A Non-Banking Financial Companies (NBFCs) are financial institutions incorporated under the companies act 2013, meant for ensuring services ranging from loans to advances, acquisition of shares/stocks/bonds/debentures/securities, which are issued by Government or local authority or other marketable securities of similar nature involved in leasing, hire-purchase and insurance business. The main objective of this type of company is to accept deposits under any scheme or manner.
TYPES OF NBFC LICENSE
Before applying for NBFC License, the type and category of NBFC license must first be determined. The following are the categories of NBFC Companies:
Asset Finance Company (AFC):
“An Asset Finance Company (AFC) is a company which is a financial institution carrying on as its principal business the financing of physical assets such as automobiles, tractors, lathe machines, generator sets, earthmoving and material handling equipment’s, moving on own power and general-purpose industrial machines.”
Investment Company (IC):
“An Investment Company is any company which is a financial institution carrying on as its principal business the acquisition of securities (shares/stocks/bonds/other financial securities).”
Loan Company (LC):
“Loan Company is any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.”
Infrastructure Finance Company (IFC):
“Infrastructure Finance Company is a non-banking finance company that deploys at least 75 percent of its total assets in infrastructure loans, has a minimum Net Owned Funds of Rs. 300 crore, maintains a minimum credit rating of ‘A ‘or equivalent with a Capital to Risk Assets Ratio of 15%.”
Systemically Important Core Investment Company:
“Systemically Important Core Investment Company is an NBFC with an asset size of over Rs.100 crores and accepts deposits, involved in the business of acquisition of shares and securities which satisfy certain conditions.”
Infrastructure Debt Fund:
“ Infrastructure Debt Fund is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. Infrastructure Debt Funds raise resources through the issue of Rupee or Dollar denominated bonds of minimum 5-year maturity.”
Micro Finance Institution:
“Micro Finance Institution is a non-deposit taking NBFC that is engaged in microfinance activities.”
“NBFC Factor is a non-deposit taking NBFC engaged in the principal business of factoring.”
Applying for NBFC License :
- A company should first be registered under the Companies Act 2013 or under Companies Act 1956.
- The minimum net owned funds of the Company should be Rs. 2 Crore.
- There should be a minimum of 1 Director from the same background or a Senior Banker as a full-time director in the Company.
- The CIBIL records of the Company should be clean
- After all of the above conditions have been satisfied the online application on the website of RBI should be filled and submitted along with the requisite documents.
- A CARN Number will be generated.
- A Hard copy of the application also has to be sent to the regional branch of the Reserve Bank of India.
- After the application is properly scrutinized, the License will be given to the Company.
List of documents required for NBFC:
The application for NBFC License must be submitted online and offline with the necessary documents to the Regional Office of the Reserve Bank of India. The following are the documents that need to be submitted for NBFC License:
• Information about the management
• Certified copies of Certificate of Incorporation and Certificate of Commencement of Business in case of public limited companies.
• Certified copies of up-to-date Memorandum and Articles of Association of the company. Details of clauses in the memorandum relating to financial business.
• Copy of PAN/CIN allotted to the company.
• Directors’ profiles, separately filled up and signed by each director.
• Certificate from the respective NBFC/s where the Directors have gained NBFC experience.
• CIBIL Data of Directors of the company
• Financial Statements of the last 2 years of Unincorporated Bodies, if any, in the group where the directors may be holding directorship with/without substantial interest.
• Board Resolution specifically approving the submission of the application and its contents and authorizing signatory.
• Board Resolution to the effect that the company has not accepted any public deposit, in the past (specify period)/does not hold any public deposit as on the date and will not accept the same in future without the prior approval of Reserve Bank of India in writing.
• Board resolution stating that the company is not carrying on any NBFC activity/stopped NBFC activity and will not carry on/commence the same before getting registration from RBI.
• Certified copy of Board Resolution for the formulation of “Fair Practices Code”.
• Statutory Auditors Certificate certifying that the company is/does not accept/is not holding Public Deposit.
• Statutory Auditors Certificate certifying that the company is not carrying on any NBFC activity.
• Statutory Auditors Certificate certifying net owned fund as on date of the application.
• Details of Authorized Share Capital and the latest shareholding pattern of the company including the percentages.
• Copy of Fixed Deposit receipt & bankers certificate of no lien indicating balances in support of Net Owned Funds.
• Details of the bank balances/bank accounts/complete postal address of the branch/bank, loan/credit facilities, etc. availed.
• Last three years Audited balance sheet and Profit & Loss account along with directors & auditors report or for such shorter period as are available (for companies already in existence).
• Business plan of the company for the next three years giving details of its (a) thrust of business, (b) market segment and (c) projected balance sheets, cash flow statement, asset/income pattern statement without any element of public deposits.
• Source of the startup capital of the company substantiated with documentary evidence.
• Self-attested Bank Statement/IT returns etc.
• In addition to the above documents, more documents may be required as per the RBIs requirement for NBFC License.
Returns for NBFC-D as per NBFC Guidelines
Below Returns are required to be submitted by a Deposit Accepting NBFC, as per NBFC Guidelines:
- NBS-1: Returns on deposit in the first schedule, to be filed quarterly.
- NBS-2: Returns on prudential norms, to be filed quarterly.
- NBS-3: Quarterly Returns on liquid assets.
- NBS-4: Returns on important parameters by a rejected company holding deposits from the public. To be filed annually.
- NBS-6: Returns on exposure to the capital market by deposit-accepting NBFC having total assets of Rs. 100 crore or more. To be filed monthly.
- ALM Returns: These are to be filed half-yearly by NBFC holding public deposits over Rs. 20 Crore or asset size over Rs. 100 Crore.
- · Audited Balance Sheet and Auditor’s Report.
- Branch Info Return.
- Returns for NBFC-ND as per NBFC Guidelines
Below Returns are required to be submitted by a Non-Deposit Accepting NBFC:
- NBS-7: Statement of capital funds, risk-weighted assets, risk assets ratio, etc. To be filed quarterly.
- NBS-2: Returns on important financial parameters of the company. Filed monthly.
- ALM Returns Monthly statement of short-term dynamic liquidity in form NBS-ALM-1. And a 6-monthly statement of structural liquidity in form NBS-ALM-2. And another 6-monthly statement of interest rate sensitivity in form NBS-ALM-3.
- Branch info return: Returns on important financial parameters of ND-NBFCs with assets over Rs. 50 crores, but less than Rs. 100 crores. Calculated and filed monthly.
- Basic information like name & address of the company, NOF, profit/loss in the last 3-years.
RBI Guidelines for NBFC Returns
The NBFC must submit various returns to RBI about their deposit acceptance, prudential norms guidelines, ALM, etc. The list is as under:
- NBS-1: Returns on Financial Indicators by NBFC-SI-D, if it has approval from RBI to accept or hold deposits. The financial details would include Assets and Liabilities, Profit and Loss account, Exposure to sensitive sectors, etc. This statement is required to be submitted quarterly, within 15 days.
- NBS-2: Returns on Prudential Norms by NBFC-SI-D, if it has approval from RBI to accept or hold deposits. The details include Capital Adequacy, Asset Classification, Provisioning, NOF, etc. This statement is required to be submitted quarterly, within 15 days.
- NBS-3: Returns about Liquid Assets by NBFC-D, if approved from RBI to accept or hold deposits. It includes details of Statutory Investments in Liquid Assets such as Government Securities, Fixed Deposits in Scheduled Commercial Bank, etc. This statement is required to be submitted quarterly, within 15 days.
- NBS-4: Returns of the status of public deposits by NBFC-D, whose CoR was rejected by RBI. Details to be filed are the repayment statuses of public deposits. To be filed annually.
- ALM: Asset-Liability Management Returns for NBFC-D if it has an asset base of Rs. 100 crore or more, or holding public deposits of Rs. 20 crores or more (irrespective of their asset size), in their latest audited balance sheet as of 31st March of last financial year. ALM to be filed on a half-yearly basis, within 30 days. This return enables RBI to assess Asset Liability mismatches and interest rate risk exposures, helpful in effective risk management.
- NDSI-500cr Return: All NBFCs-ND-SI are required to submit NDSI-500cr return, to enable RBI to know Important Financial Parameters. Details to be filed are components of Assets and Liabilities, Profit and Loss account, Sectoral deployment of credit, Exposure to sensitive sectors, etc. To be filed quarterly, within 15 days.
- NBS-7: All NBFCs-ND-SI need to submit this to show compliance with various prudential norms, e.g. Capital Adequacy, Asset Classification, Provisioning, NOF, etc. To be filed for every quarter, within 15 days.
Multiple ALM Returns: Asset-Liability Management Returns for NBFCs-ND-SI:
1. NBS-ALM-1: Statement of short term dynamic liquidity – Quarterly, within 15 days.
2. NBS-ALM-2: Statement of structural liquidity – Half-Yearly, within 30 days.
3. NBS-ALM-3: Statement of Interest Rate Sensitivity – Half-Yearly, within 30 days.
4. ALM-YRLY: Statement on Assets Liability Mismatch – Annually, within 15 days.
The purpose of these statements is to effectively manage interest rate risk and Asset Liability mismatches.
- SAC: Every NBFC shall submit a Statutory Auditor Certificate, by its Statutory Auditor that it is engaged in the business of non-banking financial services and needs to hold the CoR. To be filed annually, within a month of finalizing the balance sheet, but no later than 31 Dec. It ensures continued compliance with NBFC regulation.
- Branch Information Return: To be submitted by NBFC-ND-SI and NBFCs accepting/holding public deposits, to capture the reach of NBFCs. To be filed quarterly, within 15 days.
- FDI Compliance: This certificate is to be signed by its Statutory Auditor, of NBFC having Foreign Direct Investment, certifying compliance with the existing norms of FDI. This declaration is to be submitted on a half-yearly basis, within 30 days, to the Regional Office of RBI in whose jurisdiction the registered office of the company is located. This ensures that the NBFC is following guidelines of the stipulated minimum capitalization and that its activities are confined to the activities commanded under FEMA.
- Overseas Investment Return: NBFC, whether deposit accepting or not, having an overseas investment, submit this with details on overseas investment. To be submitted quarterly, within 15 days, to the Regional Office of RBI in whose jurisdiction the registered office of the company is located. And a copy to the DSIM (Department of Statistics and Information Management), Central Office, Mumbai.
- Auditor’s Certificate: Statutory auditors of NBFC with the overseas investment are to submit this certificate to the concerned Regional Office of RBI, certifying that it has fully complied with all RBI guidelines. To be filed annually.
- ARC Return: NBFC-ARC (Asset Reconstruction Companies needs to submit with details about financial parameters such as non-performing assets (NPA) acquired, acquisition cost, their recovery status, etc. To be submitted quarterly, within 15 days.
- NBS-8: Returns of NBFC-NDs with asset size between Rs. 100 crore and Rs. 500 crore. To be submitted on year-end, within 60 days. This presents profile information and financial details, about Assets and Liabilities, Profit and Loss account, Exposure to sensitive sectors, Branch Information, etc.
- NBS-9: Returns by NBFC-ND with asset size below Rs.100 crore, with profile information and financial details, i.e. components of Assets and Liabilities, Profit and Loss account, Branch Information, etc. To be submitted on year-end, within 60 days.
- NBS-1A & NBS-3A: Returns to be filed by RNBCs with financial details, such as components of Assets and Liabilities, Profit and Loss account, Statutory Investments in Liquid Assets, Exposure to sensitive sectors, etc. To be submitted every quarter.
- CRILC: Returns by all NBFC-ND-SI, NBFC-D, and NBFC-Factors, with information on all the borrowers with them, having aggregate fund-based and non-fund based exposure of Rs. 5 crores or above, and the SMA status of each borrower. On early Recognition of Stress on large accounts. “Nil” returns need not be submitted in this case. To be filed online for every quarter, within 21 days.
- SMA-2: All NBFC-ND-SI, NBFC-D, and NBFC-Factors, with aggregate fund-based and non-fund based exposure of Rs. 5 crores or above, need to report all the SMA-2 accounts, so RBI can assess Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders. On the Friday of the week when the relevant account first came in the SMA-2 category. In case that Friday is a holiday, it has to be reported on a working day falling just before it.
- Statement on Interest Rate Futures transaction: NBFCs hedging their underlying exposures and participating in IRF exchanges. It helps RBI to know the extent of participation of NBFCs in the IRF market. To submit half-yearly (within one month from the close of the half-year), to the Regional office of the DNBS (Department of Non-Banking Supervision) of RBI in whose jurisdiction their company is registered.