NBFC Registration in India – 10 Important questions answered

NBFC registration in India is not more than a mystery to various entrepreneurs, professionals across India. People ask various questions on NBFC which go mostly unanswerered since little knowledge is available on the NBFC across the web. Hence, we have tried to answer the ten most frequently asked question about NBFC registration in India.

What is NBFC?

Non Banking Finance Companies (NBFC) is the companies registered under the Companies Act, engaged in the business of

• Providing loans and advances,
• Acquisition of securities that are issued by government or any local authority or other marketable securities of a like nature, leasing, hire- purchase, insurance business, chit business

But does not include,

• Any institution whose principle business is that of agricultural activity, industrial activity, purchase or sale of any goods or providing any service a sale/purchase/ construction of immovable property.

NBFC Registration

NBFC registration is not an easy task as it involves a lot of patience and intelligence because it require RBI license to start. Every single step of your NBFC will be strictly observed by RBI. So, you cannot risk your company in any case and for that you should be very clear in your mind with all ‘CAN’s or ‘CANNOT’ of NBFC’s working.

Therefore, the article has been covering all ‘CAN’s or ‘CANNOT’ of NBFCs which you should keep in the mind while flooring your business in the market.

So, following areas drafted-

1. Can NBFC accept deposits?

No, NBFC cannot accept deposits. But, there are certain NBFCs that holds certificates of Registration by RBI with a specific license to accept deposits.

Hence, there are two categories of NBFCs-

a) Deposit taking NBFCs: The company who holds the certificate of acceptance of Deposit from RBI can only eligible to accept the deposit. There are mainly three types of deposit accepting NBFCs

- Loan companies

- Investment companies

- Asset Finance companies

The deposits, accepting NBFCs have to fulfilled certain criteria to accept deposits-

- They should have a Net Owned Funds of  Rs. 2 crores

- They should have an ‘AAA’ credit rating from any authorized credit rating agency.

b) Non – Deposit Taking NBFCs: Those Non- Banking Finance Companies who are prohibited to accept deposits Fin any manner as regulated by RBI.

2. Can NBFC accept deposits from an NRI?

Yes, but the answer is partially correct. NBFCs can accept deposits from NRI but under certain conditions which are as follows-

• The deposit should be debited from NRO i.e. Non Resident Ordinary account.
• The principal or Interest amount should not be credited to an NRE i.e. Non Resident External account.
• The amount received for deposit are also on Non- repatriable.

3. Can NBFC take a loan from Bank?

Yes, usually bank provides a financial assistance in the form of working capital and term loans to Non – Banking, Finance Companies including Housing Finance Companies (Housing Finance Companies), Infrastructure Finance Companies (IFCs) and Asset Finance Companies (AFCs).

Furthermore, Residuary Non- Banking Finance Companies who has the principal business of accepting deposits under any scheme or arrangements are the companies to whom Banks can finance to the extent of their Net Owned Fund.

4. Can NBFC issue debentures?

Yes, NBFC can issue debentures following RBI guidelines.

A NBFC can raise any amount of issuance of non convertible debentures with a maturity period of more than one year and having the minimum subscription per investor at Rs 1crores and above, provided that such debentures have been issued in accordance with the guidelines issued by the Reserve Bank of India.

5. Can NBFC issue Cheques or Credit Card?

No, NBFC cannot issue cheque or credit cards as they cannot draw on it and they also do not form part of the payment and settlement system.

6. Can NBFC provide Housing Loan?

Yes, NBFC can provide housing loan that can be used to purchase, expand or renovate a plot or house.

Moreover, loans offered by NBFC are linked with the prime lending linked system where all NBFCs now offer home loans linked to a floating interest rate where they are free to set a prime lending rate of their choice and any changes made by RBI in lending rates will have no impact on it.

For example- if RBI in future substantially reduced its rate then also NBFC has no obligation to slash interest rates.

7. Can NBFC invest or give loans to the LLP?

No, NBFCs cannot invest into any Limited Liability Partnership. RBI has notified in master circular that no NBFC is allowed to invest capital in any partnership firm or Limited Liability Partnership.

Furthermore, NBFCs which had already contributed to the capital of the LLP shall seek to get early retirement from the partnership firm or LLP. Eventually, NBFCs are allowed to give loan to LLP against any security.

8. Can NBFC raise ECB?

Yes, only those NBFCs are allowed to raise ECB who comes under the regulatory purview of the RBI and are approved by RBI. Hence, loans from foreign institutions are called External Commercial Borrowing (ECB) and NBFC can bring the ECB through following modes are like that-

• In liquid currency
• Exchange of shares
• Conversion of loans to share
• Exchange of some skill, etc.

But, you need to care for the maturity period and interest rate while raising ECB. The interest rate will be measured in respect of the rate called LIBOR (London Interbank offered Rate).

9. Can NBFC charge high rate of interest more than the Bank?

Yes, RBI does not regulate the rate of interest for NBFCs. Hence, the discretion of charging rate of interest on borrower is purely in the hand of NBFCs.

But, Non- Banking Financial Micro Financial institution shall ensure that the average interest rate on loans that are sanctioned during a quarter should not exceed the average borrowing cost during the preceding quarter plus the margin, RBI said.

10. Can NBFC approach DRT?

Yes, NBFCs can approach DRT. A NBFC can file a suit to recover any debt from any person by making an Original Application to the Debt Recovery Tribunal (DRT) against such person where the amount of debt shall not be less than 10 lakh rupees.

The application filed under Rule 4 of the DRT (procedures) Rules, 1993, shall set forth concisely under distinct heads, for the grounds for such application and such grounds shall be typed properly.

Fees payable as per Rule 7 of the Debt Recovery Tribunal (Procedure) Rules, 1993-

• Rs 12000/- where an amount of debt due is Rs.10 lakh, Rs12000 plus Rs 1000 for every one lakh debt due or part thereof in excess of  Rs10 lakh subject to a maximum of Rs, 1,50,000 where an amount of debt due is above Rs, 10 lakh.

Conclusion

We have tried to compile all the important ‘CAN’ or ‘CANNOT’ of NBFCs. So, that you can easily start your NBFCs in India.

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