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How to get NBFC License in India

How to get NBFC License in India

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act that is engaged in the business of loans and advances, receiving deposits (some NBFC’s only), acquisition of stocks or shares, leasing, hire-purchase, insurance business, chit business. Therefore, NBFCs lend and take deposits similar to banks; however there are a few differences a) NBFC cannot accept demand deposits, NBFCs cannot issue cheques drawn on itself and NBFC depositors are not covered by the Deposit Insurance and Credit Guarantee Corporation.

When is NBFC License with RBI Required?

The Reserve Bank of India regulates and supervises Non-Banking Financial Companies which are into the principal business of lending or acquisition of shares, stocks, bonds, etc., or financial leasing or hire purchase or accepting deposits. Principal business of financial activity 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 percent of the gross income. A company which fulfills both these criteria must have NBFC license. This test for NBFC license is popularly known as the 50-50 test.

Therefore, companies engaged in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial activity in a small way, will not require NBFC registration.

Financial Companies NOT requiring NBFC License

The following types of entities that are involved in the principal business of financial activity do NOT require NBFC License:

  • Housing Finance Companies – Regulated by the National Housing Bank;
  • Insurance Companies – Regulated by Insurance Regulatory and Development Authority of India (IRDA);
  • Stock Broking – Regulated by Securities and Exchange Board of India;
  • Merchant Banking Companies – Regulated by Securities and Exchange Board of India;
  • Venture Capital Companies – Regulated by Securities and Exchange Board of India;
  • Companies that run Collective Investment Schemes – Regulated by Securities and Exchange Board of India;
  • Mutual Funds – Regulated by Securities and Exchange Board of India;
  • Nidhi Companies – Regulated by the Ministry of Corporate Affairs (MCA);
  • Chit Fund Companies – Regulated by the respective State Governments.

The above types of companies have been exempted from NBFC registration requirements and NBFC regulations of RBI as they are regulated by other financial sector regulators.

Requirement for Obtaining NBFC License

To apply and obtain NBFC License, the following are the basic requirements:

  • A Company Registered in India (Private Limited Company or Limited Company);
  • The company must have minimum Net Owned Fund of Rs.200 lakhs.

How to get NBFC License in India

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