NBFC Registration, Requirement and Eligibility Criteria

Let’s understand what is NBFC?
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 (or any earlier enactments) engaged in the business of loans and advances, acquisition of shares/stocks/bonds/ debentures/ securities issued by Government or local authority or other marketable securities of a like nature, leasing, hirepurchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

What is 50-50 test for NBFC’s?
Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria will be registered as NBFC by RBI. Interestingly, this test is popularly known as 50-50 test and is applied to determine whether or not a company is into financial business.

What are the Differences between Banks and NBFC’s?
(i) NBFC cannot accept demand deposits;
(ii) NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
(iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Eligibility criteria for CIC NBFC?
After incorporation of the company, the NBFC must obtain certificate of registration. Before applying for registration, the company should ensure the following:
a) It should have minimum one director from NBFC background or senior Bankers as full-time director in the company
b) Clean CBIL records
c) Understanding of NBFC / Finance business
In terms of Section 45-IA of the RBI Act, 1934, no non-banking financial company shall commence or carry on the business of a non-banking financial institution without—
(a) obtaining a certificate of registration issued by the Bank; and
(b) having the net owned fund of twenty-five lakh rupees or such other amount, not exceeding hundred crore rupees, as the Bank may, by notification in the Official Gazette, specify: Provided that the Bank may notify different amounts of net owned fund for different categories of non-banking financial companies.
NOTE: for CIC NBFC it is 10 Crore, earlier it was 2 Crore.