Conditions for NBFC Licenses in India

Non-Banking Financial Companies, commonly referred to as ‘NBFCs,’ are companies that have been registered under the Companies Act, 1956/2013 and offers services like loans and advances, acquiring shares, stocks, bonds, debentures, or securities issued by the Government or the local authorities or any other marketable security of a similar nature like leasing, hire-purchase, etc.

This, however, does not include any entity whose primary business is any agricultural or industrial activity, providing any service, is related to purchase/sale of any goods (apart from securities) or sale/purchase/construction of immovable properties.

A Non-Banking institution would also be considered an NBFC (Residuary Non-Banking Company) if it is a company and involved in receiving deposits in accordance with the guidelines of any scheme/arrangement in a single lumpsum payment or several installments via contributions or other methods.

Scale Based Regulation (SBR)

Reserve Bank of India (RBI) master direction dated 22 October 2021, implemented from 1 April 2022, issued scale-based regulation for NBFC. The idea behind subjecting the sector to SBR is to align the regulations in line with the changing risk profiles of NBFCs which have grown substantially and have become systemically significant in the past few years.

Base Layer

All non-deposit NBFCs that have an asset size of less than INR 1000 crores fall under the ‘NBFC Base Layer.’ Following types of NBFCs are included in this category:

• NBFC-Peer to Peer Lending Platforms (NBFC-P2P)
• NBFC-Account Aggregators (NBFC-AA)
• Non-Operative Financial Holding Companies (NOFHC)
• NBFCs that do not avail public funds and do not have any customer interface

Middle Layer

All deposit taking NBFCs and non-deposit taking NBFCs that have an asset size of more than INR 1000 crores fall under ‘Middle Layer.’ Following types of NBFCs are included in this category:

• Standalone Primary Dealers (SPDs)
• Core Investment Companies (CICs)
• Infrastructure Finance Companies (NBFC-IFCs)
• Housing Finance Companies (HFCs)
• Infrastructure Debt Fund – Non-Banking Financial Companies (IDF-NBFCs)

Upper Layer

The top 10 NBFCs based on the size of their assets as well as other NBFCs selected by the Reserve Bank of India (RBI) fall under the ‘Upper Layer’.

Top Layer

The ‘Top Layer’ generally remains empty. Entities are only added to this layer if RBI believes that there is a significant rise in the potential systemic risk from certain NBFCs in the ‘Upper Layer’. NBFCs considered by the RBI for this purpose may be moved to the ‘Top Layer’ from the ‘Upper Layer.’

Different Types of NBFCs

S. No	Type of NBFC	Details	FDI
1	NBFC - Investment and Credit Company (NBFC-ICC) (Previously known as Loan Company, Asset Finance Company, and Investment Company individually)	An NBFC carrying principal business of asset finance, providing finance whether by making loans or advances or otherwise for any activity other than its own and acquisition of securities.	100%
2	Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)	An NBFC whose principal business is to provide funding to low-income groups. Minimum net owned fund is INR 5 crores	100%
3	Non-Banking Financial Company – Factors (NBFC-Factors)	An NBFC whose principal business is factoring services. It means NBFC providing bill discounting facilities. Financial assets constitute 50% of total assets.	100%
4	Account Aggregators (NBFC-AA)	An NBFC with primary business of account aggregation.	100%
5	Peer to Peer Lending Platforms (NBFC-P2P)	An NBFC conducting the business of a peer-to-peer lending platform, majorly IT driven.	100%
6	Infrastructure Finance Company (IFC)	An NBFC that deploys at least 75% of its total assets in infrastructure loans. Minimum net owned fund INR 300 crores. It is a non-deposit accepting NBFC.	100%
7	Systemically Important Core Investment Company (CIC-ND-SI)	An NBFC whose principal business is that of shares and securities. Holds 90% of assets in form of shares and securities. Asset size is INR 100 crores and above.	100%
8	Mortgage Guarantee Companies (MGC)	An NBFC that primarily transacts and deals in business of providing mortgage guarantees. 90% of gross income is from mortgage guarantee. Minimum net owned fund is INR 100 crores.	100%
9	Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)	An NBFC that facilitates the flow of long-term debt into infrastructure projects. Minimum NOF INR 300 crores. CRAR 15%.	100%
10	NBFC-NOFHC (Non-Operative Financial Holding Company)	An NBFC whose principal business is establishing new banks.	100%

Net Owned Fund (NOF) Requirements

Type of NBFC	Current NOF (in INR)	By 31 March 2025 (in INR)	By 31 March 2027 (in INR)
NBFC-ICC	2 crores	5 crores	10 crores
NBFC-MFI	5 crores	7 crores	10 crores
NBFC-Factors	5 crores	7 crores	10 crores

Note: The NOF for NBFC-Peer to Peer Lending Platforms, NBFC-Account Aggregators and NBFCs that have no public funds and no interface shall continue at the INR 2 crores mark. Furthermore, no changes have been made to the existing regulatory minimum NOF for NBFCs – IDF, IFC, MGCs, HFC, and SPD.

Revised Non-Performing Assets (NPA) Classification

The existing NPA classification norms were changed to the overdue period of more than 90 days for all types of NBFCs, irrespective of their category.

Following is the path that NBFCs in the Base Layer must adhere to the 90 days norm:

NPA Norms	Timeline
>150 days overdue	31st March 2024
>120 days overdue	31st March 2025
>90 days	31st March 2026

NOF Requirements for Different Types of NBFCs

Type of NBFC	Current NOF Requirements	Revised NOF Requirements
NBFC-AA	INR 20 crores	Same
NBFC-P2P	INR 20 crores	Same
NBFC – Factors	INR 5 crores	INR 10 crores
NBFC - Investment and Credit Company (NBFC-ICC (without public funds & without customer interface)	INR 2 crores	Same
Other NBFC ICC	INR 2 crores	INR 10 crores
HFC (Housing Finance Company)	INR 20 crores	Same
Mortgage Guarantee Companies (MGC)	INR 100 crores	Same
Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)	INR 5 crores	INR 10 crores
NBFC-IDF	INR 300 crores	Same
NBFC-IFC	INR 300 crores	Same

Other Requirements

• At least one of the directors in the Board of Directors must have relevant experience of previously working in a bank/NBFC.
• There shall be a ceiling limit of INR 1 crore per borrower for financing subscription to Initial Public Offering (IPO). NBFCs may choose to fix more conservative limits if they want.

NBFC Registration Process

• Incorporation of a company with name such as fintech, finance, fin serve, portfolio, leasing, investment etc.
• NOF requirements, as stated.
• Excellent CIBIL score.
• Drafting of application addressing RBI for NBFC License (documents listed below).
• Submission of application with the authority (https://xbrl.rbi.org.in/orfsxbrl/).
• Upon submission, the RBI will verify the documents, facts and upon satisfaction shall issue NBFC Registration Certificate.

Documents Required for NBFC Registration

The various documents required for NBFC registration by different types of NBFCs are mentioned below. However, it must be noted that this list is indicative and not exhaustive. The authorities may request you for other documents to satisfy themselves on your eligibility for the registration.

NBFC-P2P

 

• Memorandum of Association (MOA), Articles of Association (AOA), Certificate of Insurance (COI).
• Certified copies of extract of only the main object clause in the MOA pertaining to the financial business.
• Audited balance sheet and Income Tax returns (ITR) for previous 3 years.
• Board resolution that states:
     - The organization is not conducting any NBFC activities/Stopped NBFC activities and will not conduct/begin the same prior to getting registration done from RBI.|
    - The organization has established the ‘Fair Practices Code’ as per the RBI guidelines.
     - The organization does not have any customer interface as on date and will not have any customer interface in the future without the RBI’s approval.
     - The Unincorporated Bodies (UIB) in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past/does not hold any public deposit as on the date and will not accept it in future.
     - The organization has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the RBI’s approval.
• A copy of fixed deposit receipt and bankers’ certificate of no lien indicating balances in support of NOF.
• Business Model stating brief business plan, process of participant authentication, grievance redressal mechanism and details of rendering services of recovery of loans.
• In case the Company has IT infrastructure in place then details of hardware/software used, latest Internal System Audit Report.
• Banker’s report in respect of applicant company, its group/subsidiary/associate/holding company/related parties, directors of the applicant company having substantial interest in other companies.

NBFC-IDF

• MOA, AOA, COI.
• Board resolution that states:
     - The Unincorporated Bodies (UIB) in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past/does not hold any public deposit as on the date and will not accept it in future.
     - The organization does not have any customer interface as on date and will not have any customer interface in the future without the RBI’s approval.
     - The organization is not conducting any NBFC activities/Stopped NBFC activities and will not conduct/begin the same prior to getting registration from RBI.
     - The organization has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the RBI’s approval.
     - The organization has established the ‘Fair Practices Code’ as per the RBI guidelines.
• Report of Banker confirming no lien on fixed deposit.
• Last 3 years audited balance sheet, Income Tax Returns.
• Copy of Tripartite Agreement between the concessionaire, the Project Authority and NBFC-IDF.
• Details of change in the management of the sponsor company during the last financial year till date, if any, and reasons thereof.
• Copy of Fixed Deposit receipt & bankers’ certificate of no lien indicating balances in support of NOF.
• Copy of the certificate of highest educational and professional qualification in respect of all the directors.
• Copy of experience certificate, if any, in the Financial Services Sector (including Banking Sector) in respect of all the directors.
• Source of startup capital of the company with documentary evidence. NBFC-IDF would raise resources through issue of either Rupee or Dollar denominated Bonds of minimum 5-year maturity.

NBFC – Factor

• MOA, AOA, COI.
• Board resolution stating:
     - The UIBs in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past /does not hold any public deposit as on the date and will not accept the same in future.
     - 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.
     - The company has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the approval of Reserve Bank of India.
     - The company has formulated ‘Fair Practices Code’ as per RBI Guidelines.
     - The company does not have any customer interface as on date and will not have any customer interface in the future without the approval of Reserve Bank of India.
• Copy of Fixed Deposit receipt & bankers’ certificate of no lien indicating balances in support of NOF.
• Last 3 years audited balance sheet & ITR.
• Report of Banker confirming no lien on fixed deposit.
• Board Resolution enclosing roadmap that the company will have financial assets in the factoring business constituting at least 50% of its total assets and its income derived from factoring business will not be less than 50% of its gross income.
• Copy of the certificate of highest educational and professional qualification in respect of all the directors.
• Copy of experience certificate, if any, in the Financial Services Sector (including Banking Sector) in respect of all the directors.
• Source of startup capital of the company with documentary evidence.

NBFC-MFI – New Companies

• MOA, AOA, COI.
• Board resolution stating:
     - 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.
     - The company has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the approval of Reserve Bank of India.
     - The UIBs in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past /does not hold any public deposit as on the date and will not accept the same in future.
     - The company is not licensed under Section 25 of the Companies Act, 1956/Section 8 of the Companies Act, 2013.
     - The company has formulated ‘Fair Practices Code’ as per RBI Guidelines.
     - The company does not have any customer interface as on date and will not have any customer interface in the future without the approval of Reserve Bank of India.
• Report of Banker confirming no lien on fixed deposit.
• Last 3 years audited balance sheet, Income Tax Returns.
• Copy of Fixed Deposit receipt & bankers’ certificate of no lien indicating balances in support of NOF.
• Source of startup capital of the company with documentary evidence.
• Roadmap for achieving 85% qualifying assets.
• Copy of experience certificate, if any, in the Financial Services Sector (including Banking Sector) in respect of all the directors.
• Copy of the certificate of highest educational and professional qualification in respect of all the directors.

Infrastructure Finance Company

• MOA, AOA, COI, Permanent Account Number (PAN), Goods and Services Tax Network (GSTIN), Management Information and changes therein in the last year.
• Certificate from the respective NBFC/s where the Directors have gained NBFC experience.
• CIBIL data of directors.
• Profile of all directors, copy of PAN of all directors.
• Details of all banks along with address and branch thereof.
• Minimum NOF INR 300 crores.
• NOF certificate from Statutory Auditor.
• A brief background note on the activities of the company during the last three years.
• ‘No deposit certificate’ from Statutory Auditor.
• List of shareholders and details of authorized, paid and change in shareholding in last one year.
• Statutory Auditor’s certificate to the effect that minimum of 75% of its total assets is deployed in infrastructure loans.
• Audited Balance Sheet and ITR of 3 previous financial years.
• Business plan of the company for the next three years giving details of its (a) thrust of business; (b) market segment; and (c) projected balance sheets, cash flow statement, asset/income pattern statement without any element of public deposits.
• Statement on prudential norms.
• If there are any incidents of non-compliance with the directions of Revenue Authorities or any other statutory authority by the applicant company, its holding company/ subsidiaries, give particulars; else report ‘Nil’.
• Certificate of compliance with Section 45S of Chapter IIIC of the RBI Act, 1934 regarding unincorporated bodies with which director/s of the company are associated.
• Details of mergers and acquisitions with/of other companies, if any, together with supporting documents.
• Minimum credit rating ‘A’ or equivalent of CRISIL, FITCH, CARE, ICRA, or equivalent rating by any other accrediting rating agencies.
• Board Resolution for:
     - Formulation of ‘Fair Practices Code.’
     - Approving the submission of the application and its contents and authorizing signatory.
     - 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.

NBFC – Others

• MOA, AOA, COI.
• Last 3 years audited balance sheet, Income Tax Returns
• Banker’s report in respect of applicant company, its group/subsidiary/associate/holding company/related parties, directors of the applicant company having substantial interest in other companies.
• Copy of Fixed Deposit receipt & bankers’ certificate of no lien indicating balances in support of NOF.
• Certified copies of extract of only the main object clause in the MOA relating to the financial business.
• Board resolution stating:
     - The company has not accepted public funds in the past/does not hold any public fund as on the date and will not accept the same in the future without the approval of Reserve Bank of India
     - The company does not have any customer interface as on date and will not have any customer interface in the future without the RBI’s approval.
     - 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.
     - The company has formulated ‘Fair Practices Code’ as per RBI Guidelines.
     - The UIBs in the group where the director holds substantial interest or otherwise has not accepted any public deposit in the past /does not hold any public deposit as on the date and will not accept the same in future.

Conclusion

Companies are prohibited from engaging in any business in relation to a non-banking financial company if they are not registered with the RBI and have obtained a relevant certificate of registration. Furthermore, failing to comply with the conditions for NBFC licenses may result in the RBI imposing a penalty or a fine. Besides, the RBI could also prosecute such entities in a court of law.


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