NBFCs play a crucial role in the Indian financial sector, catering to the needs of those who are not served by traditional banks. There are many NBFC’s in the financial sector and moreover, Government also promotes these financial institutions by making their policies lucrative for these companies. In India, Rajasthan is one of the best places where you can start with a NBFC’s and as far as the state’s policy regarding NBFC registration and administration is concerned, it is flexible and less complicated. In this article we will discuss NBFC Registration in Rajasthan.
Meaning of Non-Banking Financial Companies
Non-Banking Financial Companies are special type of financial institutions that act as the bridge that connects depositors or investors with the borrowers. Since, its inception, the idea or the concept of NBFC has provided the depositors and investors, a better alternative to the financial & banking sector by providing financial aid to the both organized and unorganized sectors of the society.
Benefits of NBFC Registration
The following are the benefits of NBFC Registration:
- Providing Loans and Credit Facilities at much lower rates then banks.
- Helps in saving and investment plans.
- Managing portfolio of stocks and mutual funds thus helping in wealth management.
- NBFC enjoy greater flexibility.
- Providing services at backward areas. NBFC’S are available where banks are not.
- NBFCs are the largest fuel of ushering finance into the country.
- Liability of individual is limited to the capital investment.
- Less Legal compliance and procedural requirements.
What are restricted Activities in NBFC?
The following are the restricted activities in NBFC:
- Demand Deposit Acceptance: NBFCs are not permitted to accept demand deposits like banks. They can only accept term deposits that are repayable after a specific time period.
- Agricultural Activities: NBFCs are not allowed to engage in agricultural activities, as these are outside the scope of their business activities.
- Industrial Activities: NBFCs are not allowed to engage in industrial activities, as these are outside the scope of their business activities
- Issuing cheques drawn on itself: As this is functionality reserved for banks. NBFCs cannot issue cheques drawn on itself.
- Real Estate Investment: NBFCs are not permitted to invest in Real Estate i.e., more than 10% of their owned funds can’t be invested in real estate. They can only invest in real estate for some specific usage, such as office space or branch premises.
- Commodities Trading: Commodities Trading are outside the scope of their business activities, so NBFCs are not allowed to trade in commodities.
- Interest-free loans: The Interest free loans are not permitted in NBFC, as this goes against the basic principles of their business.
- Issuing Credit Cards: NBFCs are not allowed to issue credit cards, as this functionality is reserved for banks.
- Sale /Purchase of Goods / Services: The purchase or sale of any goods (other than securities) or the providing of any services is prohibited in NBFC.
- Purchase/ Sale of construction of immovable properties: The purchase, construction or sale of immovable property, so however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other person.
Eligibility Criteria for NBFC Registration
Fulfilment of Eligibility Criteria, for NBFC License your company must fulfil some eligibility criteria such as:
- Company must be registered under the Companies Act, 2013 or under Companies Act, 1956.
- Company must have a minimum net owned fund of 2 crores.
- NBFC should serve public interest.
- Having a minimum credit rating of BBB.
- Company must have a business plan for 5 years.
- Full time directors must be available and 1/3 of them must have minimum 10 years of experience.
- Directors must not have any write offs.
- The director profile must be from finance or banking.
- The company must be in compliance with FEMA Act, 1999.
- The NBFC should be able to pay to its investors both present and future investor.
- NBFC should not carry any operation that is in any manner detrimental to the interest of any of its existing or future investors.
Documents required for NBFC Registration
The following are the required documents for NBFC Registration:
- Certificate of Incorporation.
- Certificate copy of memorandum.
- Certificate copy of article of association.
- Certificate of statutory auditor.
- A Copy of Corporate Identity Number of the company or PAN.
- Detailed information about the management along with a brochure of the company
- Documents of Directors and members, i.e., their educational qualification proof, income proof, credit rating report, Net worth certificate etc.
- Documents related to the office location/address.
- ‘Fair Practices Code’ is to be passed by a board resolution and a certified copy of the same is to be submitted.
- A Board Resolution copy which certifies that the company has not carried out any NBFC activity and will not carry any until the registration from RBI is granted.
- Certificate issued by the statutory auditor.
- The Statutory Auditor statement stating that the company is not holding the public deposit and does not accept it as well.
- Income Tax Return of the company.
- Resolution of Board for approving the formation of NBFC.
- Bank account, balances, loans, credits, etc. information need to be furnished.
- Audited balance sheet and profit and loss statement along with the directors and auditor’s report of the preceding three years need to be submitted, if applicable.
Procedure for Registration of NBFC in Rajasthan
The process of NBFC registration in Rajasthan is the same as in any other state in India. The NBFC registration requires following the guidelines and the procedures setup by Reserve Bank of India as it regulates the NBFC sector. The Steps involved in the NBFC Registration process for the state of Rajasthan are:
- Company Incorporation: First step is the incorporation of a company with Registrar of company as a NBFC. The company can be registered as a Private Limited, Public Limited or Limited Liability Partnership.
- NBFC License: After incorporation you need to apply for NBFC License with the RBI. This can be done virtually by submitting online application from RBI Website, by paying the applicable fee and by submitting required documents.
- CARN Number: Once the application is submitted with required document and fees CARN Number will be generated.
- The hard copy of the application is to be send to regional branch of RBI.
- The RBI will verify the application and conduct a background check on the company’s directors and shareholders. If the application is approved, then the company will receive the NBFC license from the RBI.
Fees for NBFC Registration
The following are the applicable fees for NBFC Registration:
- A fee based on the authorized capital of the company is to be paid to the Ministry of Corporate Affairs (MCA), while registering the company.
- Simplified Proforma for Incorporating Company Electronically (SPICE) filling might also require the company to pay certain fees.
- A fee on the basis of the authorized capital and other few factors for the MOA (Memorandum of Association) and AOA (Articles of Association) of the company would also need to be paid.
- A predetermined fee is to be paid to the MCA for a Reserve Unique Number (RUN) and Director Identification Numbers (DIN).
- Additional fees are required to be paid while submitting the application to the registrar.
- Payment of periodic fees would be required for the generation of Digital Signature Certificate for every director.
- A government fee of approximately Rs. 3.5 Lakh is required to register an NBFC with minimum owned net funds of Rs. 2 crores.
- The fees for deposit – taking NBFCs: Rs. 5,000 for initial application and Rs. 1,000 for every subsequent year.
- The fees for non – deposit – taking NBFCs: Rs. 2,000 for initial application and Rs. 1,000 for every subsequent year.
Steps to be taken after Registration
The following are the steps one can follow after registration process:
- Compliance with Regulations: Once you have obtained the certificate of registration from RBI and license, you must ensure that your NBFC complies with all the regulations and guidelines provided by RBI, including maintaining the minimum capital adequacy ratio, submitting regular reports, and adhering to various prudential norms such as Total Assets comprises more than 50% financial assets and more than 50% of the gross income should be generated from financial assets.
- Renewal of Registration: You will also need to renew your registration with RBI periodically as per the guidelines provided by RBI.
Conclusion
As NBFC plays a crucial role in providing credit to underserved sectors of the economy, such as small and medium-sized enterprises, rural and agricultural sectors, and low-income households, thereby contributing to the growth and development of the economy. It can be said that NBFCs in the present economical world are better and if not better are at par with the banking institutions; therefore, NBFCs can be seen as a better option to boost the economy of the country.
