What are the Different Types of NBFC Licenses Available and Their Specific Requirements?

  • June 01, 2023
  • Dushyant Sharma
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NBFC is a company which is incorporated under the companies act 2013 or 1956 and providing financial services will be an NBFC. It is mainly engaged in loans and advances, acquisition of stocks, equalities, and debt issued by the government or any local authority.

The main objective is to accept deposits under any scheme or manner. It is governed by the RBI and the Ministry of Corporate Affairs.

To run an NBFC, a company need a license and to get it there’s a process. NBFC has 8 different types of companies and for each company, the process of applying for a license is different

Here in this article, each company's specific requirements to get a license are explained.

 

Types of NBFC Licenses Available

As per RBI, if any company is found doing business without a license then RBI has the power to impose a fine or penalty, even prosecute the company in court. So, below are all eight types of Non-Banking Financial Services with licensing requirements.

1) Asset Finance Companies (AFC)

An AFC company is a financial institution carrying its principal business by financing physical assets supporting productive/economic activity such as machinery, tractor, automobiles, generator sets, lathe machines, moving on own power and general purpose industrial machines.

Its principal business is defined as an aggregate of financing real/ physical assets supporting economic activities. The income arising from there should not be less than 60% of its total assets and total income.

 

2) Investment Company

An investment company carries its principal business in the acquisition of securities such as shares, stocks, bonds, and other financial securities. The total assets should be 50% in investment and 50% of total income from aforesaid assets.

 

3) Loan Company

A loan company’s financial business is providing finances by making loans and advances or other activities of its own but does not include an AFC.

Loan companies raise funds from the public and lend the money to traders and small-scale industries. As compared to banks the rate of return is more attractive along with a simplified procedure of credit facility. To register a loan company the following process must be followed.

Requirements to Get an NBFC License for AFC, Investment Company and Loan are Similar

The following are the specific requirements that need to be fulfilled by all three companies:

1.    The applicant must be registered under the Companies Act, 2013 with a minimum capital of Rs. 2 crores.

2.    In case of a foreign company, the minimum capital required is Rs. 5 crores.

3.    After the registration of a company as a Public Ltd. or Private Ltd., it has to open an FD of Rs. 2 crores.

4.    Once the FD gets opened, file the application in the prescribed format with attached documents to the Reserve Bank of India.

5.    If RBI finds all the documents correct, it will issue an NBFC license to the concerned authority and grant a certificate of working as an NBFC registration.

 

4) Infrastructure Finance Company

An IFC is a non-banking finance company, which deploys at least 75% of its total assets in infrastructure loans. Recently RBI assigned the status of “Indian Renewable Energy Development Agency (IREDA)” to “Infrastructure Finance Company”.

NBFC License Requirements as a Finance Company:

1.    Total assets of a minimum of 75% should be deployed in infrastructure loans.

2.    Minimum net worth should be Rs 300 crore.

3.    CRAR should be at 15% with Tier I capital at 10%.

4.    Credit rating of the company should be at 'A' or equivalent of CRISIL, FITCH, CARE, ICRA, BRICKWORK or equivalent rating by any other accrediting rating agencies.

 

5) A Systemically Important Core Investment Company

A Systemically Important Core Investment Company (CIC-ND-SI) is a restricted company involved in the business of shares and securities. To get the license of Core Investment Company (SI) the following conditions should be satisfied:

1. Not less than 90% of total assets will be in the form of equity and preference shares, loans and debt in grou companies.

2. Investment in equity shares of group companies should not be less than 60% of its total assets.

3. Its asset size should be ₹ 100 crore or above and it accepts public funds.

 

6) NBFC Factor

NBFC Factor is a company which carries factoring as a primary business. Factoring means a financial translation by selling debt or account receivables to a third party at a discount, the third party is called factor. It is a non-deposit-taking NBFC.

Requirements for License of NBFC-Factor

1.    The new companies required a minimum net owned fund of Rs. 5 crores.

2.    Existing companies intended to convert into NBFC-factor but do not fulfil the criteria of Rs. 5 crores can approach the bank for time to comply with the requirements.

3.    Fill out an application for the grant of a certificate of registration (CoR) to the bank as per Section 3 of the Act.

4.    A new company that is granted CoR by the Bank as NBFC-Factor, can start a business within six months from the date of the grant of CoR.

 

7) Infrastructure Debt Fund

An Infrastructure Debt Fund Company can be sponsored by a commercial bank or NBFC in India. Domestic and Offshore investors can invest through units and bonds issued by IDFs.

IDF can take over the loan which is created through Public Private Partnership (PPP) route and complete the one-year in commercial production.

Requirements for NBFC License in India for IDF

     The net minimum capital should be Rs. 300 crore.

     The company should be in existence for 5 years before application.

     Consistent profit should be for the last three years

     The performance should be free from any supervisory concern.

     Minimum credit rating grade should be ‘A’ of CRISIL.

 

8) NBFC - Microfinance Companies

As the name suggests Microfinance companies provide finances to low-income groups, where the finance requirements are lower than any other sector of the society. Microfinance companies help those groups who do not have access to traditional banks and institutions.

For registration fill out the online application and submit all the certified documents. Hard copies of all the documents need to be submitted to a regional office of RBI. Other requirements for registration are:

Requirements for License of Microfinance Companies:

1.    The minimum net owned fund should be Rs. 3 crores for the registered NBFC which is intended to convert into an NBFC-MFI and for the North Eastern Region, the capital requirement is 2 crore.

2.    For new NBFC-MFI the net owned fund should be 5 crores.

3.    Net assets should be maintained 85% as Qualifying Assets.

 

Conclusion

These all are the types of NBFC and each company requires a different method to apply for the license. Having all the documents prepared before applying makes the process of getting a license easier.

If you want to apply for the license then you must collect all the documents and if you need help with those documents and the process, then contact registration to get your work done fast.

 

Also read:  The Top Strategies to Grow a Successful Insurance Marketing Firm


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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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