1. Investment & Credit Company (NBFC - ICC): (New Category)

In order to provide operational flexibility per the principle of activity-based classification, the RBI has, in a recent update, consolidated or harmonized 3 categories of NBFC’s Namely Loan Companies (LC), Asset Finance Companies (AFC) and Investment Companies, into a single Category named Investment and Credit Company (NBFC-ICC).

➲ Loan Company (LC)

Loan Company means a financial institution that is carrying out Loan disbursal to earn Interest income as its principal business, but it does not include an Asset Finance Company, an equipment leasing company, or a hire-purchase Company. A loan company can undertake the activities performed by a hire-purchase or leasing company. The nature of the business of a loan company, a hire-purchase company, a leasing company is similar, but the funding requirements for these companies are pretty different from each other.

➲. Investment Company (IC)

Investment Companies are those which carry out trading of securities on listed exchanges as a primary business and are also involved in NBFC operations.

➲. Asset Finance Company (AFC)

An Asset Finance Company (AFC) is a non-deposit taking NBFC which is involved in the primary business of financing of physical assets supporting productive/economic, like automobiles, tractors, lathe machines, cranes, generator sets, earthmoving and material handling equipment, moving on own power and general-purpose industrial machines as its principal business. The principal business is defined as aggregate of financing real/physical assets supporting economic activity and income arising from there is more or equal than 60% of its total assets and total income respectively.

2. Infrastructure Finance Company (IFC)

Infrastructure finance companies carry out financing of a minimum of three-fourths of their total assets in infrastructure loans. The Net Owned Funds (NOF) are more than 3 billion and a minimum crediting rating of 'A' with Capital to Risk-Weighted Assets Ratio is 15%.

3. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)

IDF-NBFC are companies registered as NBFC to facilitate the flow of long-term debt into infrastructure projects. IDF-NBFC raises resources through Multiple-Currency bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.

4. NBFC-Factors

NBFC Factors has the principal business of factoring. Factoring is a financial transaction and a type of debtor finance to provide the financial assistance now to cover the invoice amount to be collected at a later date.

5. Gold Loan NBFCs in India

Gold Loan NBFC carry out financing by keeping Gold as security from the customers. In recent years, gold loan NBFCs witnessed an upsurge in the Indian financial market, owing mainly to the appreciation in the gold price and consequent increase in the demand for the gold loan by all sections of society, especially the poor and middle-class society. Growth of gold loan NBFCs is seen both in terms of the size of their balance sheet and their physical presence which in turn compelled to increase their dependence on public funds including bank finance and non-convertible debentures. Aggressive structuring of gold loans resulting from the uncomplicated, undemanding, and fast process of documentation along with the higher Loan to Value (LTV) ratio includes some of the major factors that caused the growth of Gold loan NBFCs.

6. Micro-Finance NBFC (MFI)

Micro Finance Institution (MFI) is a kind of NBFC which offers financial services to the low-income segment of the population. MFIs give loans and offer insurance, deposit, and other services to its members. These companies, MFI also offer credits and other financial services to the representatives of the poor population except for extremely poor which are Below the Poverty Line (BPL). NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets. Following are the criteria for as asset to be classified as Qualifying Asset:

a. Any Loan disbursed by an a MicroFinance NBFC to a borrower with a rural household annual income not more than ₹ 1,00,000 or any urban and semi-urban household income not more than ₹ 1,60,000;

b. the borrower should not be indebted for more than ₹ 1,00,000;

c. loan of ₹ 15,000 or more shall be granted for a period of 24 months or more with a prepayment option without any penalty;

d. loan should be granted without any collateral;

e. aggregate amount of loans granted by MFI for income generation should be more than 50 % of the total loans granted by such NBFC-MFI;

f. repayment of loan shall be weekly, fortnightly or monthly as per the choice of the borrower.

7. Non-Operative Financial Holding Company (NOFHC)

It is a financial institution through which promoter/promoter groups will be permitted to set up a new bank. It’s a wholly-owned Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.

Non-Operative Financial Holding Company (NOFHC) means a non-deposit taking NBFC as referred to in the 'Guidelines for the Licensing of New Banks in the Private Sector'1 issued by Reserve Bank, which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by Reserve Bank or any other financial regulator, to the extent permissible.

8. Mortgage Guarantee Companies (MGC)

MGC is a financial institution for which at least 90 percent of the business turnover is a mortgage guarantee business or at least 90 percent of the gross revenue is from a mortgage guarantee business and a net owned fund of about 100 crores.

9. Systemically Important Core Investment Company (CIC-ND-SI)

CIC-ND-SI is an NBFC undertaking the acquisition of shares and securities which fulfills the following conditions:-

(A) Holds not less than 90 percent of its Total Assets in the form of equity investments, preferential shares, debts or loans in group companies;

(B) Its equity investments (including instruments that are compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitute not less than 60% of its total assets;

(C) Except through block sales for dilution or disinvestment purposes, it does not trade in its investments in shares, debts or loans in group companies;

1.Certificate of Incorporation:

This is the certificate that proves the company's legal existence.

2.Memorandum of Association (MOA) and Articles of Association (AOA):

These are the charter documents of the company that define its purpose and the rules governing its operation.

3.Board Resolution:

A formal decision taken by the board of directors of the company in favor of NBFC registration.

4.Bank Account Details:

Details of the bank account where the company maintains its funds. Certificate of Net Owned Funds: A certificate/proof from banker and auditor indicating compliance with Net Owned Fund Requirements.

5.CA Certificate:

A certificate of Chartered Accountant regarding details of group/ associate/ subsidiary/ holding companies along with details of investments in other NBFCs as shown in the Proforma Balance Sheet

6.Audited Balance Sheet and Profit & Loss Account:

These financial statements should be for the last three years.

7.Income Tax Returns:

The company's income tax returns for the last three years. Details of Partners/Directors: This includes personal details, qualifications, and experience of the partners or directors of the company.

8. Address Proof:

Proof of the registered office address of the company.

9.Clean Banker Report:

A report from the bank stating the company's creditworthiness.

10.Net Worth Certificate:

A certificate that states the net worth of the company.

11.Credit Report of Directors:

A report that provides information about the creditworthiness of the company's directors.

12.Educational Qualifications of Directors:

Proof of the educational qualifications of the company's directors.

13.Declaration from Directors/Partners:

Self-declaration by the directors for not being charged with any penal action

14.Self-attested documents of Directors, & Shareholders:

• *PAN of the Directors
• *Aadhar of the directors
• *Copy of ITR of the past 3 years
• *Net worth statement & Credit report
• *Proof of Highest Educational Qualification

1.Diverse Financial Services:

NBFCs offer a wide range of financial services, including loans, credit facilities, retirement planning, money markets, underwriting, and merger activities. Flexibility: They often have more flexible terms and conditions compared to traditional banks, making them more accessible to a broader range of customers.

2.Promotion of Rural Development:

NBFCs play a significant role in promoting rural development, especially in areas where banking facilities are not readily available. They provide credit to the unbanked areas, contributing to the economic growth of these regions. Filling the Credit Gap: In scenarios where traditional banks are unable to provide loans, NBFCs step in to fill the credit gap. They cater to the diverse financial needs of various sectors.

3.Innovative Products:

NBFCs are known for their innovative financial products tailored to the specific needs of their clients. This innovation helps in attracting a larger customer base. Risk Diversification: They play a role in diversifying the risk associated with the financial sector. By providing services different from traditional banks, they reduce the risk concentration.

4.Support to MSME:

NBFCs provide significant support to Micro, Small, and Medium Enterprises (MSMEs), which might not have access to traditional banking services. Higher Returns: Typically, investments like fixed deposits with NBFCs offer higher interest rates compared to banks, making them an attractive option for investors.

5.Personalized Services:

NBFCs often provide more personalized and efficient services to their customers due to their smaller size compared to big banks. Economic Development: By providing credit to the underserved and unbanked regions, they play a pivotal role in the overall economic development of the country.

6.Popularity Among Institutional Investors:

NBFCs have gained significant traction among institutional investors due to their role in providing credit access to semi-rural and rural India, areas traditionally underserved by banks.

7.Provides Loans and Credit Facilities:

Many businesses and startups prefer availing loans from NBFCs over traditional banks due to faster processing, competitive interest rates, and loan availability even for those with a poor credit history.

8.Supporting Investments in Property:

Investing in property through NBFCs offers advantages such as flexible rates, easy repayment options, and quick processing with acceptable property collaterals.

9.Trading Money Market Instruments:

NBFCs offer softer interest rates on money market instruments like commercial paper, even when the base rate of banks remains unchanged. Funding Private Education: NBFCs make education loans more accessible with their flexible rates and easy repayment terms.

10.Facilitates Retirement Planning:

They offer various products and services tailored to help individuals plan for their retirement.

11.Merger and Acquisition Advisory:

NBFCs provide expert advice to companies looking to merge with or acquire other businesses.

12.Wealth Management:

They offer services like managing portfolios of stocks and shares, ensuring that individuals and businesses can grow their wealth effectively.

1. Engage a Skilled NBFC Consultant

Seek the expertise of an NBFC registration specialist with a decade of experience. Ensure they have a diverse team, including Chartered Accountants, Company Secretaries, legal experts, and seasoned bankers.

2. Choose an Apt Company Name

Your company name should resonate with financial services. Consider incorporating terms like "Finance," "FinTech," "Capital," "Invest," "Leasing," or "FinServ."

3. Company Formation

Initiate the process of registering your entity as either a Private Limited or Public Limited company.

4. Strategize Your Base of Operations

Decide on the location of your registered office and delineate your operational territories.

5. Secure the Certificate of Incorporation

Obtain this certificate from the Registrar of Companies to validate your company's legal status.

6. Safeguard Your Net Owned Funds

Ensure your company's bank account holds the necessary Net Owned Funds, showcasing your financial stability.

7. Compile Essential Documentation

Prepare all the necessary paperwork required for the NBFC license application.

8. Craft a Comprehensive Business Blueprint

Outline a detailed business strategy for the upcoming five years, encompassing:

• An overview of your mission and vision
• Detailed product offerings
• Your lending methodology
• Risk management strategies
• Analysis of industry competitors
• Strengths, Weaknesses, Opportunities, and Threats (SWOT) assessment
• Financial growth predictions

9. Register with the RBI

Submit your application for NBFC registration under the RBI Act, 1934, via the RBI's official portal.

10. Online Application Submission

Post your application on the RBI's official site and obtain a unique CARN (Company Application Reference Number) for future correspondence.

11. Dispatch Hard Copies

Forward duplicate hard copies of your application to the RBI's regional branch for verification.

12. Regional Office Review

The regional RBI office will evaluate the authenticity and completeness of your submitted documents.

13. Central Office Assessment

Post regional verification, your application will be forwarded to the RBI's central office. They will grant the NBFC registration if all criteria under section 45-IA are met.

14. Kickstart Your NBFC Operations

Once registered, ensure to commence your NBFC's business activities within six months from the Certificate of Registration's issuance date.

Net Owned Funds (NOF) Net owned Fund consists of paid-up equity capital, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets but excludes reserves created by revaluation of assets. From the aggregate of items, accumulated loss balance and the book value of intangible assets should be deducted, if any, to arrive at owned funds. Investments in shares of other NBFCs and in shares, debentures of subsidiaries and group companies in excess of ten percent of the owned fund mentioned above will be deducted to arrive at the Net Owned Fund. The NOF should be computed on the basis of last audited Balance Sheet and any capital raised after the Balance Sheet date should not be accounted for while computing NOF.

Net Owned Fund (NOF) Requirements for NBFCs under the Scale Based Regulation (SBR):

. Regulatory Minimum NOF Changes:

• For NBFC-ICC (Investment and Credit Companies), NBFC-MFI (Micro Finance Institution), and NBFC-Factors:
• Increase to ₹10 crore.
• Glide path for existing NBFCs:
• NBFC-ICC: From current ₹2 crore to ₹5 crore by March 31, 2025, and ₹10 crore by March 31, 2027.
• NBFC-MFI: From current ₹5 crore (₹2 crore in NE Region) to ₹7 crore (₹5 crore in NE Region) by March 31, 2025, and ₹10 crore by March 31, 2027.
• NBFC-Factors: From current ₹5 crore to ₹7 crore by March 31, 2025, and ₹10 crore by March 31, 2027.
• For NBFC-P2P (Peer to Peer Lending Platform), NBFC-AA (Account Aggregator), and NBFCs with no public funds and no customer interface:
• NOF remains at ₹2 crore.
• For NBFCs like IDF (Infrastructure Debt Fund), IFC (Infrastructure Finance Companies), MGCs (Mortgage Guarantee Companies), HFC (Housing Finance Companies), and SPD (Standalone Primary Dealers):
• No change in the existing regulatory minimum NOF.
• Government-owned NBFCs:
• They will be placed in either the Base Layer or Middle Layer. They won't be placed in the Upper Layer until further notice.
• NBFCs not availing public funds and not having a customer interface:
• They have a different risk profile and will have separate regulations in the future. Until then, extant regulations apply.
• The NOF requirements are part of the revised regulatory framework for NBFCs, which is designed to be scale-based, considering the size, activity, and perceived riskiness of the NBFCs.