Setting up NBFC

Setting up NBFC

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act that is engaged in the business of loans and advances, receiving deposits (some NBFC’s only), acquisition of stocks or shares, leasing, hire-purchase, insurance business, chit business. Therefore, NBFCs lend and take deposits similar to banks; however there are a few differences a) NBFC cannot accept demand deposits, NBFCs cannot issue cheques drawn on itself and NBFC depositors are not covered by the Deposit Insurance and Credit Guarantee Corporation.

How are NBFCs governed?

BFCs are governed by the RBI Act 1934. Section 45-IA of the act requires all financial companies to require a certificate of registration from the RBI before starting business as an NBFC. Companies are also required to maintain a minimum net owned fund value of INR 2 crores.
There are however exceptions to this registration requirement. The following companies are not required to register with the RBI before commencing business, provided certain conditions are fulfilled :
• Housing Finance Companies,
• Merchant Banking Companies,
• Stock Exchanges,
• Companies engaged in the business of stock-broking/sub-broking,
• Venture Capital Fund Companies,
• Nidhi Companies,
• Insurance companies and
• Chit Fund Companies
These companies must still comply with other regulations as applicable to their respective businesses.

How to set up an NBFC in India?

To set up a regulated NBFC and application should be made in the requisite format with the RBI along with documentations that includes but is not limited to.
– Shareholding structure
– Details of directors
– Details of business activities undertaken
– Financials of the company
– Declarations from the company and its directors
– Certificate from auditors of the company
– Projected business plan for 3 years
– Memorandum and Articles of Association;
– Certificate of Incorporation;
– Permanent Account Number;
– CIBIL Report;
– Net Worth Certificate; and
– Banker’s Report

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