Non-Banking Financial Company

Non-Banking Finance Company (NBFC)- What and How of Registration and Acquisition

A company desirous of doing the lending and investment business has to register itself with RBI and get approval for the same. Without a valid license granted by RBI, a company cannot operate in such type of business.

Functions of NBFCs are similar to that of Banks. But NBFCs cannot accept demand deposits.

Registration of NBFC

Reserve Bank of India (RBI) regulates the lending and financing business in India. NBFCs has to take approval from RBI and obtain a Certificate of Registration (Cor) under Section 45-IA of the RBI Act, 1934. After granting of license by RBI, NBFC can conduct business of a non-banking financial institution.

Points to be kept in mind while submitting application for NBFC licence-

1. Net Owned Funds (NOF)- As per RBI notification dated April 21, 1999, to commence business as NBFC, the minimum NOF requirement is of Rs. 2 crore.

2. File Application with RBI along with the requisite documents as prescribed by RBI.

3. Select the category of NBFC for which registration is sought.

4. Profile check of Director and Shareholders. This is an important point while submitting application to RBI for NBFC licence. The Director and Shareholders should not be involved in any banking default or associated with any entity which has done such default. Promoters with background in financial sector add as a positive factor.

5. Submit a detailed business plan. Such plan shall be made keeping in mind the objectives of the NBFC, future plans and budgets.

Acquisition of NBFC

The other way of getting the NBFC licence other that registration as NBFC, is through acquisition of NBFC.

As per RBI notification dated July 09, 2015, advance approval of RBI is required for following cases-
a) Acquisition of control of NBFC of its takeover.

b) Acquisition/ transfer of 26% or more of the shareholding except where change in shareholding occurs due to buyback of shares of reduction of share capital.

c) Change in more than 30% of directors of the NBFC except in the cases of independent directors or re-appointment after retirement by rotation.

If any of the above change occurs in the NBFC, it has to file an application to take approval from RBI along with the documents as prescribed in the notification as stated above.

RBI after considering the application may accept or reject the application or call for further clarification on any matter. It is advised to complete all the compliances of the NBFC before filing such application to avoid any delay.

After the approval is granted by RBI, the investor can acquire the targeted NBFC and operate it for lawful purposes.