What are NBFC Companies?

The banking sector in India is witnessing remarkable growth Year after Year and financial organizations have played a big role in this.

NBFCs play a crucial role in the Indian financial ecosystem by providing a wide range of financial services and products to customers who may not have access to traditional banking services or other financial solutions.

NBFCs do not have a banking license and work under the regulatory framework of the Reserve Bank of India (RBI), which allows them to engage in various financial activities such as lending, investment, asset financing, and wealth management.

One of the key reasons for the growing prominence of NBFCs is their ability to offer specialized financial solutions tailored to the needs of specific customer segments.

Understanding about NBFCs will help you in getting the benefits of the services offered by them and at the same time would allow you to understand the entire framework on which it is being operated.

In this article, we will discuss What are NBFC Companies, what is NBFCs, the Types of NBFCs, and much more.

What is NBFC?

NBFC stands for Non-Banking Financial Company. It refers to financial institutions that provide banking services such as loans, advances, acquisition of shares, stocks, bonds, debentures, securities, etc. but do not hold a banking license. Instead, they operate under the regulatory framework of the Reserve Bank of India (RBI) and cater to the diverse financial needs of individuals and businesses.

Types of NBFCs

The following are the types of NBFCs-

Asset Finance Company (AFC): These NBFCs primarily finance the purchase of physical assets like machinery, equipment, vehicles, etc.

Investment Company (IC): These NBFCs primarily invest in shares, stocks, bonds, debentures, or securities issued by the government or local authority.

Loan Company (LC): These NBFCs primarily provide loans and advances, including personal loans, business loans, and other credit facilities.

Infrastructure Finance Company (IFC): These NBFCs primarily finance infrastructure projects like roads, bridges, airports, etc.

Microfinance Institution (MFI): These NBFCs primarily provide financial services to low-income individuals and small businesses, often in rural or underserved areas.

Housing Finance Company (HFC): These NBFCs primarily provide housing finance and mortgage loans for purchasing, constructing, or renovating residential properties.

Non-Deposit Taking NBFCs (NBFC-ND): These NBFCs do not accept deposits from the public and rely on other sources of funding like loans, bonds, and equity.

Deposit Taking NBFCs (NBFC-D): These NBFCs accept deposits from the public, similar to banks, but are regulated differently by the RBI.

Eligibility for NBFC license

The following are the eligibility for the NBFC License-

• The NBFC company must be registered under the Companies Act, 2013
• The business must have a minimum net-owned fund of ₹2 crores
• The company’s directors should have financial sector experience
• It must not carry on any agricultural, industrial, purchase, or sale of any goods (other than securities), or provide any services
• The company must have the necessary infrastructure, including adequate manpower, systems, and equipment to operate the business
• It should not engage in the business of receiving deposits other than from its members

Does Every Financial Organization Require NBFC License?

No, every financial organization does not need an NBFC License. There are specific types of financial organizations that are required for NBFC licenses. The following are some of the financial organizations required for NBFC License-

• Banks like Commercial banks, regional rural banks (RRB), and related banks
• Insurance Companies
• Stock Exchanges and Clearing Corporations
• Payment Banks and Small Finance Banks
• Microfinance Institutions (MFIs)
• Pension Funds
• Mutual Funds

How to Obtain an NBFC License?

The following are the steps that you’ll have to take to obtain an NBFC license-

• Determine the type of NBFC you want to establish based on your business model and objectives. Incorporate your company under the Companies Act, 2013, and obtain a Certificate of Incorporation
• Ensure your company meets the eligibility criteria set by the Reserve Bank of India (RBI) for NBFC and initiate the licensing process
• Prepare and apply for an NBFC license to the RBI along with all required documents mentioned below
• This license requires verification, licensing fee, and scrutiny by RBI to issue a License and will require you to pay the requisite application fee and wait for the RBI’s approval
• Upon approval, fulfill any additional requirements specified by the RBI and obtain the NBFC license
• You’ll also have to be compliant with the ongoing regulatory requirements, reporting obligations, and prudential norms mandated by the RBI for maintaining the license

Documents Required for NBFC Companies

The following are the documents Required for NBFC Companies-

• Memorandum of Association (MOA)
• Articles of Association (AOA)
• Identity Proof- Aadhar card, passport, or driver’s license
• Address proof such as utility bills or bank statements for all directors and shareholders
• Director Identification Number (DIN)
• Digital Signature Certificate (DSC)
• Proof of Registered Office
• Board Resolution
• Banker’s Report
• Auditor’s Certificate
• Additional documents may be required depending on the specific nature of the NBFC’s activities and the regulatory requirements, such as business plans, details of promoters, sources of funds, etc.

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