NBFC Registration & Compliance in India: A Comprehensive Guide
Non-Banking Financial Companies (NBFCs) play a pivotal role in India's financial ecosystem by providing credit and financial services to segments often underserved by traditional banks. As of 2024, NBFCs account for over 20% of India's total credit disbursal, making them crucial for financial inclusion and economic growth.
This comprehensive guide covers everything you need to know about registering and operating an NBFC in India, from understanding RBI regulations and capital requirements to navigating the compliance landscape and exploring growth opportunities in this regulated sector.
Understanding NBFCs: Definition and Scope
An NBFC is a company registered under the Companies Act, 1956/2013, engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority, or other marketable securities of a like nature. Unlike banks, NBFCs cannot accept demand deposits and do not form part of the payment and settlement system.
What NBFCs Can Do
- • Provide loans and advances
- • Finance hire-purchase transactions
- • Acquire securities and investments
- • Offer leasing and factoring services
- • Provide microfinance services
- • Issue debentures and bonds
What NBFCs Cannot Do
- • Accept demand deposits
- • Issue cheques payable to self
- • Provide deposit insurance
- • Use 'bank' in their name
- • Participate in payment systems
- • Offer current/savings accounts
Types of NBFCs in India
The Reserve Bank of India categorizes NBFCs based on their activities, size, and ability to accept public deposits. Understanding these categories is essential for determining the regulatory requirements applicable to your NBFC.
| NBFC Type | Description | Key Features |
|---|---|---|
| Asset Finance Company (AFC) | Finances physical assets supporting economic activity | Minimum 60% of assets in financing physical assets |
| Loan Company (LC) | Provides loans and advances (not classified as AFC) | General lending activities |
| Investment Company (IC) | Acquires securities as primary business | Minimum 90% of assets in securities |
| Infrastructure Finance Company (IFC) | Finances infrastructure projects | Minimum 75% in infrastructure loans |
| NBFC-MFI | Microfinance institution NBFC | Qualifying assets > 85%, rural focus |
| Factor | Provides factoring services | Factoring business > 50% of assets |
RBI Registration Requirements
Mandatory Registration Criteria
Under Section 45-IA of the RBI Act, 1934, every NBFC must obtain a Certificate of Registration (CoR) from RBI. Registration is mandatory if the company's financial assets exceed ₹100 crore or if it accepts public deposits, regardless of asset size.
Capital Requirements
- • Minimum Net Owned Funds: ₹10 crore
- • For NBFC-Factor: ₹5 crore
- • For NBFC-MFI: ₹5 crore (₹2 crore in North East)
- • Capital Adequacy Ratio: 15%
Prerequisites
- • Company registered under Companies Act
- • Minimum 1 year of operations (preferable)
- • Clean CIBIL records for directors
- • Robust IT infrastructure
Step-by-Step Registration Process
Company Formation
Register a Public or Private Limited Company with the Registrar of Companies (ROC). The MOA should include financial/banking activities. Ensure the company name does not include the word 'bank' or imply banking activities.
Meet Capital Requirements
Infuse minimum net owned funds of ₹10 crore (or applicable amount for specific NBFC category). Ensure funds are from legitimate sources and properly documented. Obtain net worth certificate from a Chartered Accountant.
Prepare Documentation
Compile comprehensive documents including detailed business plan for 3 years, IT infrastructure details, KYC of directors/promoters, CIBIL reports, audited financials, board resolutions, and compliance manuals for KYC/AML/CFT.
Online Application (COSMOS)
Access RBI's COSMOS portal (cosmos.rbi.org.in). Create company login credentials. Fill the application form with accurate details about company structure, promoters, business plan, and financial projections.
RBI Verification and Due Diligence
RBI conducts thorough verification including background checks on promoters, scrutiny of financial resources, assessment of business model viability, and compliance with fit and proper criteria. This process typically takes 4-6 months.
Certificate of Registration
Upon successful verification, RBI issues the Certificate of Registration (CoR) specifying the category of NBFC and any conditions. The CoR must be prominently displayed at the registered office.
Public Deposits: Rules and Restrictions
Only NBFCs with specific authorization can accept public deposits. The regulations are stringent to protect depositors and ensure financial stability.
Eligibility Criteria
- • Minimum investment grade credit rating
- • Net Owned Funds of ₹20 crore+
- • CRAR of at least 15%
- • Net NPA below 6%
- • Profit for last 3 years
Deposit Limits
- • Maximum interest rate: 12.5%
- • Minimum period: 12 months
- • Maximum period: 60 months
- • Maximum 10% of total deposits from relatives
- • Liquid asset maintenance required
Ongoing Compliance Requirements
Monthly Returns
- • NBS-1: Deposit taking NBFCs
- • NBS-2: Return on Prudential Norms
- • NBS-3: Liquid Assets
- • NBS-4: Exposure Norms
Quarterly Returns
- • NBS-7: Non-deposit taking NBFCs
- • NBS-8: Financial results
- • Asset liability management returns
Annual Compliance
- • Statutory audit by CA
- • Compliance certificate from CA
- • Fair Practices Code compliance
- • KYC/AML policy review
- • Annual return to RBI
Scale-Based Regulation Framework
RBI introduced a scale-based regulatory framework effective October 2022, categorizing NBFCs into four layers based on size, activity, and systemic importance:
| Layer | Criteria | Regulatory Intensity |
|---|---|---|
| Base Layer | Non-deposit taking NBFCs below ₹1,000 crore | Minimal |
| Middle Layer | Deposit taking + NBFCs ₹1,000-5,000 crore | Moderate |
| Upper Layer | Systemically important NBFCs ₹5,000 crore+ | Stringent |
| Top Layer | Identified as posing systemic risk | Most Stringent |
Cost and Investment Breakdown
| Expense Category | Estimated Cost | Notes |
|---|---|---|
| Company Registration | ₹15,000 - ₹50,000 | Depends on authorized capital |
| RBI Application Fee | ₹5,000 - ₹10,000 | Non-refundable |
| Professional Fees | ₹2,00,000 - ₹5,00,000 | CA, CS, Legal consultants |
| Minimum Net Worth | ₹10,00,00,000 | Mandatory capital infusion |
| IT Infrastructure | ₹5,00,000 - ₹20,00,000 | LMS, CBS, Compliance systems |
| Annual Compliance | ₹3,00,000 - ₹10,00,000 | Audit, returns, certifications |
Key Success Factors for NBFCs
Operational Excellence
- ✓ Robust credit assessment mechanisms
- ✓ Effective collections framework
- ✓ Technology-enabled operations
- ✓ Strong risk management practices
Regulatory Compliance
- ✓ Timely filing of all returns
- ✓ Maintaining prudential norms
- ✓ Regular policy reviews
- ✓ Robust KYC/AML framework