NBFC Registration

An NBFC is a company that provides banking services to people without holding a bank license.

1.) It performs activities like:-
2.) Financing
3.) Acquisition of securities
4.) Hire purchase
5.) Insurance
6.) Chit fund
7.) Mutual benefit company

But does not include companies that carry activities like:-

1.) Agricultural operations
2.) Industrial activities
3.) Sale or purchase of goods other than securities
4.) Service providers
5.) Sale of immovable property

The following are the reasons why an NBFC is important to the economy:-

1.) It improves the mobilization of resources or shadow banking
2.) It helps increase capital formation
3.) It provides long term credit
4.) It leads to the development of the financial market.

An NBFC can be either a Deposit-taking Non-Banking Financial Company [NBFC-D]Or
A Non-Deposit taking Non-Banking Financial Company [NBFC-ND]

Based on the company’s authorized capital, a fee is charged for:-

1.) MOA (Memorandum of Association) and AOA (Articles of Association) of the company
2.) Ministry of Corporate Affairs (MCA)
3.) Simplified Proforma for Incorporating Company electronically (SPICe)
4.) Reserve Unique Number (RUN) fee [predetermined]5.) Director Identification Numbers (DIN) fee [predetermined]6.) Digital Signature Certificate (DSC)
7.) Additional fees while submitting the application to the registrar.

Here are the compliances that an NBFC needs to follow after being registered:

1.) Apply for E-KYC Registration & Regular reporting of the borrowers.
2.) Filing of NBS-9 on online RBI portal i.e. COSMOS;
3.) ROC Filings like Annual Returns, Balance Sheets, Profit and Loss Accounts, etc;
4.) Maintenance of proper accounts;
5.) Appointment of Statutory Auditor;
6.) Income Tax Returns and GST Returns;
7.) All such compliances as may occur from time to time.
8.) Adopt Fair Practice code as prescribed the RBI
9.) Adopt NBFC Prudential norms as prescribed by the RBI.
10.) Always meet and Maintain 50:50 PBC Criteria
11.) FIU Registration

The RBI has been accorded the powers under the RBI Act 1934 like:-

1.) Registration
2.) Lay down policy
3.) Issue directions
4.) Inspect, regulate and supervise
5.) Exercise surveillance over NBFCs which comply with the defined 50-50 criteria of the principal business
6.) Penalize NBFCs for violating the provisions of the RBI Act or the directions or orders issued by RBI

Here are the key differences between an NBFC and a bank:-

1.) An NBFC does not hold a banking license, while a bank has to have it.
2.) An NBFC is Incorporated under Companies Act 1956; whereas, a bank is incorporated under the Banking Regulation Act, 1949.
3.) An NBFC cannot accept demand deposits unlike a bank
4.) Maintenance of Reserve Ratios not required for and NBFC while it is compulsory for a bank.
5.) NBFCs do not provide deposit insurance facilities, but a bank does.
6.) Credit creation is not a process for the NBFC, unlike the banks.
7.) NBFCs do not provide transaction services, while banks do.
8.) NBFCs are not involved in payments or settlements, unlike the banks.