Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions typically are restricted from taking deposits from the public depending on the jurisdiction. Nonetheless, operations of these institutions are often still covered under a country's banking regulations.
The specific banking products that can be offered by NBFCs depends on the jurisdiction, and may include services such as loans and credit facilities, savings products, investments and money transfer services. In some jurisdictions, such as New Zealand, any company can engage in banking business, except they are not allowed to use the word bank in their name. A company can only call itself a bank if it is a registered as such with the nation's central bank.
NBFCs offer most sorts of banking services, such as loans and credit facilities, private education funding, retirement planning, trading in money markets, underwriting stocks and shares, TFCs(Term Finance Certificate) and other obligations. These institutions also provide wealth management such as managing portfolios of stocks and shares, discounting services e.g. discounting of instruments and advice on merger and acquisition activities. The number of non-banking financial companies has expanded greatly in the last several years as venture capital companies, retail and industrial companies have entered the lending business. Non-bank institutions also frequently support investments in property and prepare feasibility, market or industry studies for companies.
However they are typically not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments.
ADVANTAGES OF NBFC:-
Major Steps involved for incorporation of NBFC
The most preferred business areas of NBFC are leasing & finance, deposits, commercial & industrial loans & advances, insurance business, hire purchasing, investment funds, instruments of the capital & money markets, chit business & many other similar activities. Since December 2006, there exist 3 broad categories of NBFCs in India.
Since January 1997, obtaining the mandatory NBFC registration number for establishing a business in any of the above specified areas, has been made essential by the RBI. For obtaining proper & secure registration under any of the above 3 categories of NBFCs, the following are compulsory requirement:-
The prescribed format for making application for the NBFC registration is obtainable from the website https://cosmos.rbi.org.in, along with information regarding the demanded documents and enclosures. Filing an online application with this website, give a company application reference Number, to enable the applicant for knowing current status of the registration process. Along with the hard copy (in duplicate) of this online application, the applicant company then requires to make application together with all demanded documents and enclosures, to the concerned Regional Office of the RBI. After verification and approval of the submitted application and the attached documents, the regional office will send the application to the central office of RBI for crucial examination and grant of the desired certificate. If all terms and conditions provided in the Section 45IA of the RBI Act of 1934 are fully satisfied by the applicant company, then, the NBFC certificate will be issued otherwise rejected.
Documents Required to be enclosed in the application form
a) Identification particulars (Annex I).
b) Statement on prudential norms (Annex II).
c) Information about the management (Annex III)
d) Certified copies of up-to-date Memorandum and Articles of Association of the company.
e) A Board resolution specifically approving the following:-
i) submission of the application and its content
ii) that the company has not commenced any Non Banking Financial Institution (NBFI) activity as on date and
iii) that the company has not accepted Public Deposits as on date and shall not accept any Public Deposit in future without the prior approval of RBI.
f) Statutory Auditors Certificate certifying e(ii) and e(iii) above.
g) A copy each of the Profit and Loss account and audited Balance Sheet for the last 3 years or for such shorter period as are available.
h) Business plan of the company for the next three years giving details of its (a) thrust of business including projections; (b) market segment; and (c) projection of income and expenditure.
i)a) Declaration from each of the Directors of the applicant company to the effect that he/she is not associated with any unincorporated body which is accepting/ holding deposits in violation of Section 45S of the RBI Act, 1934.
b) Details of experience of the directors in NBFC business is to be furnished at item 14 of Annexure III. In case, none of the directors has experience, a note indicating as to how the affairs of the company would be managed, may be furnished.
j) Confidential Report from the bankers in respect of each of the following institutions in NBFC business may be obtained and submitted to the Bank alongwith the application form in a SEALED COVER:-
a) the applicant company.
b) holding company of the applicant company.
c) all the group companies.
d)companies in which the director/s has/have substantial interest;
k) Bank balance statement/ certified copy of Fixed Deposit/ any other deposit account of applicant company placed with its banker/s in support of maintaining the prescribed level of NOF.
l) Give brief note on the activities carried out by the company in the last three years, in case any other activity was being carried on and now the company is being converted into NBFC. Furnish details of acquisition, mergers of other companies, if any, in the past.
m) Whether it had applied to RBI in the past for registration. If yes, give full details.
n) Information in a separate letter as to whether :-
a) the company has made application to RBI for permission to function as Full Fledged Money Changer; If yes, give particulars, else report "Nil.
b) the company or any of its directors are involved in any criminal case including Section 138 of the Negotiable Instruments Act, If yes, please give particulars, else report "Nil";
c) there are any incidents of non-compliance with the directions of Revenue Authorities or any other statutory authority by the applicant company, its holding company/ subsidiaries, If yes, give particulars, else report "Nil";
d) the company is capable of electronic submission of information through the Internet, as and when called for by Reserve Bank of India;
e)(i) Is there any FDI in the applicant company? If yes, please indicate: percentage of FDI, details of foreign contributors and submit FIRC in support thereof. Also submit FC-GPR and indicate whether it is through automatic route or with FIPB approval. If it is with FIPB approval, please submit a copy of the approval;
(ii) If it is a foreign entity setting up NBFC in India, whether it is subject to supervisory review in its home country?;(iii) If it is not regulated in its home country, mention legal status under which it was established and/ or registered with some authority, statutory requirements like submission of returns filing of balance sheet and profit and loss account etc.
(iv) Activities undertaken, details of regulator of group/associate companies doing financial activities which are regulated either in the home country or elsewhere, if any
(v) If any group/ associate company is operating in India, details such as its activities, its partners or associates, regulator/s etc. may be furnished.
a) In case the company has changed its name earlier, a list of all the earlier names of the company and date/s of change together with the names of Chief Executive Officer and Chairman at the time of change of name should be furnished
b) The company should also submit a list containing the details of all the court cases pending against it, including those pending in consumer foraume.
a) For filling up Annex II, please refer to the provisions contained in Non-Banking Financial (Deposit Accepting or Holding)Companies Prudential Norms (Reserve Bank) Directions, 2007 and Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 on prudential norms for income recognition, accounting standards, asset classification, provisioning for bad and doubtful debts, capital adequacy, concentration of credit/investment, etc.
b) The contents of Annex II should be certified by the Statutory Auditors.
‘Substantial interest’ means holding of beneficial interest by an individual or his/her spouse or minor child, whether singly or taken together, in shares of a company/capital of a firm, the amount paid-up on which exceeds 10 per cent of the paid-up capital of the company or total capital subscribed by all the partners of a partnership firm.
GENERAL INSTRUCTIONS FOR FILLING THE FORM
A) Application should be made in the prescribed form only. Wherever space is insufficient, information may be furnished in separate sheet/s.
B) Application along with enclosures duly completed should be submitted in duplicate, to the Department of Non-Banking Supervision, Reserve Bank of India, Regional Office under whose jurisdiction the registered office of the company is situated.
C) A copy of the application as submitted may be kept with the company for its record.
D) Application should be signed by any of the following officials authorised by the Board of Directors, in this behalf (viz., Chairman, Managing Director, Chief Executive Officer, Company Secretary, a whole-time Director or any other official).
E) Application should bear common seal of the company.
F) An acknowledgement for having submitted the application may be obtained from the Regional Office concerned.
G) The particulars/information to be furnished in Annex II of the application should be based on figures as disclosed in the latest annual audited balance-sheet. However, in the case of a newly incorporated company, such particulars/information should be based on the balance-sheet as on a date falling within thirty days preceding the date of application.
Types of Non-Banking Financial Entities (Regulated by RBI)
Regulatory Norms and Directions for NBFCs
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