NBFC Incorporation & NBFC Compliance Norms

Are you looking for NBFC Incorportation?

For NBFC incorporation, you have to follow RBI NBFC guidelines in India. The Reserve Bank of India is in charge of regulating and giving rules for Non-Banking Financial Companies, or NBFCs. The authorities are detailed in Chapter III B of the Reserve Bank of India Act, 1934. The goal is to guarantee that financial institutions expand in a healthy way.

• As a member of the financial system, guarantee that these enterprises function within the policy framework. In such a way that their presence and operation do not cause systemic anomalies.
• The quality of control and surveillance are undertaken by the RBI over NBFCs is maintained by keeping up with advances in this sector of the financial system.

NBFC Incorpotation Conditions, NOF & Principal Business

According to Section 45-IA of the RBI Act of 1934, no corporation may begin or carry out non-banking financial operations without first obtaining a certificate of registration (CoR) from the RBI. The following are the nbfc compliance norms for obtaining an NBFC licence:

• It must be a company registered under Section 3 of the Companies Act. In 1956 or in 2013.
• It should have a net owned fund (NOF) of at least Rs. 2 crores.

NOF is what remains after deducting investments in shares of subsidiaries, companies in the same group, and all other NBFCs, as well as the book value of debentures, bonds, outstanding loans, and advances, including hire purchase and lease finance, made to and deposits with subsidiaries and companies in the same group, from the owned funds. After deducting accumulated balance of loss, deferred revenue expenditure, and other intangible assets, owned funds are the total of paid-up equity capital, preference shares that are compulsorily convertible into equity, free reserves, balance in share premium account, and capital reserves representing surplus arising from asset sale proceeds, excluding reserves created by asset revaluation.

The 50-50 rule is used to determine an NBFC's Principal Business. This indicates that if a firm is primarily engaged in financial operations with: A) financial assets constituting at least 50% of total assets owned by the company, and B) financial assets generating at least 50% of income.

According to RBI guidelines, a firm that meets the above criteria must be registered as an NBFC.

Registration As Per RBI NBFC Guidelines

• Obtain DSC and DIN for the Board of Directors.
• Apply for approval of the Company Name Director's Affidavit about compliance with RBI requirements.
• Draft of the Memorandum of Agreement (MOA) and the Agreement on Terms (AOA)
• Filling out firm establishment paperwork and attaching required documentation
• Obtain a Certificate of Company Incorporation from the RoC. (Registrar of Companies)
• NOF should be deposited into the company's bank account.
• Fill out an application for NBFC registration with the RBI.
• This application is submitted via the RBI website.
• Following a successful submission, a CARN (reference number) is created, which will be used for all future queries.
• Hard copies of all papers and applications submitted online are now forwarded to the RBI regional office.
• The regional office verifies the documents' correctness.
• If everything is in order, it transmits the application to the headquarters.
• If the firm meets the standards outlined in Section 45-IA, the central office of the RBI issues an NBFC licence and a certificate of registration (CoR).
• The company must start its NBFC operations within 6 months of receiving the CoR.

NBFC Guidelines

1. Leverage Ratio: An applicable NBFC's leverage ratio (other than NBFC-MFIs and NBFC-IFCs) should not exceed 7 at any time.
2. Accounting Standards: Accounting Standards and Guidance Notes published by ICAI must be followed if they do not contradict any of the RBI's Directions.
3. Accounting for Assets: The Board of Directors shall develop and implement the company's investment policy, including criteria for categorising investments as current or long-term.
4. Policy on Demand/Call Loans: The Board of Directors granting/intending to award demand/call loans must develop and execute a policy for the firm.
5. Classification of assets: Assets will be classed as I standard assets, (ii) sub-standard assets, (iii) questionable assets, and (iv) loss assets.
6. Provisioning for standard assets: Every relevant NBFC must make a provision for standard assets equal to 0.25 percent of the existing liabilities.
7. Multiple NBFCs: To verify the asset size limit of Rs. 500 crore, all NBFCs in a group must be aggregated.
8. Disclosures: In the balance sheet, each relevant NBFC must individually declare provisions for bad and doubtful debts and provisions for depreciation in investments.
9. Schedule: Specifics in the schedule as laid down by RBI Directions that must be added to the balance statement of each relevant NBFC.
10. Loans secured by an NBFC's own shares are prohibited: No relevant NBFC may lend against its own stock.

NBFC incorporation in India has become easy and quick process as per new NBFC Gudielines by RBI. MUDS is a leading online NBFC Registration platform. If you want to buy or sell NBFC, please contact us. We also assist with mergers, acquisitions, and partnerships.