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Introduction

The Financial System of any country comprises of financial markets, financial intermediation
and financial instruments or products. All these elements facilitate rotation of funds and are not
mutually exclusive rather they are inter-related as being part of a system. The word system here
implies a set of complex, closely connected and inter-linked institutions, agents, practices,
markets, transactions, claims, and liabilities in the economy. The Financial Intermediaries in this
system can broadly be said to comprise of Banks and Non Banking Finance Companies
(hereafter NBFC), which can be further classified into different types depending on their nature
of business. NBFCs are doing functions akin to Banks but there are few differences between
them like:

i. A NBFC cannot accept demand deposits;


ii. It is not a part of the payment and settlement system and cant issue cheques to its
customers;
iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available for NBFC depositors unlike in case of banks.

In Southern Technologies limited vs. JCIT1, the Supreme Court held that the business operations
of NBFCs and banks are quite different. NBFCs accept deposits from the public for which
transparency is the key; hence, we have RBI directions/norms. On the other hand, for banks,
weightage must be placed on liquidity. These two concepts, namely, risk and liquidity brings out
the basic difference between NBFCs and banks.

In many cases due to non availability of adequate credit from the banking sector NBFCs had to
rely excessively on unsecured public deposits for their existence and survival by paying higher
rate of interest. And in order to meet these demands some NBFCs were forced to deploy their
funds which carried high return alongwith high risk, which ultimately resulted in higher risks for
the depositors, which in some cases had culminated in the crisis of confidence and credibility.
Therefore, there were requisites felt to initiate immediate action for the protection of depositors
interest and so, The Reserve Bank of India Act, 1934 was amended on 1st December, 1964 by
the Reserve Bank (Amendment) Act, 1963 to include provisions relating to non banking

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(2010) 320 ITR 577.
institutions receiving deposits and financial institutions. RBI issues guidelines on prudential
norms and various other Directions, Circulars and clarifications, from time to time for governing
the activities of NBFCs. Continuing this process, RBI Act, 1934 was amended in 1997 which
authorized the Reserve Bank to determine policies, and issue directions to NBFCs regarding
income recognition, accounting standards, NPAs, capital adequacy, etc. The amended Act,
provided for compulsory registration of all NBFCs.

This note encompasses and gives a brief introduction about regulations and procedures related to
setting up and registration of NBFCs in India and further in added Annexure deals with different
committees role in NBFCs regulations, different types of NBFCs, 2016 Master Circulars and
important notes.

Non Banking Finance Company

In common parlance Non-Banking Financial Company (NBFC) is a company registered under


the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of
shares/stock/bonds/debentures/securities issued by Government or local authority or other
securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but
does not include any institution whose principal business is that of agriculture activity, industrial
activity, sale/purchase/construction of immovable property.

NBFC is defined under sec. 45-I (f) of RBI Act, 1934 as, non-banking financial company
means-

a financial institution which is a company;


a non banking institution which is a company and which has as its principal business the
receiving of deposits, under any scheme or arrangement or in any other manner, or
lending in any manner;
such other non-banking institution or class of such institutions, as the bank may, with the
previous approval of the Central Government and by notification in the Official Gazette,
specify.

With respect to aforesaid definition Principal Business can be understood as, the company will
be treated as a NBFC if its financial assets are more than 50 % of its total assets and income from
financial assets is more than 50 % of the gross income. Both these tests are required to be
satisfied as the determinant factor for principal business of a company.2

Supervision of NBFCs is done by RBI which is based on three criteria, (a) the size of NBFC, (b)
the type of activity performed and (c) the acceptance or without acceptance of public deposits.
Companies accepting public deposits are required to comply with all the directions on
acceptance of public deposits, prudential norms and liquid assets, and should submit periodic
returns to the Reserve Bank whereas, companies not accepting public deposits are regulated and
supervised in a limited manner. They are required to comply only with prudential norms relating
to income recognition, accounting standards, asset classification and provisioning against bad
and doubtful debts.

Entities/Companies regulated by RBI

Not all NBFCs are regulated by RBI. NBFCs are categorized in terms of the type of liabilities
into Deposit and Non-Deposit accepting NBFCs, non deposit taking NBFCs by their size into
systemically important3 and other non-deposit holding companies and by the kind of activity
they conduct are regulated by RBI whereas others are exempted like, Core Investment
Companies with asset size of less than 100 crore, and those with asset size of 100 crore and
above but not accessing public funds, Mortgage Guarantee Companies, Housing Finance
Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the
business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies,
Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from
the requirement of registration under Section 45-IA of the RBI Act, 1934.

The Reserve Bank has been given the powers under the RBI Act 1934 to register, lay down
policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs that
meet the 50-50 criteria of principal business. The Reserve Bank can penalize NBFCs for
violating the provisions of the RBI Act or the directions or orders issued by RBI under RBI Act.
The penal action can also result in RBI cancelling the Certificate of Registration issued to the

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Non Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
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NBFCs whose asset size is of 500 cr or more as per last audited balance sheet are considered as systemically
important NBFCs. The rationale for such classification is that the activities of such NBFCs will have a bearing on the
financial stability of the overall economy.
NBFC, or prohibiting them from accepting deposits and alienating their assets or filing a winding
up petition.

Pre-requisites for carrying on business of NBFC

The company desiring to be registered as a NBFC is required to submit its application for
registration in the prescribed format along with necessary documents for RBIs consideration.
RBI issues Certificate of Registration after satisfying itself that the conditions as enumerated in
Section 45-IA of the RBI Act, 1934 are satisfied.

The following pre-requisites mentioned below are cumulative and not alternative.

1. Registration Requirement

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can
commence or carry on business of a non-banking financial institution without a) obtaining a
certificate of registration from the Bank and without having a Net Owned Funds of 25 lakhs (
Two crore since April 1999). No NBFC can commence or carry on business of a financial
institution including acceptance of public deposit without obtaining a Certificate of Registration
(CoR) from the Reserve Bank. The company is required to submit its application for registration
in the prescribed format alongwith necessary documents for RBIs consideration. The Bank
issues Certificate of Registration after satisfying itself that the conditions as enumerated in
Section 45-IA of the RBI Act, 1934 are satisfied. However, in terms of the powers given to the
Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other
regulators are exempted from the requirement of registration with RBI viz. Venture Capital
Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance
Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as
notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause
(b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies regulated by National
Housing Bank, Stock Exchange or a Mutual Benefit company.

A company incorporated under the Companies Act, 1956 and desirous of commencing business
of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should
comply with the following:
i. it should be a company registered under Section 3 of the companies Act, 1956

ii. It should have a minimum net owned fund of 200 lakh. (The minimum net owned fund
(NOF) required for specialized NBFCs are specified in Annexure II).

(Put it as citation) 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 RBIs secured website
https://cosmos.rbi.org.in . At this stage, the applicant company will not need to log on to the
COSMOS application and hence user ids are not required. The company can click on CLICK
for Company Registration on the login page of the COSMOS Application. A window showing
the Excel application form available for download would be displayed. The company can then
download suitable application form (i.e. NBFC or SC/RC) from the above website, key in the
data and upload the application form. The company may note to indicate the correct name of the
Regional Office in the field C-8 of the Annex-I dentification Particulars in the Excel
application form. The company would then get a Company Application Reference Number for
the CoR application filed on-line. Thereafter, the company has to submit the hard copy of the
application form (indicating the online Company Application Reference Number, along with the
supporting documents, to the concerned Regional Office. The company can then check the status
of the application from the above mentioned secure address, by keying in the acknowledgement
number.

What are the regulations applicable on non-deposit accepting NBFCs with asset size of less than
500 crore?

(Annexure) The regulation on non-deposit accepting NBFCs with asset size of less than 500
crore would be as under:

(i) They shall not be subjected to any regulation either prudential or conduct of business
regulations viz., Fair Practices Code (FPC), KYC, etc., if they have not accessed any public
funds and do not have a customer interface.

(ii) Those having customer interface will be subjected only to conduct of business regulations
including FPC, KYC etc., if they are not accessing public funds.
(iii) Those accepting public funds will be subjected to limited prudential regulations but not
conduct of business regulations if they have no customer interface.

(iv) Where both public funds are accepted and customer interface exist, such companies will be
subjected both to limited prudential regulations and conduct of business regulations.

(Annexure) What are the various prudential regulations applicable to NBFCs?

The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial
(Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007,
Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding)
Companies Prudential Norms (Reserve Bank) Directions, 2015 and Systemically Important Non-
Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve
Bank) Directions, 2015. Applicable regulations vary based on the deposit acceptance or systemic
importance of the NBFC.

The directions inter alia, prescribe guidelines on income recognition, asset classification and
provisioning requirements applicable to NBFCs, exposure norms, disclosures in the balance
sheet, requirement of capital adequacy, restrictions on investments in land and building and
unquoted shares, loan to value (LTV) ratio for NBFCs predominantly engaged in business of
lending against gold jewellery, besides others. Deposit accepting NBFCs have also to comply
with the statutory liquidity requirements. Details of the prudential regulations applicable to
NBFCs holding deposits and those not holding deposits is available in the section Regulation
Non-Banking Notifications - Master Circulars in the RBI website.

Which entities can legally accept deposits from public?

All NBFCs are not entitled to accept public deposits. Only those NBFCs to which the Bank had
given a specific authorisation and have an investment grade rating are allowed to accept/ hold
public deposits to a limit of 1.5 times of its Net Owned Funds. All existing unrated AFCs that
have been allowed to accept deposits shall have to get themselves rated by March 31, 2016.
Those AFCs that do not get an investment grade rating by March 31, 2016, will not be allowed to
renew existing or accept fresh deposits thereafter. In the intervening period, i.e. till March 31,
2016, unrated AFCs or those with a sub-investment grade rating can only renew existing deposits
on maturity, and not accept fresh deposits, till they obtain an investment grade rating.

Notes

Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or
compounded at rests not shorter than monthly rests. The NBFCs are allowed to accept/renew
public deposits for a minimum period of 12 months and maximum period of 60 months. They
cannot accept deposits repayable on demand.

Further NBFCs are prohibited by RBI from associating with any unincorporated bodies. If
NBFCs associate themselves with proprietorship/partnership firms accepting deposits in
contravention of RBI Act, they are also liable to be prosecuted under criminal law or under the
Protection of Interest of Depositors (in Financial Establishments) Act, if passed by the State
Governments.

A problem NBFC is prohibited from making premature repayment of any deposits or granting
any loan against public deposit/deposits, as the case may be. The prohibition shall not, however,
apply in the case of death of depositor or repayment of tiny deposits i.e. up to 10000/- subject
to lock in period of 3 months in the latter case.

What is the liquid assets requirement for the deposit taking companies?

In terms of Section 45-IB of the RBI Act, 1934, the minimum level of liquid assets to be
maintained by NBFCs is 15 per cent of public deposits outstanding as on the last working day of
the second preceding quarter. Of the 15%, NBFCs are required to invest not less than ten percent
in approved securities and the remaining 5% can be in unencumbered term deposits with any
scheduled commercial bank. Thus, the liquid assets may consist of Government securities,
Government guaranteed bonds and term deposits with any scheduled commercial bank.

Key Prudential norms

NBFCs taking Public Deposits

Net Owned Funds Rs 2 crore


Annexure IV

Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank)


Directions, 2016.
Master Direction - Miscellaneous Non-Banking Companies (Reserve Bank) Directions,
2016

Acceptance of deposits by miscellaneous non-banking companies (MNBCs) On and from 1st


July 1977, no miscellaneous non- banking company shall:- (a) receive any deposit repayable on
demand or on notice, or repayable after a period of less than six months and more than thirty six
months from the date of receipt of such deposit or renew any deposit received by it, whether
before or after the aforesaid date unless such deposit, or renewal, is repayable not earlier than six
months and not later than thirty six months from the date of such renewal:

All miscellaneous non-banking companies having customer interface shall follow the Know
Your Customer (KYC) Direction, 2016, issued by the Department of Banking Regulation and as
amended from time to time.

Master Direction - Non-Banking Financial Company - Systemically Important Non-


Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016

Applicability (1) The provisions of these Directions shall apply to the following:

(i) every Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-
ND-SI) registered with the Bank under the provisions of RBI Act, 1934;

(ii) every Deposit taking Non-Banking Financial Company (NBFC-D) registered with the Bank
under the provisions of RBI Act, 1934;

(iii) every NBFC-Factor registered with the Bank under section 3 of the Factoring Regulation
Act, 2011 and having an asset size of ` 500 crore and above;

(iv) every Infrastructure Debt Fund Non-Banking Finance Company (IDF-NBFC) registered
with the Bank under the provisions of RBI Act, 1934;
(v) every Non-Banking Finance Company Micro Finance Institutions (NBFC-MFIs) registered
with the Bank under the provisions of RBI Act, 1934 and having an asset size of ` 500 crore and
above;

(vi) every Non-Banking Finance Company - Infrastructure Finance Company (NBFCIFC)


registered with the Bank under the provisions of RBI Act, 1934 and having an asset size of ` 500
crore and above.

Master Direction - Non-Banking Financial Company Non-Systemically Important Non-


Deposit taking Company (Reserve Bank) Directions, 2016

Applicability (1) The provisions of the Directions shall apply to the following:

(i) every non-banking financial company not accepting / holding public deposits which is not
systemically important;

(ii) every NBFC-Factor registered with the Bank under section 3 of the Factoring Regulation
Act, 2011 and having an asset size of below ` 500 crore;

(iii) every Non-Banking Finance Company Micro Finance Institution (NBFC-MFI) registered
with the Bank under the provisions of RBI Act, 1934 and having an asset size of below ` 500
crore;

(iv) every Non-Banking Finance Company - Infrastructure Finance Company (NBFCIFC)


registered with the Bank under the provisions of RBI Act, 1934 and having an asset size of
below ` 500 crore.

(4) (i)The Directions under Chapter IV, paragraph 68 and Chapter V shall not apply to those
applicable NBFCs who have not accessed any public funds and do not have any customer
interface.

(ii) Applicable NBFCs accessing public funds but having no customer interface are exempt from
the applicability of paragraph 68 and Chapter V of the directions.

(iii) Applicable NBFCs having customer interface but not accessing public funds are exempt
from the applicability of Chapter IV of the directions.
Entry Point Norms All new companies desiring registration as NBFC-MFI shall need a
minimum NOF of ` 5 crore (except those in the North Eastern Region of the country which shall
require NOF of ` 2 crore till further notice, as hitherto) and shall comply, from the beginning,
with all other criteria applicable to NBFC-MFIs.

Prudential Norms (i) Capital Adequacy NBFC-MFIs shall maintain a capital adequacy ratio
consisting of Tier I and Tier II Capital which shall not be less than 15 percent of its aggregate
risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items. The
total of Tier II Capital at any point of time, shall not exceed 100 percent of Tier I Capital.

Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve


Bank) Directions, 2016

In these directions unless the context otherwise requires, i. Account Aggregator means a non-
banking financial company as notified under in sub-clause (iii) of clause (f) of section 45-I of the
Act, that undertakes the business of an account aggregator, for a fee or otherwise, as defined at
clause (iv) of sub-section 1 of section 3 of these directions.

Registration and matters incidental thereto 4.1 (a) No entity other than a company shall
undertake the business of an Account Aggregator. (b) No company shall commence or carry on
the business of an Account Aggregator without obtaining a certificate of registration from the
Bank. Provided that, entities being regulated by other financial sector regulators and aggregating
only those accounts relating to the financial information pertaining to customers of that particular
sector will be excluded from the above registration requirement. (c) Subject to the above proviso,
entities that are undertaking the business of an Account Aggregator, as defined at paragraph 3(iv)
of these directions, as on the date of effect of these directions, shall apply for registration as an
Account Aggregator, in compliance with these directions, to the Bank within a month from that
date. Such companies, which have applied to the Bank for registration as an NBFC - Account
Aggregator, shall be permitted to continue the business of an Account Aggregator till their
application for issue of Certificate of Registration is rejected or twelve months from date of the
application, whichever is earlier. (d) Every company seeking registration with the Bank as an
Account Aggregator shall have a net owned fund of not less than rupees two crore, or such
higher amount as the Bank may specify.
Provided that, those companies not having a Net Owned Fund of minimum of Rupees two crore
at the time of seeking registration, shall meet the Net Owned Fund criteria within the period of
validity of the in-principle approval for grant of certification of registration given by the Bank.

4.2 Process of registration 4.2.1 Every company seeking registration as an NBFC- Account
Aggregator shall make an application for registration to the Department of Non-Banking
Regulation, Mumbai of the Bank, in the form specified by the Bank for the purpose at Annex 1.
4.2.2 The Bank for the purpose of considering the application for registration shall require to be
satisfied that the following conditions are fulfilled:- a) The company has the necessary resources
and wherewithal to offer such services to customers. b) The company has the adequate capital
structure to undertake the business of an account aggregator. c) The promoters of the company
are fit and proper. d) The general character of the management or proposed management of the
company are not prejudicial to the public interest. e) The company has a plan for a robust
Information Technology system. f) The company shall not have a leverage ratio of more than
seven. g) That the public interest shall be served by the grant of certificate of registration to the
Account Aggregator to commence or to carry on the business in India.

Annexure I

Narasimhan Committee 1991

This committee was formed to examine all aspects relating to the structure, organization &
functioning of the financial system. It also recommended that the supervision of these institutions
should be brought within the purview of the agency to be set up for the purpose under the aegis
of the RBI. This led to the amendment of the RBI Act in 1997. The RBI Amendment Act 1997
introduced compulsory registration with the RBI of all existing and newly incorporated NBFCs
and prescribed certain minimum capital requirements as basic entry norms for a company to be
able to operate as an NBFC.

Dr. A.C. Shah Committee 1992

The Committee set out the agenda for reforms in the NBFC sector and made wide ranging
recommendations like entry point norms, compulsory registration of large sized NBFCs,
prescription of prudential norms for NBFCs on the lines of banks, stipulation of credit rating for
acceptance of public deposits and more statutory powers to Reserve Bank for better regulation of
NBFCs.

Khanna Committee 1995

This committee was set up with the objective of designing a comprehensive and effective
supervisory framework for the non-banking companies segment of the financial system. The
important recommendations of this committee are: NBFCs having net owned funds of Rs.100
lakh and above, supervision over unregistered NBFCs to be exercised through the off-site
surveillance mechanism and their on-site inspection to be conducted selectively as deemed
necessary depending on circumstances, some of the non-banking non-financial companies like
industrial or manufacturing units were also undertaking financial activities including acceptance
of deposits, investment operations, leasing etc to a great extent and introduction of a system
whereby the names of the NBFCs which had not complied with the regulatory framework of the
Bank or had failed to submit the prescribed returns consecutively for two years could be
published in regional newspapers.

Vasudev Committee 1998

This committee emphasised the need for strengthening of the NBFC sector including entry
norms and prudential norms, and dealt with framework for acceptance of public deposits, issues
concerning unincorporated financial intermediaries and addresses issues of supervision of
NBFCs. The important recommendations of this committee are present minimum capital
requirement of Rs.25 lakh, as operations of NBFCs are concentrated in remote areas, the present
capital adequacy ratio requirement may be maintained at 12% for all rated NBFCs, higher rate of
about 15% need to be prescribed by RBI for those NBFCs which seek public deposit without
credit rating, RBI may stipulate that the NBFCs should invest at least 25% of their reserves in
marketable securities apart from the SLR securities already held by the NBFCs.

Annexure II

Asset Finance Company (AFC) : An AFC is a company which is a financial institution


carrying on as its principal business the financing of physical assets supporting
productive/economic activity, such as automobiles, tractors, lathe machines, generator
sets, earth moving and material handling equipments, moving on own power and general
purpose industrial machines. Principal business for this purpose is defined as aggregate of
financing real/physical assets supporting economic activity and income arising there from
is not less than 60% of its total assets and total income respectively.4
Investment Company (IC) : IC means any company which is a financial institution
carrying on as its principal business the acquisition of securities.
Loan Company (LC): LC means 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): IFC is a non-banking finance company a) which
deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum
Net Owned Funds of 300 crore, c) has a minimum credit rating of A or equivalent d) a
CRAR of 15%.
Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an
NBFC carrying on the business of acquisition of shares and securities which satisfies the
following conditions:-

(a) it holds not less than 90% of its Total Assets in the form of investment in equity shares,
preference shares, debt or loans in group companies;

4
Supra note 2.
(b) its investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding 10 years from the date of issue) in group companies
constitutes not less than 60% of its Total Assets;

(c) it does not trade in its investments in shares, debt or loans in group companies except through
block sale for the purpose of dilution or disinvestment;

(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the
RBI Act, 1934 except investment in bank deposits, money market instruments, government
securities, loans to and investments in debt issuances of group companies or guarantees issued on
behalf of group companies.

(e) Its asset size is 100 crore or above and

(f) It accepts public funds

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


a company registered as NBFC to facilitate the flow of long term debt into infrastructure
projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds
of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor
IDF-NBFCs.
Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI
is a non-deposit taking NBFC having not less than 85% of its assets in the nature of
qualifying assets which satisfy the following criteria:
i. loan disbursed by an NBFC-MFI to a borrower with a rural household annual
income not exceeding 1,00,000 or urban and semi-urban household income not
exceeding 1,60,000;
ii. loan amount does not exceed 50,000 in the first cycle and 1,00,000 in
subsequent cycles;
iii. total indebtedness of the borrower does not exceed 1,00,000;
iv. tenure of the loan not to be less than 24 months for loan amount in excess of
15,000 with prepayment without penalty;
v. loan to be extended without collateral;
vi. aggregate amount of loans, given for income generation, is not less than 50 per
cent of the total loans given by the MFIs;
vii. loan is repayable on weekly, fortnightly or monthly installments at the choice of
the borrower.
Non-Banking Financial Company Factors (NBFC-Factors): NBFC-Factor is a non-
deposit taking NBFC engaged in the principal business of factoring. The financial assets
in the factoring business should constitute at least 50 percent of its total assets and its
income derived from factoring business should not be less than 50 percent of its gross
income.
Mortgage Guarantee Companies (MGC) - MGC are financial institutions for which at
least 90% of the business turnover is mortgage guarantee business or at least 90% of the
gross income is from mortgage guarantee business and net owned fund is 100 crore.
NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution
through which promoter / promoter groups will be permitted to set up a new bank .Its a
wholly-owned 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.

Annexure III

An indicative list of documents/information to be furnished alongwith the application. All


documents/information is to be submitted in duplicate.

1. Minimum NOF requirement Rs. 200 lakh.


2. Application to be submitted in two separate sets tied up properly in two separate files.
3. Annex II to the Application Form to be submitted duly signed by the director/Authorized
signatory and certified by the statutory auditors.
4. Annex III (directors profile) to the Application Form to be separately filled up for each
director. Care should be taken to give details of bankers in respect of
firms/companies/entities in which directors have substantial interest.
5. In case the directors are associated or have substantial interest in other companies,
indicate clearly the activity of the companies (whether NBFC or not).
6. Board Resolution specifically approving the submission of the application and its
contents and authorizing signatory.
7. 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.
8. 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.
9. Auditors Certificate certifying that the company is/does not accept/is not holding Public
Deposit.
10. Auditors Certificate certifying that the company is not carrying on any NBFC activity.
11. Net owned fund as on date.
12. Certifying compliance with section 45S of Chapter IIIC of the RBI Act, 1934 in which
director/s of the company has substantial interest.
13. Details of changes in the Memorandum and Articles of Association duly certified.
14. Last three years Audited balance sheet along with directors & auditors report.
15. Details of clauses in the memorandum relating to financial business.
16. Details of change in the management of the company during last financial year till date if
any and reasons thereof.
17. Details of acquisitions, mergers of other companies if any together with supporting
documents.
18. A detail of group companies/associate concerns/subsidiaries/holding companies.
19. Details of infusion of capital if any during last financial year together with the copy of
return of allotment filed with Registrar of Companies.
20. A detail of the bank balances/bank accounts/complete postal address of the branch/bank,
loan/credit facilities etc. availed.
21. Business plan for next three years indicating market segment to be covered without any
element of public deposits.
22. Cash flow statement, asset/income pattern statement for next three years.
23. Brief background note on the activities of the company during the last three years and the
reasons for applying for NBFC registration.
24. Whether any prohibitory order was issued in the past to the company or any other
NBFC/RNBC with which the directors/promoters etc. were associated? If yes, details
thereof.
25. Whether the company or any of its directors was/is involved in any criminal case,
including under section 138(1) of the Negotiable Instruments Act? If yes, details thereof.
26. Whether the company was granted any permission by ECD to function as Full-fledged
Money Changers?
27. Whether the company was/is authorized by ECD to accept deposits from NRIs.
28. Whether Fit and Proper Norms for Directors have been fulfilled?