Why NBFC Registration is Required in India?

What is NBFC?

NBFC stands for a non – banking financial company, it’s a company registered under the “companies act 1956”. It involves the principal business of lending the investments in -

1) Stocks

2) Shares

3) Bonds

4) Debentures

5) Or leasing

6) Or insurances

7) Hire purchases

8) Insurance businesses

9) Involvement in chit business on a bigger scale or something involving getting deposits under any agreement or a scheme.

NBFC is under RBI preview and this article shall help you to understand about NBFC registration in India and Its rules and regulations governing the operations.

When can you not do an NBFC Registration?

NBFC is a company that is registered under the company’s act 1956 as stated above, and with the activities similar to the banking system. However, there are few differences, which are as followed:-

1) NBFC unlike a regular bank, can’t accept demand deposits.

2) NBFC also can’t draw a cheque issued on itself.

3) The bank deposits are insured by the credit guarantee corporation and /or deposit insurance.

An NBFC just like any other regular bank apart from the above differences mentioned engage in other businesses like making loans, trading of shares, stocks, bonds, securities and debentures etc. and other mentioned in the 1st list of this article but doesn’t involve into an institution that has principal business with respect to agriculture activity or industrial activity and purchase and sale of any products that’s other than security, also provide services and sales/purchase or construction of non motile property. Also, the company involving principal business of receiving deposits and scheme or arrangement in the instalments by the way of contribution in any manner is also a form of NFBC. NBFC is categorized in taking deposits and not taking of the deposits.

What are the Basic Requirements of NBFC Registration with RBI?

By the sec 45-IA of the RBI act 1934, none of the companies in India are allowed to carry on any business of NBFC institution without the getting a certificate of NBFC Registration and having net owned funds of Rs 2crores. The NBFC registration is required as it incorporates sec-3 of companies act 1956 and having at least a minimum of net owned funds minus the amount that’s invested in shares of subsidiaries, companies in same group and all other NBFCs, outstanding loans and the book value of debentures and bonds, the advances that include hire purchases and financial lease made for deposits and subsidiaries and companies of the same group.

The owned funds is an aggregated paid up capital of equity, the preference shares that are compulsory to convert to equity, the free reserves and balance in the shares premium account and monitory or capital reserves that represent the surplus that arise out of the sales and proceeds of the assets. This is excluding the reserves generated by the revaluation of assets which is after deduction of collective accumulation balance of loss, deferred revenue expenditure and other assets.

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