A Non-Banking Financial Company (NBFC) is a corporate entity doing business in the sector of Finance services. They could be a Private Limited Company or a Public Limited Company functioning similar to the banks but they are not banks. To operate any NBFC a license from RBI under section 45-I(c) to be obtain.
NBFC must be engaged in the business of Loans and Advances, Acquisition of stocks, equities, debt etc issued by the government or any local authority or other marketable securities. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement by any mode is also a non-banking financial company.
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Documents Required for NBFC Registration
- PAN Card and AADHAR Card of all the proposed Members and Directors. Passport in case Foreign Citizen.
- Bank Statement of Proposed Members and Directors not older than 2 months
- Latest Passport Size Photographs of Members and Directors
- Contact details of all the proposed Members and Directors
- Proposed Name for Company
- Business Object
- Education Qualification of Proposed Directors and Members
- Occupation of Proposed Directors and Members
- Shareholding Ratio
- Address details of registered place of business (Electricity Bill / Rent deed / Copy of registry / Consent and NOC of Owner)
Advantages of NBFC
- Can provide loans and credit facilities
- Can trade in money market instruments
- Can do wealth management such as managing portfolios of stocks and shares
- Can underwrite stock and shares and other obligations
- NBFCs are the last resorts of borrowing; NBFCs are there where banks are not there
- NBFCs are the largest propellants of ushering finance into the country
- Agility is very important for NBFCs as it sets the banks apart. Banks function slower as compared to the NBFCs
- The use of modern methods by NBFCs has overcome key challenges that had overwhelmed conventional lending. NBFCS have made great use of technological advancements like the use of mobile phones and the internet which has helped in making information easily accessible anytime anywhere. It has reduced the demand and reliance on bank branches
Procedure for Obtaining NBFC license
- A company should first be registered under the Companies Act 2013 or should already be registered under Companies Act 1956 as either a Private Limited or a Public Limited Company.
- The minimum net owned funds of the Company should be Rs. 2 Crore.
- 1/3rd of the Directors must possess finance experience.
- The CIBIL records of the Company should be clean.
- The company must have a detailed business plan for five years.
- The company must comply with the requirements for capital compliances and FEMA.
- After all of the above conditions have been satisfied the online application on the website of RBI should be filled and submitted along with the requisite documents.
- A CARN Number will be generated.
- A Hard copy of the application also has to be sent to the regional branch of the Reserve Bank of India.
- After the application is properly scrutinized, the License will be given to the Company.
Documents Required for NBFC License
- Certified copy of the Certificate of Incorporation, MOA & AOA
- KYC of directors & shareholders of the applicant company
- Highest qualification certificate of the directors of an applicant company
- Net worth certificate of the directors & shareholders of the company
- Bankers Report regarding the no lien remark on fixed report of Rs. 2 Crore
- Credit Report of directors & shareholders
- Detailed action plan of the proposed NBFC along with the organizational structure
- Financial statements of the applicant company along with the directors report & auditor’s report
Difference between Banks and NBFC
|Bank is a government entitled financial intermediary which aims to provide banking services to customers.
|NBFC is a company which provides services similar to banking services to people without holding a bank license.
|A bank is registered under banking regulation act, 1949.
|NBFC is registered under company’s act 1956.
|Banks accept and lend deposit.
|NBFC do not accept and lend deposit.
|In banks a foreign investment is limited up to a certain fixed limit.
|In NBFC, Foreign investment is allowed up to 100 percent.
|Payment and settlement is the core activity of banks.
|In NBFC, the payment system is not a part of the activity.
|Bank can issue self-demand draft on itself.
|NBFC cannot issue self-demand draft their own.
|Banks can draw a self-chequeby their own.
|NBFC cannot draw self-cheque their own.
|Banks can create credit through multiplier financial activities.
|NBFC cannot do it.
|Bank provides a variety of transaction services.
|NBFC does not facilitate transaction services.