NON-BANKING FINANCIAL COMPANY
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WHAT ARE NON-BANKING FINANCIAL INSTITUTION (NBFC)
Financial institutions that provide a range of banking services without a banking licence are referred to as nonbank financial businesses (NBFCs), often known as nonbank financial institutions (NBFIs). Typically, the public’s readily accessible monies, including those in checking or savings accounts, cannot be accepted as demand deposits by these organisations. This restriction keeps them out of the purview of traditional federal and state financial regulator scrutiny.
Nonbank Financial Companies are deemed to be “predominantly engaged in a financial activity” by the Dodd-Frank Wall Street Reform and Consumer Protection Act when more than 85% of their consolidated annual gross revenues or consolidated assets are of a financial nature. Investment banks, mortgage lenders, money market funds, insurance firms, hedge funds, private equity funds,and peer-to-peer lenders are a few examples of NBFCs.
NBFC REGISTRATION IN INDIA ?
A company registered under the Companies Act of 1956 that engages in the primary business of lending, investing in shares, stocks, bonds, and debentures, leasing, hire-purchase, insurance, chit trading, or receiving deposits under any scheme or arrangement is known as a non-banking financial company (NBFC). The Reserve Bank of India (RBI) is responsible for overseeing NBFCs, and in this post, we’ll look at how to register an NBFC there as well as some of the rules that control how it conducts business.
NBFC REGISTRATION PROCESS:
NBFC must comply with a variety of requirements set up by the RBI. Both before and after registration, it must meet the following criteria:
Pre- Requisites for NBFC Registration :
The following conditions must be met before an NBFC is registered:
- Before submitting an application for NBFC Registration, the financial institution must first be incorporated as a company under the Companies Act 1956/2013;
- Second, at least one-third of the Directors must be full-time employees and have at least 10 years of financial experience;
3.The business applying must have a comprehensive business plan for the upcoming five years;
4.The business needs net-owned capital to be registered. Currently, the corporation is required to have a net-owned fund of 2 crore rupees, but a few minor changes have been made since the RBI implemented the scalar-based regulation. The updated net-owned fund specifications are provided below.
5.The company, its directors, and its owners ought to have respectable CIBIL ratings, demonstrating that they have never missed a loan payment;
6.The object clause in the memorandum of association and the business strategy must be in agreement;
7.The directors are required to follow the right and suitable criteria.
Post- Requisites for NBFC Registration:
Before the NBFC Registration process can start, the applicant must acquire all required papers. After compiling all relevant paperwork, the applicant must submit the application to the RBI. The following are the procedures for registering an NBFC:
Application and Documents for Verification Are Submitted
The applicant must then deliver their application and all necessary supporting materials to the authority for verification. To confirm that the applicant’s contributions are accurate, the authorities will review the application and any supporting materials.
Certificate of Registration Issue
The registration certificate will be issued by the authority following a final confirmation of the application and supporting documents.
Reclassification of NBFCs
The Base layer, Middle layer, Upper layer, and Top layer are the four scale-based tiers that the RBI has stated will regulate NBFCs, according to the revised framework.
Framework for Scalar-Based Regulation of NBFCs through 2021
The Reserve Bank of India announced on October 22, 2021, a scale-based new regulatory framework for NBFCs in order to continue stringent surveillance of the sector. In accordance with the scale-based regulatory framework for non-banking financial organisations, there will be additional NBFC categories with severe rules.
DOCUMENTS REQUIRED FOR NBFC REGISTRATION :
- Have the following documents on hand:
2.Corporate Certificate; a firm brochure and in-depth managerial information;
3.A duplicate of the corporate identity number (CIN) or PAN;
4.documents containing the address or place;
5.A certified copy of the memorandum and articles of association;
6.A list of the director profiles that need to be properly signed;
7.Certification of directors’ qualifications and certification of their work history;
8.Credit reports from CIBIL for the company’s directors;
9.A verified copy of the board’s fair practices code resolution;
10.statutory auditor’s certificate stating that the company does not keep any public deposits and does not accept them;
11.a Statutory Auditor’s certificate detailing owned funds as of the application date;
12.Shareholder Know Your Customer (KYC), CIBIL, ITR, and banking reports;
13.Provide details about the bank account, including balances, loans, and credits;
14.A P&L statement that has been audited, along with the directors’ report and the auditors’ report for the previous three years;
15.A self-certified copy of your ITR and bank statement;
The following are the main revision highlights:
- The maximum loan amount for financing IPO subscriptions will be one crore rupees per borrower.
- NBFCs’ regulatory structure will consist of four tiers:
An NBFC with assets worth less than Rs. 1,000 crore and no deposit-taking capability;
A group of NBFCs with assets above 1000 crore rupees that take deposits, as well as non-deposit-taking NBFCs
This layer will include the top 10 NBFCs based on the size of their assets;
The regulator may impose this layer if it believes that the upper layer NBFCs have a substantial risk of default.
- With certain exceptions, all NBFCs must have a net-owned fund of 10 crore rupees.
WHAT ARE THE BENEFITS OF NBFC
- Nbfc is able to offer credit and loans.
- Able to deal in financial instruments
- Able to manage stock and share portfolios and other forms of asset management
- Can provide coverage for stock, shares, and other commitments.
- NBFCs are the last-resort lenders; they are present when banks are not.
- The biggest forces advancing finance into the nation are NBFCs.
- For NBFCs, agility is crucial since it distinguishes banks from one another. Bank operations are slower than those of NBFCs.
Yes, It provides loans online.
Yes, it provides a personal loan.
A non-banking financial company (NBFC) is a business registered under the Companies Act of 1956 that engages in the business of loans and advances, the acquisition of shares/stocks/bonds/debentures/securities issued by the government or a local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, and chit business
NBFC can provide loans against the collateral of gold jewelry.
Yes, it gives you a fixed deposit facility like a bank.
Agri-financing enables farmers and other participants in the agricultural value chain to safely store their harvest while simultaneously obtaining funding against collateral.
There is a total of 9680 NBFCs registered with the Reserve Bank of India.
Bajaj Finance Limited, Mahindra & Mahindra Financial Services Limited, etc are some famous NBFCs.
Both banks and non-banking financing organizations offer home loans (NBFCs). NBFCs include Housing Finance Companies (HFCs). By contrasting the duration, interest rate, and processing costs of each offer, you can decide between a bank and an HFC.
Yes, it is safe if it is registered under RBI’s guidelines and complies with all its rules.
The provisions of the RBI Act, 1934 and the recommendations published in this regard by the Reserve Bank of India govern all loans, including loans against the security of gold and gold ornaments, granted by NBFCs registered with the Reserve Bank of India under Section 45-IA of the said Act.
No, it can’t.
The NBFCs may accept external commercial borrowings from individuals, FIIs, foreign overseas corporate bodies, and other trusts or persons, subject to the Exchange Control Regulations.
In contrast to banks, depositors of NBFCs do not have access to the Deposit Insurance and Credit Guarantee Corporation’s deposit insurance program.
When a company’s financial assets make up more than 50% of its total assets and its revenue from financial assets makes up more than 50% of its gross income, it is considered to be engaged in financial activity. A business that satisfies both requirements will be registered as an NBFC by RBI.
Education loans are available from NBFCs including Avanse, Tata Capital, and HDFC Credila.
Reliance Capital is the most well-known NBFC for house loans in India.