NBFC Registration process: Step by Step Guide

Non-Banking Financial Companies (NBFCs) play a crucial role in India's financial ecosystem by providing loans, advances, asset financing, microfinance, and other financial services. Unlike traditional banks, NBFCs do not hold a banking license but are regulated by the Reserve Bank of India (RBI). If you're planning to start a financial venture, obtaining NBFC registration from the RBI is a mandatory first step.

In this guide, we’ll walk you through the complete NBFC registration process, including eligibility, documents required, types of NBFCs, and the compliance framework post-registration.

What is an NBFC?

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 or 1956, and engaged in the business of loans and advances, acquisition of shares/stocks, leasing, hire-purchase, insurance business, and chit business. However, NBFCs cannot accept demand deposits like banks.

NBFCs are a popular choice among startups, fintechs, and private investors due to fewer regulatory requirements compared to banks, yet they can perform a wide array of financial activities.

Types of NBFCs in India

Before you apply for NBFC registration, it’s important to identify the category under which your business will fall. The major types of NBFCs include:

1. Investment and Credit Company (NBFC-ICC)
2. Micro Finance Institution (NBFC-MFI)
3. Infrastructure Finance Company (NBFC-IFC)
4. Asset Finance Company (NBFC-AFC)
5. Housing Finance Company (HFC)
6. Core Investment Company (CIC)

The RBI has introduced a Scale Based Regulation (SBR) framework that categorizes NBFCs into different layers: Base, Middle, Upper, and Top layers, based on their size, activity, and risk level.

Eligibility Criteria for NBFC Registration

To register an NBFC in India, the following eligibility criteria must be fulfilled:

• The applicant must be a company incorporated under the Companies Act, 2013.
• The company must have a minimum net owned fund (NOF) of ₹2 crore.
• At least one of the directors should have experience in the financial services sector.
• A clear business plan for the next 3 to 5 years is required.
• The company must comply with RBI fit and proper criteria for directors.

Foreign investors can also apply for NBFC registration, subject to FDI regulations.

Documents Required for NBFC Registration

Here’s a list of documents required to apply for an NBFC license:

1. Certificate of Incorporation and MOA/AOA
2. Board Resolution for NBFC formation
3. Audited financials for the last 3 years (if applicable)
4. Banker’s report showing the creditworthiness of the company
5. Detailed business plan and future projections
6. KYC documents of directors and shareholders
7. Net worth certificate from a Chartered Accountant
8. Organization structure and IT policy (especially for fintech NBFCs)
9. Income tax returns of directors
10. Details of IT systems and software used

Ensuring the accuracy of these documents is essential for smooth processing of your NBFC registration application.

Step-by-Step NBFC Registration Process

The RBI NBFC registration process involves the following steps:

Step 1: Incorporation of Company

Incorporate a private or public limited company with a clear object clause in the MOA stating financial activities as the primary objective.

Step 2: Fulfill NOF Requirement

Ensure that the company has a Net Owned Fund of ₹2 crore (₹10 crore for NBFC-MFI and NBFC-IFC), maintained through equity capital only.

Step 3: Open a Fixed Deposit Account

Deposit the NOF in a scheduled bank’s fixed deposit account. Obtain a certificate from the bank confirming that the amount is unencumbered.

Step 4: Prepare Documents

Gather all required documents, including a detailed business plan, KYC of directors, IT returns, and financial projections.

Step 5: File Online Application

Visit the COSMOS portal on the RBI’s official website and submit your application with all documents. After submission, a Company Application Reference Number (CARN) will be generated.

Step 6: Submit Hard Copy

Send a hard copy of the application and documents to the Regional Office of the RBI.

Step 7: RBI Scrutiny and Approval

The RBI will examine the application, background of directors, financial health of the company, and the business model. If everything is in order, the RBI will grant the NBFC license.

Timeline for NBFC Registration

The entire process typically takes 4 to 6 months, depending on the accuracy of the documentation and response time from the RBI.