The Comprehensive Guide to Opening a Non-Banking Financial Company (NBFC) in India
Opening a Non-Banking Financial Company (NBFC) in India is a meticulous process that requires understanding the regulatory framework, engaging in a structured incorporation and licensing procedure, and ensuring compliance with ongoing requirements. This article provides a detailed overview of the steps involved, essential documentation, and regulatory requirements for establishing an NBFC in India.
Understanding the Regulatory Framework
Regulator: The Reserve Bank of India (RBI) regulates NBFCs under the Reserve Bank of India Act 1934.
Types of NBFCs: Asset Finance Company (AFC): Provides financing for the acquisition of assets such as vehicles, machinery, and other non-current assets. Investment Company (IC): Direct or indirect investment in securities, financial instruments, or other eligible assets. Loan Company (LC): Provides loans and advances. Infrastructure Finance Company (IFC): Finances infrastructure projects and services. Micro Finance Institution (MFI): Offers financial services to unbanked and underserved individuals and communities.
Incorporation of the Company
Choose a Business Structure
Most NBFCs are incorporated as private limited companies under the Companies Act 2013.
Name Approval
Apply for name approval through the Ministry of Corporate Affairs (MCA).
Documents Required
Memorandum of Association (MoA) and Articles of Association (AoA) Identity and address proof of directors Photographs of directors Proof of registered officeObtain a Certificate of Incorporation
File Application: Submit the incorporation application along with the required documents on the MCA portal.
Receive Certificate: Once approved, you will receive a Certificate of Incorporation.
Apply for NBFC License
Minimum Net Owned Funds (NOF)
Ensure that the company has a minimum NOF of 2 crore as of August 2023.
Prepare Application
Fill out the application form for NBFC registration (Form NBS-1) and submit it to the RBI.
Documentation
Business plan Financial statements of the company Details of directors and management KYC documents of directors and shareholders Other relevant documents as specified by RBIRBI Review Process
The RBI will review your application and documents. This may involve a background check of the promoters and the proposed business model.
Clarifications: Be prepared to provide additional information or clarifications if requested by the RBI.
Grant of License
Approval: If the RBI is satisfied with your application, it will grant an NBFC license.
Certificate of Registration: You will receive a Certificate of Registration, allowing you to operate as an NBFC.
Compliance and Regulatory Requirements
Maintain Net Owned Funds (NOF) and other financial ratios as mandated by the RBI. File annual returns and comply with ongoing regulatory requirements. Conduct statutory audits as required.Additional Requirements
Know Your Customer (KYC): Implement KYC norms for customer identification and verification. Risk Management: Establish risk management policies and procedures. Internal Controls: Set up internal control systems and compliance mechanisms.Conclusion
Starting an NBFC in India is a structured process that requires adherence to regulatory norms and a clear understanding of the financial landscape. It is advisable to consult with legal and financial experts to navigate the complexities of the process effectively.