Navigating the Regulatory Landscape of NBFCs
Introduction
Since they serve as important financial intermediaries and direct savings and investments, especially for small-scale retail businesses and neglected or unbanked segments of the Indian economy, NBFCs have been vital in the development of the country’s financial ecosystem. NBFCs and banks differ significantly, though. Some of the primary advantages of purchasing an established NBFC are less competition, more sales and revenue, enhanced profitability, a larger client base and distribution network, and greater economies of scale.
Benefits of Purchasing an Existing NBFC
While both approaches include comparable requirements, acquiring an existing NBFC greatly shortens preparation time.Acquiring an existing Non-Banking Financial Company (NBFC) has various advantages over establishing a new one. The biggest advantage is time savings, which allows you to focus on improving the activities of the formed organization rather than negotiating the long registration procedure Alternatively, you can hire an NBFC to avoid frequent issues experienced by new organizations, such as generating brand awareness and developing relationships with associates.
Process of Obtaining an NBFC License in India
1. Documents: Certain papers and paperwork are required to complete the application.
2. Apply: If the applicant firm fits the aforementioned conditions, it must submit an online application for an NBFC license.
3. CIBIL Records Check: The company’s CIBIL score is also considered throughout the appraisal procedure.
4. Additional Criteria: The firm should be registered as a public or private organization.
- A Minimum Net Owned Fund (NOF) of Rs 10 crore is required.
- At least one-third of the directors should have finance-related experience.
- It is required to follow restrictions outlined in Capital Compliance and FEMA legislation.
5. The Application Reference Number (ARN) is: After completing the checks, the RBI issues an ARN to track the application’s status.
6. License Issue: If the RBI is happy with the application, it provides the NBFC license. The NBFC must thereafter file regular financial and prudential reports with the RBI for monitoring and supervision.
Rules that an NBFC must adhere to
An NBFC is required to abide by some regulations established by the Reserve Bank of India (RBI) after obtaining a legal license. Among these are limitations on the amount of demand deposits that can be accepted, with public deposits only being accepted for periods of 12 to 60 months. The RBI has set a cap on interest rates that the NBFC may charge, and the RBI does not guarantee that deposits will be repaid. The NBFC is required to file statutory reports, provide its audited balance sheet every year, and keep at least 15% of public deposits in liquid assets. Obtaining a credit rating every six months and submitting quarterly and half-yearly reports to the RBI are other requirements for regular reporting.