A Complete Guide to NBFC Registration and Annual Compliance
Non-Banking Financial Companies (NBFCs), which provide a variety of financial services comparable to those provided by banks but do not possess a banking licence, are essential to India’s financial ecosystem. Understanding the three main NBFC procedures — NBFC takeover procedure, NBFC yearly compliance, and NBFC registration with RBI — is crucial if you intend to enter the NBFC market. The purpose of this post is to make these procedures easier for prospective NBFC business owners.
NBFC Registration with RBI
The first step to entering the non-banking financial industry is to register an NBFC with the Reserve Bank of India (RBI). Here’s a detailed how-to:
Step 1: Form a Business
The first step is to register a corporation under the 2013 Companies Act. Your business may operate as a Public Limited Company or a Private Limited Company. Make sure your business has at least Rs. 2 crore in net owned funds (NOF), as this is a prerequisite for NBFC registration.
Step 2: Apply Online for Registration
Once your business is up and running, you must use the COSMOS portal to apply online for NBFC registration with RBI. The following are involved in the application process:
1. Filling out the Application Form: Available on the RBI website.
2. Submitting Necessary Documents: These include the certificate of incorporation, Memorandum of Association (MOA), Articles of Association (AOA), and detailed information about the directors and shareholders.
3. Net Owned Fund (NOF) Certificate: This certificate, provided by a Chartered Accountant (CA), confirms that your company meets the required NOF criteria.
Step 3: Send Hard Copies
After submitting the online application, send the hard copies of the application form and supporting documents to the regional office of the RBI.
Step 4: RBI Verification
The RBI will review your application and conduct a thorough verification of the documents and background checks of the directors and shareholders.
Step 5: Certification
If your application meets all the regulatory requirements, the RBI will issue a Certificate of Registration (CoR), enabling your company to operate as an NBFC.
NBFC Takeover Procedure
Taking over an existing NBFC can be a strategic move to enter the financial services market. Here’s how to navigate the NBFC takeover procedure:
Step 1: Due Diligence
Perform a comprehensive due diligence procedure to evaluate the target NBFC’s overall operations, compliance history, and financial standing. Examine their financial records, previous audit reports, and other pertinent files.
Step 2: Agreement with Existing Owners
Negotiate and draft a detailed agreement with the current owners of the NBFC. This agreement should clearly outline the terms and conditions of the takeover, including the purchase price and payment terms.
Step 3: RBI Approval
Submit an application to the RBI seeking approval for the proposed takeover. The application should include:
1. Details of the Acquirer: Information about the individual or entity planning the takeover.
2. Agreement Copy: A copy of the takeover agreement.
3. Financial Statements: Financial details of both the acquirer and the target NBFC.
Step 4: Public Notice
Publish a public notice about the proposed takeover in at least one national and one local newspaper, at least 30 days before the final approval.
Step 5: Final Approval and Transfer
After receiving approval from the RBI, finalise the share transfer procedure and amend the Ministry of Corporate Affairs’ (MCA) records. Notify all parties involved of the ownership change.
NBFC Annual Compliance
For an NBFC to run smoothly, NBFC annual compliance with RBI requirements is essential. The following are the main criteria for compliance:
Monetary Reports
Assemble and submit the balance sheet, profit and loss statement, and cash flow statement for the NBFC. A certified auditor must audit these statements.
Filing of Annual Returns
Submit an annual report to the RBI that includes specifics about the NBFC’s operations and financial performance. This contains data on income and expenses, the asset-liability profile, and other financial measures.
Accredited Statutory Auditor
Provide a certificate from the statutory auditor attesting to the company’s compliance with all applicable regulations and the necessary NOF criteria.
NBS-7 Filing
File the NBS-7 return with the RBI, providing detailed information about the company’s financial position, including assets and liabilities.
Board Meetings
Hold regular board meetings and maintain proper records. Discuss and review the company’s performance, financial statements, and compliance status.
KYC Compliance
Ensure compliance with Know Your Customer (KYC) guidelines, which involve verifying the identity of customers and maintaining proper records.
Reporting of Frauds
Report any detected frauds within the company to the RBI within the specified time frame.
Corporate Governance
Adhere to corporate governance norms as prescribed by the RBI. This includes maintaining transparency in operations and ensuring accountability of directors and officers.
Conclusion
Understanding the processes of NBFC registration with RBI, NBFC takeover procedure, and NBFC annual compliance is essential for anyone looking to operate in the non-banking financial sector. By following these guidelines, you can navigate the complexities of the NBFC landscape effectively, ensuring a smooth operation and compliance with regulatory requirements. If you need further assistance, consulting with a legal advisor or a professional experienced in NBFC regulations can provide the necessary guidance and support.
