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    An Overview on Classification of NBFC's and its Registration

    Non Banking Financial Company (“NBFC”) in generally is a financial institution that provides banking services without having the banking license. These companies are regulated by the Reserve Bank of India (“RBI”).NBFCis a company (either public or Private) registered under the Companies Act, 2013 (or 1956)which is engaged in the business of giving loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

    REGISTRATION WITH RBI: 

    Every company(Except Specialised NBFCs-prescribed by RBI) engaging in the business of Non-Banking Financial Services should fulfil the below mentioned criteria for commencing/carrying its business operations: 

    1. Minimum Net owned funds as prescribed by RBI
    2. Should obtain Certificate of Registration (“CoR”) from RBI (u/s 45-IA of RBI Act, 1934) 

    PROCESS OF REGISTRATION WITH RBI: 

    The applicant company is required to apply online and submit a physical copy of the application along with the necessary documents to the Regional Office of the Reserve Bank of India. The application can be submitted online by accessing RBI’s secured website https://cosmos.rbi.org.in . 

    IS REGISTRATION UNDER RBI IS MANDATORY? 

    Certain NBFC Companies have been exempted from the registration under Section 45-IA of the Reserve Bank of India Act, 1934 if they are registered with other regulators to avoid duality of regulation subject to certain conditions. The regulators for specified NBFC companies which have been exempted from registration under the RBI Act have been specifically mentioned they are as follows: 

    • Housing Finance Companies – National Housing Bank 
    • Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of Stock-broking/Sub-broking, Venture Capital Fund Companies etc., – SEBI 
    • Insurance Business – IRDAI
    • Chit Fund Companies – Respective State Governments
    • Nidhi Companies – Ministry of Corporate affairs 

    REQUIREMENT OF MINIMUM NET OWNED FUND (“NOF”): 

    Applicable NOF to NBFCs in General: 

    In terms of Notification No. DNBS.132/CGM(VSNM)-99 dated April21, 1999, the minimum NOF requirement for new companies applying for grant of CoR to commence business of an NBFC is stipulated at Rs. 200 lakhs. Although the requirement of minimum NOF at present stands at Rs. 200 lakhs, the minimum NOF for companies that were already in existence before April 21, 1999 was retained at Rs. 25 lakhs. But it shall be mandatory for all NBFCs to attain a minimum NOF of Rs. 200 lakhs by the end of March 2017, as per the milestones given below: 

    • 100 lakhs by the end of March 2016
      • 200 lakhs by the end of March 2017 

    It will be incumbent upon such NBFCs, the NOF of which currently falls below Rs. 200 lakhs, to submit a statutory auditor's certificate certifying compliance to the revised levels at the end of each of the two financial years as given above.

    NBFCs failing to achieve the prescribed ceiling within the stipulated time period shall not be eligible to hold the CoR as NBFCs. The Reserve Bank of India will initiate the process for cancellation of CoR against such NBFCs. 

    Requirement of minimum net owned fund differs based on the nature of activity of particular NBFC as given below. 

    CLASSIFICATION OF NBFCS: 

    ØBasedon the liability structure NBFCs are classified as below:

    1. NBFCs accepting public deposits (NBFCs-D)
    2. Non–deposit taking NBFCs (NBFC-ND) with assets less than Rs. 500 crores. (REVISED) 
    1. Non–deposit taking systemically important NBFCs (NBFC-ND-SI) with assets Rs. 500 crores and above.(REVISED) 

    ØBasedon the nature of activity NBFCs are classified as below:

    1. Asset Finance Companies
    2. Investment Companies
    3. Loan Companies
    4. Infrastructure Finance Company
    5. Systematically Important Core Investment Company
    6. Infrastructure Debt Fund
    7. Micro Finance Institution
    8. Factors
    9. Mortgage Guarantee Companies
    10. Non-Operative Finance Holding Company 

    NBFCs accepting public deposits (NBFCs-D): 

    All NBFCs are not entitled to accept public deposits. The following conditions need to be satisfied by the NBFC Company to accept the public deposits 

    • Specific authorisation from Reserve Bank of India is required
    • Should have an investment grade rating
    • Should maintain minimum Capital to Risk (Weighted) Assets Ratio(“CRAR”) 

    Ceiling limit (REVISED) on Public Deposits based on the category of NBFC: 

    Category of NBFC

    Ceiling on public deposits

     

     

    AFC with CRAR of 12% and having minimum investment

    1.5 times of NOF

    grade credit rating, having NOF more than 25 lakh but

     

    less than 200 lakh

     

     

     

    AFC with CRAR of 15% and without any credit rating,

    Equal to NOF

    having NOF more than 25 lakh but less than 200 lakh

     

     

     

    Loan/Investment company with CRAR of 15% and

    Equal to NOF

    having minimum investment grade credit rating with

     

    NOF more than 25 lakh but less than 200 lakh

     

     

     

    NBFC-ND with assets less than Rs. 500 crores:

     

     

    • If it has customer interface are subjected to conduct of business regulations and
    • If they accept the public deposits, then they are subjected to Limited prudential regulations 
    • If they accept public deposits and has customer interface, then they will be subjected both to conduct of business regulations and also the Limited prudential regulations 

    NBFC-ND-SI with assets Rs. 500 crores and above: 

    • Irrespective of whether they have accessed public funds or not, shall comply with prudential regulations as applicable to NBFCs-ND-SI. They shall also comply with conduct of business regulations if customer interface exists. 

    The term ‘public funds’ includes : 

    funds raised directly or indirectly through public deposits, commercial papers, debentures, inter-corporate deposits and bank finance, but excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding 5 years from the date of issue”. 

    NOF requirement for different NBFCs which are classified based on the nature of Business:

     

     

    Nature of NBFC

    Required Net Owned Fund (NOF)

     

     

     

     

    Asset Finance Company

    2 Crore

     

     

     

     

    Investment Company

    2 Crore

     

     

     

     

    Loan Company

    2 Crore

     

     

     

     

    Infrastructure Finance Company

    300 crore

     

     

     

     

    Systematically Important Core Investment Company

    5 Crore and above

     

     

     

     

    Infrastructure Debt Fund

    300 crore

     

     

     

     

     

    Micro Finance Institution

    5

    Crore*

     

     

     

     

     

    Factoring

    5

    Crore

     

     

     

     

     

    • For NBFC-MFIs Minimum Net Owned Funds of Rs.5 crore. (For NBFC-MFIs registered in the North Eastern Region of the country, the minimum NOF requirement shall stand at Rs. 2 crore). 

    General compliances to be followed by NBFCs: 

    • The company should intimate the date of commencement of business immediately after receiving the CoR to RBI and shall be duly signed by all the directors. 
    • The company shall inform to RBI Immediately, if the NOF of the company falls below the minimum limit as prescribed by the bank from time to time. 
    • The company should within 1 month of starting its commercial operations nominate a designated director for ensuring compliance with the obligations under the Prevention of Money Laundering Act (“PMLA”). 
    • The company need to submit Statutory Auditor Certificate (“SAC”) from there statutory auditor to the regional office of the department of non- banking supervision (“DNBS”) under whose jurisdiction the NBFC is registered. 

    RESIDUARY NON-BANKING COMPANY (RNBC): 

    Residuary Non-Banking Company belongs to the class of NBFC and is the company registered under the Companies Act, 2013 or 1956, the principal business of RNBC is accepting the deposits as per the directions given by the RBI not being Investment, Asset Financing, Loan Company. These companies are required to maintain investments as per directions of RBI, in addition to liquid assets. The functioning of these companies is different from those of NBFCs in terms of method of mobilization of deposits and 

    requirement of deployment of depositors' funds as per Directions given by the RBI. There is no ceiling limit on raising the deposits for RNBC and the full deposit amount is safely invested in the approved investments as guided by the RBI. The interest rates (Minimum rate of return) and the maturity period on the amount deposited with the RNBC will be revised by the RBI based on the market conditions; it differs based on the deposit scheme under which the amount is deposited. 

    Type of deposit schemes

    Present minimum rate of return

     

     

    (a) daily deposit schemes

    not less than 3.5% p. a.

     

    (b) deposits received in lump sum or at not less than 5% p.a. monthly or longer intervals 

    A RNBC can accept deposits for a minimum period of 12 months and maximum period of 84 months from the date of receipt of such deposit. 

    MISCELLANEOUS NON BANKING COMPANIES: 

    Miscellaneous Non-Banking Company belongs to the class of NBFC and is the company registered under the Companies Act, 2013 or 1956, the principal business of Miscellaneous Non banking company is inviting deposits from public through advertisements in a leading English newspaper and one vernacular newspaper circulating in the State in which the registered office of the company is situated. The deposits are accepted as per the directors given by RBI under Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977. The interest rates (Minimum rate of return) and the maturity period on the amount deposited with the RNBC will be revised by the RBI based on the market conditions. 

    Present Interest rates: 

    1. Invite or accept or renew deposit on a rate of interest exceeding12.5 per cent per annum. Interest may be paid or compounded at rests which shall not be shorter than monthly rests. 
    1. Pay to any broker for deposits collected by or through him, brokerage in excess of the rates specified below :-

     

    Type of deposit schemes

    Pay to broker

     

     

    (i) where a deposit is for :

    one percent of such deposit

    a period not exceeding one year

     

     

     

    (ii) where a deposit is for :

    one and a quarter per cent (not per

    a period exceeding oneyear but not exceeding two years

    annum) of such deposit

     

     

    (iii) where a deposit is for :

    one and a half per-cent (not per annum)

    a period exceeding two years.

    of such deposit.]

     

     

     

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