NBFC Registration

An NBFC is a company registered under the Companies Act, 2013 (or 1956) that engages in the business of loans and advances, acquisition of shares/stocks/bonds/securities, leasing, hire-purchase, insurance business, or chit business. It provides financial solutions but does not hold a full commercial banking license.

The RBI applies the “50-50 Test” to determine principal business. A company is considered an NBFC if:

1. Its financial assets constitute more than 50% of its total assets (net of intangible assets). 
2. Its income from financial assets constitutes more than 50% of its gross income.

While both lend and invest, there are three primary operational differences:

• NBFCs cannot accept demand deposits (like savings or current accounts).

• NBFCs cannot issue cheques drawn on themselves or form part of the payment and settlement system.

• The Deposit Insurance and Credit Guarantee Corporation (DICGC) protection facility is not available to depositors of an NBFC.

As per current RBI mandates, the baseline minimum Net Owned Fund (NOF) required to apply for a standard NBFC (Investment and Credit Company) registration is ₹10 Crores. Specialized categories like Housing Finance Companies (HFCs) or Infrastructure Finance Companies (IFCs) have different specific thresholds.

NBFCs are broadly classified into:

• NBFC – Investment and Credit Company (NBFC-ICC)

• NBFC – Micro Finance Institution (NBFC-MFI)

• NBFC – Infrastructure Finance Company (NBFC-IFC)

• NBFC – Peer to Peer Lending Platform (NBFC-P2P)

Scale Based Regulation is an RBI framework that groups NBFCs into a four-tier structure based on their size, activities, and risk profile: Base Layer, Middle Layer, Upper Layer, and Top Layer. Regulatory oversight increases progressively from the Base Layer to the Top Layer.

No. To prevent dual regulation, certain financial entities regulated by other statutory bodies are exempt from RBI registration. For instance, Merchant Banking and Stock Broking companies are regulated by SEBI, Housing Finance Companies are under specific NHB guidelines, and Insurance firms are regulated by IRDAI.

Under recent RBI framework rationalizations, companies that do not access public funds, have no customer interface, and maintain an asset size below ₹1,000 Crores are classified as Unregistered Type I NBFCs and are exempt from mandatory registration under Section 45-IA of the RBI Act.

Public funds include funds raised directly or indirectly through public deposits, commercial papers, bank finance, debentures, inter-corporate deposits, or any funds sourced from external entities. It excludes instruments compulsorily convertible into equity within 5 years.

Customer interface refers to any direct or indirect professional interaction or transaction between the NBFC and its retail or institutional customers while executing its financial business operations.

No. Only a specific category of NBFCs explicitly authorized by the RBI holding a valid Deposit-Accepting Certificate of Registration can accept public deposits, subject to stringent credit rating and capital adequacy requirements. Most new registrations are granted under the Non-Deposit-Taking category.

All new applications for a Certificate of Registration (CoR) must be submitted digitally via the RBI’s centralized PRAVAAH portal along with the necessary scanned documentation.

At least one-third of the directors on the company’s board must have relevant, documented experience in banking, finance, or corporate law to satisfy the RBI’s “Fit and Proper” management criteria.

It is highly unlikely to be approved. The RBI closely scrutinizes the credit history of all promoters and directors. A poor CIBIL score, default history, or an open Non-Performing Asset (NPA) record can lead to immediate rejection of the application.

Common reasons for rejection include:

• Inability to prove the clear, legitimate source of the Net Owned Fund (NOF).

• Inadequate or non-compliant business model details.

• Directors failing to meet the clean background or financial experience criteria.

• Incorrect or incomplete documentation on the PRAVAAH portal.

Once a complete, error-free application along with all physical and digital records is submitted, it typically takes 3 to 6 months for the RBI to review, conduct background checks, and issue the Certificate of Registration (CoR).

An NBFC Certificate of Registration remains valid indefinitely from the date of issue, provided the company consistently complies with the ongoing RBI regulations, master directions, and annual compliance filing timelines.

Yes, Foreign Direct Investment (FDI) is permitted in the NBFC sector under the automatic route up to 100%, subject to compliance with the Foreign Exchange Management Act (FEMA) guidelines and any specific minimum capitalization norms dictated by the government.

Registered NBFCs must periodically submit returns to the RBI, including capital adequacy returns, financial statements, changes in management composition, asset-liability management (ALM) reports, and statutory auditor certificates.

No. Any change in the management, change in control, or takeover that results in a change of 20% or more of the paid-up equity capital or voting rights of an NBFC requires prior written approval from the Reserve Bank of India.