should be minimum 50% of its total assets

● Income derived from this business should be minimum 50% of its gross income

Mortgage Guarantee Companies (MGC) A company (financial institution) that meets the following criteria:- 

● Minimum 90% business turnover is mortgage guarantee business OR

● Minimum 90% gross income is from mortgage guarantee business & net owned income is minimum INR 100 crore

NBFC- Non-Operative Financial Holding Company (NOFHC) A company (financial institution) through which promoter/promoter group will be permitted to setup a new bank. 

● It is a wholly-owned NOFHC that holds the bank & other financial services companies regulated by RBI or other financial sector regulators. This happens to the extent permissible under the applicable regulatory prescriptions

Definition of ‘Principal Business’: An aggregate of financing real/physical assets that supports economic activity. Moreover, the income that arises therefrom is minimum 60% of its total assets and total income respectively.

Isha (Manager, MUDS)- “I have 6 years of experience in this industry. I shifted to MUDS in 2016. Best part about MUDS is that our founders believe in educating our clients so that they make the right choice. They say- Help clients genuinely and clients will help your business grow”

Do you want Free Consultation regarding NBFC registration?

Call / Whatsapp us Now at +91 9599653306 or Send us an Email at [email protected]

99% Clients Ask the Following Questions

Q1. What is NBFC?

  • Full Form of NBFC: Non-Banking Financial Company
  • Registered under Companies Act, 2013 or earlier Companies Act, 1956
  • Business Activities include: Loans & advances, acquisition of shares/ stocks/ bonds/ debentures/ securities that are issued by govt or local authority or other marketable securities of similar nature, like leasing, hire-purchase, insurance business, chit business etc
  • Business Activities does not include: Agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services, sale/ purchase/ construction of immovable property

Q2. Why registration of NBFC is necessary?

In accordance to Section 45-IA of the RBI Act 1934, no NBFC can commence or carry on business of a non-banking financial institution:-

  • Without obtaining Certificate of Registration from the Bank and
  • Without having a Net Owned Funds of INR 2 crore

Q3. How NBFC is different from Bank?

  • NBFC cannot accept demand deposits (DD’s)
  • NBFC do not form part of the payment & settlement system
  • NBFC cannot issue cheques drawn on itself
  • NBFC depositors cannot avail the facility of deposit insurance which is available in Deposit Insurance and Credit Guarantee Corporation which is available in banks

Q4. What does the term ‘Public Funds’ include? Is it the same as ‘Public Deposits’?

  • Public Funds are significantly different from Public Deposits.
  • Public Funds include public deposits, inter-corporate deposits, bank finance & all funds received whether directly or indirectly from outside sources such as funds raised by issue of commercial papers, debentures, etc

Q5. Can we accept Public Deposits in NBFC?

Yes ! Through NBFC-D you can accept Public Deposits. Basically, NBFCs are classified into 2 categories:

  1. NBFC-D: NBFCs that accept deposits
  2. NBFC-ND: NBFCs that does not accept deposits

Furthermore, NBFC must be registered with RBI and have specific authorization to accept deposit from public

Q6. What action is taken if financial companies do not obtain a ‘Certificate of Registration’ from RBI but are still lending or making investments as their principal business?

RBI can impose penalty or fine or prosecute in court of law if companies that are required to register as NBFCs as RBI are found to be conducting non-banking financial activity such as lending, investment or deposit acceptance as their principal business without seeking registration

Q7. What do you mean by terms: ‘owned fund’ and ‘net owned fund’ in relation to NBFCs?

  • Owned Fund
    • It is the aggregate of paid-up equity capital, preference shares that are necessarily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset
    • Excludes reserves created by revaluation of asset
    • It is calculated after deducting therefrom accumulated balance of loss, deferred revenue expenditure & other intangible assets
  • Net Owned Fund
    • It is calculated as ‘Owned Fund’ minus the amount of investments of such companies in shares of its subsidiaries/ companies in same group /all other NBFCs AND book value of debentures/ bonds/ outstanding loans/ advances including hire purchase/ lease finance made to & deposit with subsidiaries and companies in the same group (to the extent it exceeds 10% of the owned fund)

Q8. NBFCs are charging high interest rates from their borrowers. Is there any ceiling on interest rate charged by the NBFCs to their borrowers?

  • RBI has deregulated interest rates to be charged by financial institutions to borrowers (except NBFC-MFI)
  • Rate of interest to be charged by NBFC is governed by T&C of the loan agreement entered between the borrower and the NBFC.
  • NBFCs have to be transparent in quoting the rate of interest
  • Derivation of the manner of arriving at the rate of interest to different categories of borrowers should be disclosed to the borrower or customer in the application form & communicated explicitly in the sanction letter etc

Q9. What is the maximum limit to accept deposits from public?

NBFC can accept maximum 1.1x of Net Owned Fund (This law is w.e.f. 31/03/2016)

Q10. What are the regulations applicable on NBFC-NDs with asset size of less than 500 crore?

Public Fund Customer Interface Regulation
Not Accessed Not Accessed Not subjected to any regulation either prudential or conduct of business regulations viz FPC(Fair Practices Code), KYC, etc
Not Accessed Accessed Subjected only to conduct business regulations including FPC, KYC etc
Accessed Not Accessed Subjected to limited prudential regulations but not conduct of business regulations
Accessed Accessed Subjected to both limited prudential regulations & conduct of business regulations

Q11. What is a Residuary Non-Banking Company (RNBC)? In what way it is different from other NBFCs?

  • Full form of RNBC: Residuary Non-Banking Company
  • It is a class of NBFC which is a company whose principal business is of receiving deposits under any scheme or arrangement or in any other manner and not being Investment, Asset Financing, Loan Company.
  • RNBC are required to maintain investments as per directions of RBI, in addition to liquid assets
  • Functioning of RNBC is different from those of NBFC. Such differences include terms of method of mobilization of deposits and requirement of deployment of depositors’ funds as per Directions.
  • Prudential Norms Directions are applicable to both RNBC and NBFC.

Q12. What is the rate of interest & period which NBFCs can accept?

  • Maximum rate of Interest which NBFC can offer: 12.5%
  • Interest amount: May be paid or compounded at rests not shorter than monthly estimates
  • Allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months.
  • Cannot accept deposits repayable on demand.

Q13. Can NBFCs accept deposits from NRIs?

  • Amounts after April 24, 2004: NBFCs cannot accept demand from NRI’s except deposits by debit to NRO account of NRI provided such amount does not represent inward remittance or transfer from NRE/FCNR (B) account
  • Amount deposited by NRI before April 24, 2004: Yes, it can be renewed

Do you want Free Consultation regarding NBFC registration?

Call / Whatsapp us Now at +91 9599653306 or Send us an Email at [email protected]

Previous Post
Newer Post