NBFC Registration

NBFC Registration: A Complete Guide to Establishing Your Non-Banking Financial Company

In India, the Non-Banking Financial Companies (NBFCs) have become an essential part of the financial sector, offering a wide range of services such as loans, asset financing, leasing, and wealth management. With the rapidly expanding economy and the increasing need for credit, NBFC registration presents a lucrative opportunity for entrepreneurs looking to enter the financial sector.

In this blog, we will explore everything you need to know about NBFC registration — from what it is, why you should consider it, when it is the right time to register, how to go about the process, and the potential challenges associated with it. We’ll also look at conditions for different states and the current government fees.

What is NBFC?

A Non-Banking Financial Company (NBFC) is a financial institution that provides various banking services but does not hold a banking license. It is regulated by the Reserve Bank of India (RBI) and provides financial products such as loans, investments, and insurance, among others. Unlike banks, NBFCs cannot accept demand deposits (like savings accounts), but they offer many other financial services, including:

  • Loan and Advances: Personal loans, business loans, etc.
  • Investment Activities: Asset management, wealth management, etc.
  • Leasing and Hire Purchase: Providing financing options for purchasing equipment or vehicles.
  • Insurance and Mutual Funds: Investment in life and general insurance, etc.

Why Should You Register an NBFC?

Here are some key reasons why you should consider NBFC registration:

1. Lucrative Financial Sector

With the growth of the Indian economy and the need for accessible financial products, NBFCs play a critical role in providing financing to individuals, small businesses, and industries. The demand for NBFC services is on the rise, making it a profitable venture.

2. Flexible Business Model

NBFCs offer flexibility in terms of product offerings. Whether it's personal loans, asset financing, or wealth management, an NBFC can cater to diverse financial needs, allowing for varied revenue streams.

3. Government Support

The Indian government and the RBI provide various incentives and regulatory measures to support the growth of NBFCs. By registering an NBFC, you will be able to tap into this growing market and receive government-backed financial backing.

4. Increased Trust

Being regulated by the Reserve Bank of India (RBI) enhances the credibility of your NBFC. Clients are more likely to trust a financial institution that is recognized and regulated by the central banking authority of India.

5. Diversified Operations

An NBFC can provide multiple services under one roof, such as loans, asset management, insurance, and more. This diversified portfolio can help you build a strong business model and minimize risks associated with a single service offering.

When Should You Register an NBFC?

Here are the scenarios when registering an NBFC could be a good option:

1. Expansion into Financial Services

If you are already operating in a related field, such as lending or financial advisory, and wish to expand into offering a wider range of financial products, then registering an NBFC is a great way to formalize your business and gain access to regulated services.

2. You Have the Required Capital

The capital requirement for NBFC registration is essential. For a Deposit-taking NBFC, the minimum capital requirement is ₹2 crores, and for a non-deposit-taking NBFC, the minimum capital is ₹1 crore. If you have the required capital or the ability to raise it, you can proceed with registration.

3. You Have Market Demand

If there is significant market demand for financial services like lending, investment, or insurance in your area or target market, you should consider registering an NBFC to tap into that demand.

4. You Are Ready for Regulatory Compliance

Operating as an NBFC requires adhering to strict regulatory guidelines set by the RBI. If you are prepared to comply with the norms and regulations, registering an NBFC will be beneficial for long-term growth.

How to Register an NBFC?

The process for NBFC registration is a multi-step procedure that must be carried out in compliance with the Reserve Bank of India (RBI) guidelines. Below is the step-by-step procedure:

1. Incorporation of the Company

You first need to incorporate a Private Limited Company or Public Limited Company under the Companies Act, 2013. The company must have at least 3 directors and 2 shareholders.

2. Application for RBI License

Once the company is incorporated, you can apply to the Reserve Bank of India (RBI) for the NBFC registration. You need to submit the application along with the required documents, including:

  • Memorandum of Association (MOA)
  • Articles of Association (AOA)
  • Financial statements and projections
  • Details of the proposed business activities
  • Copies of the company’s board resolution

3. Minimum Capital Requirement

As mentioned earlier, NBFCs need to meet the minimum capital requirements. This capital must be in the form of equity capital and will be checked by RBI before the approval of the registration.

4. RBI Review Process

The RBI will review your application, documents, and financial stability before granting an NBFC license. The approval process typically takes a few months, and the RBI may request additional information or clarifications.

5. Certificate of Registration

Once the RBI is satisfied with your application, you will be granted the Certificate of Registration (CoR), which officially establishes your NBFC.

6. Post-Registration Compliance

After obtaining the CoR, your company must comply with all RBI regulations, including filing quarterly returns, maintaining minimum capital, and conducting annual audits.

Why Not Register an NBFC?

While registering an NBFC has numerous benefits, there are also some challenges and reasons why you may choose not to go down this path:

1. High Capital Requirement

The capital requirement for registering an NBFC can be high, especially for those who are starting with limited funds. For deposit-taking NBFCs, the minimum requirement is ₹2 crore, which may not be feasible for smaller businesses.

2. Strict Regulatory Oversight

As an NBFC, you will be subject to strict RBI guidelines, and any non-compliance can lead to severe penalties. Maintaining regulatory compliance is time-consuming and may require significant legal and financial resources.

3. Limited Scope in Certain Sectors

If you plan to operate in sectors that require specialized licenses (e.g., insurance or mutual funds), the registration of an NBFC may not be sufficient. You may need additional approvals to expand your operations.

4. Ongoing Compliance Costs

Once registered, NBFCs are required to maintain a significant amount of compliance documentation, file returns, conduct audits, and adhere to capital adequacy ratios. These costs can accumulate over time.

Current Government Fee for NBFC Registration

The government fee for registering an NBFC is around ₹10,000 for non-deposit-taking NBFCs and ₹50,000 for deposit-taking NBFCs. These fees are subject to change based on RBI’s regulations, so it’s important to check the latest guidelines before applying.

Conditions for Different States

In India, the process for NBFC registration remains the same across states; however, some states may offer advantages due to their economic environment, tax incentives, or access to resources. Here’s a look at conditions in some major states:

  • Delhi: Delhi is home to numerous financial institutions and has a robust infrastructure for businesses. It provides easy access to clients and business networks in the financial sector.

  • Maharashtra (Mumbai): Mumbai is India’s financial capital and a hub for NBFCs. Setting up an NBFC here offers access to a large financial market and business-friendly policies.

  • Tamil Nadu (Chennai): Known for its growing economy, Chennai is an attractive option for NBFCs, especially in the southern region of India.

  • Karnataka (Bangalore): A hub for tech-based financial services, Bangalore offers a vibrant startup ecosystem, which is beneficial for NBFCs that focus on technology-driven financial products.

How Chhabria Associates Can Help You?

Chhabria Associates is your trusted partner when it comes to NBFC registration and compliance. Our team of experts specializes in company registration, legal consulting, and post-registration compliance.

Our Services Include:

  • NBFC Registration: We assist with the application and documentation process for NBFC registration.
  • Legal and Regulatory Compliance: Our experts ensure that your NBFC complies with RBI guidelines and other regulations.
  • Document Filing and Preparation: We handle all necessary document filing, including MoA, AoA, and more.

Contact Us Today:

  • Mobile No.: 9289521162
  • WhatsApp: 9289521162
  • Email: chhabriaca@gmail.com
  • Address: K-149, Main Road, Karawal Nagar, Delhi-110090

Start your journey toward establishing your NBFC with expert guidance from Chhabria Associates today!