How to convert Nidhi Company into NBFC ?

If you are running a successful Nidhi Company in your local region and you plan to increase your reach, and looking to convert or upgrade your Nidhi company into a full fledge NBFC registration (Non-Banking Finance Company), then this article is for you.

Having said that, the question is pretty simple! Whether Nidhi Company can be converted into a full fledge NBFC? The answer is NO. Nidhi Company cannot be converted into a Non-Banking Financial Company, because it is neither feasible nor legally tenable.

So, is there any way one could start a NBFC? Well yes, we have a solution for you. Let us understand the minute details and the procedure to upgrade your business into a full fledge NBFC company.

Nidhi Company

As we all know, Nidhi Company is a type of NBFC which has been exempted by the Reserve Bank of India (RBI) from registration and other related legal compliances. This is because Nidhi Company is not allowed to deal with people other than its members. Further, Nidhi Company is mainly required to comply with Nidhi Rules, 2014

 

NBFC Company

Unlike Nidhi Company, other types of NBFC’s do not enjoy the exemption from the Reserve Bank of India (RBI) (except a few) and are strictly monitored directly by the RBI. NBFC has to comply with different rules and regulations issued by the RBI from time to time.

 

Why Nidhi Company cannot be upgraded into a NBFC?

As per the Nidhi rules, 2014, A Nidhi Company is not allowed to engage in any business activity other than what is prescribed for a Nidhi Company. Hence, the rules clearly denies Nidhi to enter into the business of other NBFC’s. Further, there is a basic difference between Nidhi and other types of NBFC which are as follow’s;

• Capital Requirement: A minimum required net worth for Nidhi Company is Rs.10 lakh while for other NBFC’s, it is minimum Rupees two crores.
   
• Registration requirement: Nidhi Company does not require RBI registration while no other NBFC (except a few) can run without prior permission.

 

What if all the requirements for NBFC’s are fulfilled by Nidhi? Can it apply for RBI registration?

As said earlier, Nidhi Rules does not allow Nidhi Company to enter any other business than what is prescribed for it. So, if in case Nidhi wants to apply for RBI license, it would be an illegal act. The only possible way would be to discontinue the business of Nidhi Company permanently and enter a new business of other types of NBFC after changing the names, the objective of MOA and other legal obligation, which of course practically neither advised nor feasible.

 

What is the way to upgrade the business of Nidhi into a full fledge NBFC?

Now, here we come finally answering your curious question. The simple answer to this question is to create a new company and leave the Nidhi Company untouched. When you are already running a successful Nidhi company, then it is advised to continue the business of Nidhi Company without any abruption. Rather, build an expansion plan and raise the standards. Here is the procedure to create and expand your existing business.

 

1. Choosing the type of NBFC

The first thing you should do is to find which type of NBFC business you want to enter. Remember, you cannot do everything with a single NBFC Company. There are various types of NBFC’s like Asset Finance Company, Loan Company, Micro Finance Company, Investment company etc.

Choose the company type wisely as every other step would be based on your choice of company.

 

2. Creating a New Company (Private or Public)

The second step is to creating a new type of Company. A NBFC can be private or public, it should be decided based upon the number of members and the scale you want to start your business.

 

3. Minimum Investment and Technical parameters

After company has been registered, invest a minimum capital amount as per the requirement of the type of NBFC chosen in the first step. For example, if you choose Loan Company, then you need to invest minimum two crores rupees.

Apart from the capital requirement, you need to create a strong director’s profile to impress RBI. Remember, money does not impress RBI at all, what impresses the RBI is the experience and honesty of the proposed directors.

Since, NBFC directly deals with the public, RBI takes all caution before issuing the license.

 

4. Applying for NBFC license

Once the minimum requirement is fulfilled, an application for RBI approval is filed with the RBI regional office. The preparation and filing of the application takes most of the time. The RBI itself takes around three to six months to reply.

 

5. Approval or rejection of RBI License

After the due time, RBI may reject or approve the application. In case of rejection, the reasons for rejections should be recorded and worked upon appropriately. After eliminating all the issues, the application is refilled with the RBI for approval.

 

6. Appropriate expense

The complete process will cost around Eight to Ten lakh rupees inclusive of Government fees.

 

Conclusion

If you want to register a NBFC, get in touch with our experts and expand your business today!