NON- BANKING FINANCIAL COMPANIES (NBFCs)

 

As the name suggests, Banking Company, what comes to our mind is that the company must be a banking company. But, a Non-Banking Financial Company is a company, other than a bank, which is incorporated under the Companies Act 1956/2013 but gets registered, licensed and regulated under the framework of Reserve Bank of India. Thus, we can say that an NBFC is a banking company which can function more or less like a bank, but officially is not a bank. An NBFC is not allowed to take traditional demand deposits but can accept public deposits for a minimum period of 12 months and a maximum time period of 60 months. NBFC can offer services identical to banking companies which includes loans and credit facilities, underwriting, retirement planning, money market, merger activities etc.


ROLE PLAYED BY NBFC IN BOOSTING INDIAN ECONOMY:

  • Development of various sectors like transportation and infrastructure building.
  • Employment Generation.
  • Helps in wealth creation.
  • To finance economically weaker section.
  • Expansion of various business opportunities.
  • Supplements to banks in their working like credit financing.
  • Mobilization of saving from surplus areas to deficit areas.


COMPANIES EXEMPT FROM OBTAINING REGISTRATION AS NBFC:

The companies which are outside the ambit of getting registered as NBFC are as follows:

  • Core-investment companies having assets less than Rs. 100 Crores or has not taken deposits from the general public).
  • Merchant Banking Companies.
  • Companies engaged in the business of stock broking.
  • Housing Finance Companies.
  • Companies engaged in the business of venture capital investment.
  • Insurance Companies.
  • Chit Funds Companies.
  • NIDHI Companies.


INCORPORATION OF AN NBFC:

The following procedure must be followed for incorporating an NBFC:

  • The company must be registered under Companies Act 2013 or any previous Act.
  • The minimum net owned funds of the company must be Rs. 2 Crores.
  • At least 1/3rd of the directors must be financially literate.
  • The company must have a credit rating.
  • The company must company with the capital compliance and FEMA compliance (if applicable).
  • After satisfying the above criteria, the company must submit an application (online on RBI website) along with all the required documents to RBI for getting licence to operate as an NBFC.
  • A CARN number shall be generated.
  • Send Hard copy of the application along with prescribed documents to the regional RBI Offices.
  • After proper scrutiny of the documents and the application submitted, the RBI shall grant license to the company, to be registered as an NBFC. 


POST INCORPORATION COMPLIANCE:

  • An NBFC cannot accept deposits which are repayable on demand. The minimum time period must be of 12 months and the maximum must be of 60 months.
  • The interest rates charged by an NBFC shall not be more than that as prescribed by RBI.
  • Care must be taken that the RBI will not undertake to repay the amount taken as deposit by an NBFC.
  • The deposits taken by the company will be unsecured.
  • All the company information must be submitted to RBI upon any change including any change in the management of the company.
  • The statutory return giving the details of the amount accepted as deposit must be furnished in form NBS-1 every year.
  • The company has to submit audited balance sheet every year.
  • The company must furnish a certificate from the statutory auditor of the company stating that the company is solvent to repay the deposits and money taken from the public.
  • A quarterly return on the liquid assets of the company must be furnished.
  • The company must obtain fresh credit rating in every Six months and communicate the same to the RBI.
  • A company which has a public deposit of Rs. 20 Crores or above or assets worth Rs. 100 Crores or above is required to submit half-yearly Asset Liability Management Return.
  • The company must maintain a minimum level of 15% of the deposits as Liquid Assets. 


DOCUMENTS REQUIRED FOR INCORPORATION OF AN NBFC:

  • Certificate of Incorporation of Company.
  • Detailed information about the management of the company.
  • Copy of PAN of the company.
  • Rent Deed/ Lease Deed/ Possession Letter giving in the registered office address of the company.
  • Certified copy of Memorandum of Association (MOA) and Articles of Association (AOA).
  • Credit reports of the directors of the company.
  • A copy of board resolution stating in that the company has not carried out or is not estopped from undertaking any NBFC activity. Further, the company will not undertake any activity as NBFC before grant of license to operate as NBFC.
  • Copy of board Resolution on FAIR PRACTICES CODE adopted by NBFC.
  • Certificate from the statutory auditor certifying that the company has complied with the minimum net owned funds requirement.
  •  Financial information of the company as to the details of bank accounts, loans received, credit received, bank balances etc is to be furnished.
  • Self- Certified copies of bank statements and Income Tax returns of the director is required.
  • Company’s future plans for next 3 years along with the projected balance sheets, cash flow statements and Income statements.
  • Audited balance sheets and profit & loss accounts along with directors and auditors report for the proceeding 3 financial years.

 



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