Those companies that are registered under the Companies Act, 1956/2013 and provides services such as acquiring shares, stocks, loans, bonds, debentures, or securities issued by the Government or the local authorities or any other marketable security of a similar nature like leasing, hire-purchase, etc are called as Non-Banking Financial Companies or NBFCs
This, however, does not include any entity whose primary business is any agricultural or industrial activity, providing any service, is related to purchase/sale of any goods (apart from securities) or sale/purchase/construction of immovable properties.
Any Non-Banking institution will also be deemed as a NBFC (Residuary Non-Banking Company) if it is involved in receiving deposits as per the guidelines of any scheme in a single lumpsum payment or in instalments through contributions or other methods.
Scale Based Regulation (SBR)
The Reserve Bank of India released a master direction on scale-based regulation for NBFC dated 22 October 2021 that came into effect from 1 April 2022. The conception behind subjecting the sector to SBR is to align the regulations with the changing risk profiles of NBFCs that have grown to a significant extent and have become considerable in the past few years.
Base Layer
Base layer as per the SBR Framework includes non-deposit NBFCs that have an asset size of less than INR 1000 crores. This category includes NBFCs of the below mentioned types:
- NBFC-Peer to Peer Lending Platforms (NBFC-P2P)
- NBFC-Account Aggregators (NBFC-AA)
- Non-Operative Financial Holding Companies (NOFHC)
- NBFCs that do not have any customer interface and do not use public funds
Middle Layer
Middle Layer NBFCs comprises of all non-deposit taking NBFCs that have an asset size of more than INR 1000 crores and all deposit taking NBFCs irrespective of their asset size. The type of NBFCs that falls in this category are:
- Standalone Primary Dealers (SPDs)
- Core Investment Companies (CICs)
- Infrastructure Finance Companies (NBFC-IFCs)
- Housing Finance Companies (HFCs)
- Infrastructure Debt Fund – Non-Banking Financial Companies (IDF-NBFCs)
Upper Layer
This layer comprises of top 10 NBFCs based on the asset size and also includes other NBFCs selected by the RBI.
Top Layer
The ‘Top Layer’ generally remains empty. Entities are only added to this layer if RBI believes that there is a significant rise in the potential systemic risk from certain NBFCs in the ‘Upper Layer’. Due to this reason certain NBFCs might be shifted from the ‘Upper Layer’ to the ‘Top Layer’.
Different Types of NBFCs
| S.No |
Type of NBFC |
Details |
FDI
|
| 1 |
NBFC - Investment and Credit Company (NBFC-ICC)(Previously known as Loan Company, Asset Finance Company, and Investment Company individually) |
An NBFC carrying principal business of asset finance, providing finance whether by making loans or advances or otherwise for any activity other than its own and acquisition of securities. |
100% |
| 2 |
Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI) |
An NBFC whose principal business is to provide funding to low-income groups.Minimum net owned fund is INR 5 crores |
100% |
| 3 |
Non-Banking Financial Company – Factors (NBFC-Factors) |
An NBFC whose principal business is factoring services. It means NBFC providing bill discounting facilities.Financial assets constitute 50% of total assets. |
100% |
| 4 |
Account Aggregators (NBFC-AA)
|
An NBFC with main business of account aggregation. |
100% |
| 5 |
Peer to Peer Lending Platforms (NBFC-P2P) |
An NBFC conducting the business of a peer-to-peer lending platform, majorly IT driven. |
100% |
| 6 |
Infrastructure Finance Company (IFC) |
An NBFC that employs a minimum of 75% of its total assets in infrastructure loans.
Minimum net owned fund INR 300 crores.
It is a non-deposit accepting NBFC. |
100% |
| 7 |
Systemically Important Core Investment Company (CIC-ND-SI) |
An NBFC whose main business involves dealing in securities and shares.
Holds 90% of assets in form of securities or shares.
Asset size is INR 100 crores and above. |
100% |
| 8 |
Mortgage Guarantee Companies (MGC) |
An NBFC that deals in business of giving mortgage guarantees.
90% of gross income is from mortgage guarantee.
Minimum net owned fund is INR 100 crores. |
100% |
| 9 |
Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) |
An NBFC that facilitates the flow of long-term debt into infrastructure projects.
Minimum NOF INR 300 crores.
CRAR 15%.
|
100% |
| 10 |
NBFC-NOFHC (Non-Operative Financial Holding Company) |
An NBFC whose principal business is establishing new banks. |
100% |
Net Owned Fund (NOF) Requirements
| Type of NBFC |
Current NOF (in INR) |
By 31 March 2025 (in INR) |
By 31 March 2027 (in INR) |
| NBFC-ICC |
2 crores |
5 crores |
10 crores |
| NBFC-MFI |
5 crores |
7 crores |
10 crores |
| NBFC-Factors |
5 crores |
7 crores |
10 crores |
| Note: The NOF for NBFC-Peer to Peer Lending Platforms, NBFC-Account Aggregators and NBFCs that have no public funds and no interface shall continue at the INR 2 crores mark. Furthermore, no changes have been made to the existing regulatory minimum NOF for NBFCs – IDF, IFC, MGCs, HFC, and SPD. |
Revised Non-Performing Assets (NPA) Classification
The existing NPA classification norms were changed to the overdue period of more than 90 days for all types of NBFCs, irrespective of their category.
Following is the path that NBFCs in the Base Layer must adhere to the 90 days norm:
| NPA Norms |
Timeline |
| 150 days overdue |
31st March 2024 |
| 120 days overdue |
31st March 2025 |
| 90 days |
31st March 2026 |
NOF Requirements for Different Types of NBFCs
| Type of NBFC |
Current NOF Requirements |
Revised NOF Requirements |
| NBFC-AA |
INR 20 crores |
Same |
| NBFC-P2P |
INR 20 crores |
Same |
| NBFC – Factors |
INR 5 crores |
INR 10 crores |
| NBFC - Investment and Credit Company (NBFC-ICC (without public funds & without customer interface) |
INR 2 crores |
Same |
| Other NBFC ICC |
INR 2 crores |
INR 10 crores |
| HFC (Housing Finance Company) |
INR 20 crores |
Same |
| Mortgage Guarantee Companies (MGC) |
INR 100 crores |
Same |
| Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI) |
INR 5 crores |
INR 10 crores |
| NBFC-IDF |
INR 300 crores |
Same |
| NBFC-IFC |
INR 300 crores |
Same |
Other Requirements
- Relevant experience of working in a bank or NBFC must be there by at least one of the directors.
- A ceiling limit of 1 crore per borrower is imposed for financing subscription to Initial Public Offering. More conservative limits could also be fixed by NBFC if they want.
- NBFC Registration Process
- The name of the company must include terms such as Investment, Finance, Final, FinServ, Fintech, Capital, or Leasing, to show the nature of business.
- NOF requirements, as stated.
- Excellent CIBIL score.
- An application must be drafted addressing RBI to attain a NBFC License.
- The application should then be submitted to the concerned authority It can be submitted at https://xbrl.rbi.org.in/orfsxbrl/
- Once submitted, the RBI will verify the documents and shall issue NBFC Registration Certificate post satisfaction.
Documents Required for NBFC Registration
The documents that are pre-requisite for NBFC registration by various types of NBFCs are mentioned below. Nonetheless, keep in mind that the list of documents is indicative and not exhaustive. The authorities may request you for other documents to satisfy themselves on your eligibility for the registration.
NBFC-P2P
- Memorandum of Association (MOA), Articles of Association (AOA), Certificate of Insurance (COI).
- ITR and Audited balance sheet for past 3 years.
- Certified copies of MOA’s extract of the main object clause relevant to the financial business.
- Board resolution that states:
- The organization is not carrying out any NBFC activities or have stopped NBFC activities and will not conduct the same before getting the registration done from the RBI.
- The ‘Fair Practices Code’ is established by the organization following the RBI guidelines.
- Without the RBI’s approval, the organization should not be any customer interface as on date and even in the future.
- The Unincorporated Bodies (UIB) in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past/does not hold any public deposit as on the date and will not accept it in future.
- The organization has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the RBI’s approval.
- A copy of fixed deposit receipt and bankers’ certificate of no lien indicating balances in support of NOF.
- Business Model that mentions business plan briefly, grievance redressal mechanism, process of participant authentication and information about rendering services of recovery of loans.
- Information about hardware and software used and latest Internal System Audit Report in case the company has IT infrastructure.
- A banker’s report of applicant company including its subsidiary, groups, holding company, related parties, associates, directors of the company having interest in other companies.
NBFC-IDF
- MOA, AOA, COI.
- Board resolution that states:
- The Unincorporated Bodies (UIB) in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past/does not hold any public deposit till date and will not accept it even in the future.
- Without the RBI’s approval, the organization should not have any customer interface as on date and even in the future.
- The organization is not carrying out any NBFC activities or have stopped NBFC activities and will not conduct the same before getting the registration done from the RBI.
- The organization has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the RBI’s approval.
- The ‘Fair Practices Code’ is established by the organization following the RBI guidelines.
- Banker’s report affirming no lien on fixed deposit.
- Audited balance sheet and Income Tax Returns of past 3 years.
- Copy of Tripartite Agreement between the Project Authority, the concessionaire and NBFC-IDF.
- Details of change in the management of the sponsor company during the last financial year till date, if any, and reasons thereof.
- A copy of receipt of the Fixed Deposit and bankers’ certificate of no lien showcasing balances in support of NOF.
- Copies of highest educational qualification certificate and professional qualification certificate of all the directors.
- Source of startup capital of the company along with documentary evidence. NBFC-IDF would raise resources through issuance of Rupee or Dollar denominated Bonds of maturity of minimum 5-years.
- A copy of experience certificate in the Financial Services Sector including Banking Sector of all the directors, if any.
NBFC – Factor
- MOA, AOA, COI.
- Board resolution stating:
- The Unincorporated Bodies (UIB) in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past/does not hold any public deposit till date and will not accept it even in the future.
- Without the RBI’s approval, the organization should not have any customer interface as on date and even in the future.
- The organization is not carrying out any NBFC activities or have stopped NBFC activities and will not conduct the same before getting the registration done from the RBI.
- The organization has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the RBI’s approval.
- The ‘Fair Practices Code’ is established by the organization following the RBI guidelines.
- Report of Banker confirming no lien on fixed deposit.
- ITR and Audit Balance Sheet of past 3 years.
- Copies of highest educational qualification certificate and professional qualification certificate of all the directors.
- Source of startup capital of the company along with documentary evidence.
- A copy of experience certificate in the Financial Services Sector including Banking Sector of all the directors, if any.
- Board Resolution comprising roadmap that the company will own financial assets in the factoring business including at least 50% of its total assets. Also, its income obtained from the factoring business will not be less than 50% of its gross income.
NBFC-MFI – New Companies
- MOA, AOA, COI.
- Resolution from the Board stating:
- The organization is not carrying out any NBFC activities or have stopped NBFC activities and will not conduct the same before getting the registration done from the RBI.
- The organization has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the RBI’s approval.
- The Unincorporated Bodies (UIB) in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past/does not hold any public deposit till date and will not accept it even in the future.
- Without the RBI’s approval, the organization should not have any customer interface as on date and even in the future.
- The ‘Fair Practices Code’ is established by the organization following the RBI guidelines.
- The company must not be licensed under Section 25 of the Companies Act, 1956 or Section 8 of the Companies Act, 2013.
- Banker’s report asserting no lien on fixed deposit.
- Audited balance sheet and Income Tax Returns of past 3 years.
- Copy of bankers’ certificate of no lien showcasing balances in support of NOF and fixed deposit receipt.
- Source of company’s startup capital along with documentary evidence.
- Roadmap for achieving 85% qualifying assets.
- A copy of experience certificate in the Financial Services Sector including Banking Sector of all the directors, if any.
- Copies of highest educational qualification certificate and professional qualification certificate of all the directors.
Infrastructure Finance Company
- PAN, MOA, COI, AOA, GSTIN, Management Information and changes if any in the last year.
- Certificate from the NBFCs from where the directors have acquired NBFC experience.
- CIBIL data of directors.
- Profile of all directors, copy of PAN of all directors.
- Details of all banks along with address and branch thereof.
- Minimum NOF INR 300 crores.
- NOF certificate from Statutory Auditor.
- A brief background note on the activities of the company during the last three years.
- ‘No deposit certificate’ from Statutory Auditor.
- Statutory Auditor’s certificate to the effect that minimum of 75% of its total assets is deployed in infrastructure loans.
- ITR and Audited Balance Sheet of past 3 financial years.
- List of shareholders and details of paid, authorised, and change in shareholdings in past one year.
- Company’s business plan for next three years comprising market segment, thrust of business, projected balance sheets, cash flow statement, income statement without any public deposits.
- Statement on prudential norms.
- If there are any incidents of non-compliance with the directions of Revenue Authorities or any other statutory authority by the applicant company, its holding company/ subsidiaries, give particulars; else report ‘Nil’.
- Certificate of compliance with Section 45S of Chapter IIIC of the RBI Act, 1934 relating to UIBs with which directors of the company are linked.
- Minimum credit rating ‘A’ or equivalent of FITCH, CRISIL, CARE, ICRA, or rating by any other accrediting rating agencies that are equivalent.
- Details of mergers and acquisitions with/of other companies, if any, together with supporting documents.
- Board Resolution for:
- Formulation of ‘Fair Practices Code.
- Approving the application’s submission, its content and authorizing signatory.
- Company has not accepted any public deposit, in the past neither does it hold any public deposit till date and neither will it accept the same in - future without RBI’s approval.
NBFC – Others
- MOA, AOA, COI.
- Last 3 years audited balance sheet, Income Tax Returns
- A banker’s report of applicant company including its subsidiary, groups, holding company, related parties, associates, directors of the company having interest in other companies.
- Copy of bankers’ certificate of no lien showcasing balances in support of NOF and fixed deposit receipt.
- Certified copies of MOA’s extract of the main object clause relevant to the financial business.
Board resolution that states:
- The organization is not carrying out any NBFC activities or have stopped NBFC activities and will not conduct the same before getting the registration done from the RBI.
- The organization has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the RBI’s approval.
- The ‘Fair Practices Code’ is established by the organization following the RBI guidelines.
- Without the RBI’s approval, the organization should not be any customer interface as on date and even in the future.
- The Unincorporated Bodies (UIB) in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past/does not hold any public deposit till date and will not accept it even in the future.
Conclusion
Companies are not allowed to associate in any sort of businesses with non-banking financial company if they are unregistered with the RBI and have not yet obtained a certificate of registration for the same. Moreover, if a company fails to comply with the conditions laid by NBFC licenses then it may result in the imposition of fine or a penalty by the RBI. Besides, the RBI could also prosecute such entities in a court of law.
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