NBFC Registration

NBFCs (Non-Banking Financial Companies) are financial institutions registered under the Companies Act, 1956 or the Companies Act, 2013. While they do not hold a banking license, they offer a wide range of financial services similar to banks. These services allow NBFCs to play a crucial role in supporting economic growth, especially in sectors like retail, housing, and infrastructure financing.

Services Provided by NBFCs:

Loan and Credit Facilities: NBFCs extend loans to individuals and businesses for various purposes like personal loans, home loans, and business loans.
Asset Financing: NBFCs help finance assets like vehicles, machinery, and equipment, often through hire-purchase agreements.
Acquisition of Shares/Stocks/Bonds: These companies invest in equity, debt instruments, and other securities, thereby offering investment opportunities to clients.
Hire Purchase: In hire-purchase arrangements, customers can purchase goods by paying in installments.
Insurance Business: Some NBFCs operate in the insurance sector, offering life, health, and general insurance products.
Chit Business: Chit funds are a popular means of savings and loans, where a group of people come together to contribute and borrow funds on a rotational basis.
Currency Exchange: Certain NBFCs are involved in currency exchange, assisting clients with forex services.
Peer-to-Peer Lending: NBFCs facilitate direct lending between individuals, bypassing traditional banks.
Hedge Funds: NBFCs can manage hedge funds, which pool capital from accredited investors and invest in a variety of assets.

Activities Not Included Under NBFCs

Agricultural Activity: Companies involved primarily in agricultural production, farming, or related activities are not classified as NBFCs.

Industrial Activity: Manufacturing or industrial operations, where the primary business is the production of goods, are excluded from NBFC registration.

Purchase and Sale of Goods: Engaging in the trade, purchase, or sale of any goods, whether wholesale or retail, does not qualify a company to be registered as an NBFC.

Providing Services: Companies that offer general services (such as consultancy, IT services, or business process outsourcing) without dealing with financial activities do not fall under the NBFC category.

Real Estate Transactions: The purchase, sale, or construction of immovable properties (such as residential, commercial, or industrial properties) is not considered an NBFC activity.

Classification of NBFCs

The classification based on authorization to take deposits

Deposit Accepting NBFCs (NBFC-D)
Non-Deposit Accepting NBFCs (NBFC-ND)

Classification of NBFCs Based on Their Activities

NBFCs are categorized into different types based on the nature of their activities. These classifications help in regulating specific financial services they offer:

Asset Finance Company (AFC):
- Primarily involved in financing physical assets such as machinery, vehicles, and equipment, supporting sectors like transport, construction, and infrastructure.
Investment Company (IC):
- Focuses on investing in securities such as stocks, bonds, and government securities. These NBFCs act as holding companies or investment arms.
Loan Company (LC):
- Provides loans to individuals or businesses for various purposes like personal loans, business loans, etc. They do not focus on asset financing.
Infrastructure Finance Company (IFC):
- Specializes in funding infrastructure projects such as roads, bridges, power plants, and other large-scale construction projects.
Microfinance Institution (MFI):
- Offers small loans to individuals in rural or underserved areas, usually targeting low-income groups to support financial inclusion.
Housing Finance Company (HFC):
- Provides home loans and financial products related to housing construction or acquisition.
Core Investment Company (CIC):
- A type of NBFC that primarily invests in and holds shares of other group companies but does not trade in them. It is typically part of a corporate group.
NBFC-Factor:
- Engages in the business of factoring, meaning they purchase receivables (unpaid invoices) from companies to provide them with liquidity.
Mortgage Guarantee Company (MGC):
- Provides guarantees to lenders on repayment of housing loans, thus facilitating housing loan transactions.
NBFC-Peer to Peer (P2P) Lending Platform:

Pre Requirements Of NBFC

Before registering as an NBFC, a company must fulfill several prerequisites. Firstly, it needs to be incorporated under the Companies Act, 2013 or, if already established, the Companies Act, 1956, as either a Private Limited or Public Limited Company. The company must have a minimum net owned fund of ₹2 crore, although specific thresholds apply to categories like Microfinance Institutions and Infrastructure Finance Companies.

A comprehensive business plan is required, detailing the company’s financial activities, target market, and growth strategy. The Board of Directors should include qualified and experienced individuals, meeting RBI criteria. Adequate infrastructure and IT systems must be in place to manage transactions, records, and regulatory compliance. The company must adhere to RBI guidelines related to corporate governance and operational practices.

KYC processes must be completed for directors and key management personnel, ensuring there are no adverse records. Additionally, the company must meet capital adequacy norms prescribed by the RBI and submit an application to the RBI for approval.