NBFC is known as the Non-Banking Financial Company and is established under the Companies Act in India. This company provides loans and advances to the public. This company is also engaged in the acquisition of shares, leasing, hire or purchase business, insurance business, etc. NBFC cannot accept demand deposits from its customers.
NBFC is defined under section 45I (f) of the RBI Act. It explains NBFC as a financial institution that operates as a company and the principal business of such company is to accept deposits and lend money. Principal business means that more than 50% of the total assets of the company or income from the assets are related to the financial activities of the company. It is also called as 50-50 criteria. Investment Company, Asset Finance company, Loan Company, Infrastructure Company are some of the examples of NBFC Companies that mandatorily require the approval of RBI. Minimum Net Owned Fund should be valued at INR 200 Lakhs.
A company is required to check a few things before applying for NBFC registration.
- MOA, AOA and Board Resolution.
- Unique Business Plan
- Self-attested copy of PAN Card and the address proof of directors.
- Credit rating report of the founders from third party agencies.
- Proof of the net owned capital, i.e the bank statement showing a credit amount of INR 2 crores.
- Profile of Directors.
- Audited Financial Statements of the Company.
- Networth Certificate.
- Address proof of the company.
Formation of a Company with minimum net owned funds of 2 Crores.
An online application is to be filed with the RBI.
Information along with necessary documents to be filed that include MOA, Board Resolution, Management Profiles, Credit Ratings, Auditors Certificate.
RBI will take detailed interview of the promoters/directors to discuss the business plan.
After complete satisfaction, RBI issues the license to operate as an NBFC.
Major differences between a banking company and NBFC are-
The maximum rate of interest laid down for NBFC is 12.5% as stated by the RBI.
Keeping the maximum rate of interest in mind, the management is free to decide a certain rate of interest as applicable.
Yes, NBFC can have an artificial person as to its member.
NBFC has some primary restrictions which include that it cannot accept the demand deposits and it cannot allow a user to withdraw money with a self-drawn cheque.
Net Owned Fund is calculated using a formula: Capital + Reserves & Surplus- Accumulated Losses- Investment in other group companies over 10%.
No, NBFC cannot accept the demand deposits. Other than this, it can accept all kinds of deposits.
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