How NBFCs are playing a critical role in stimulating the growth of Indian Economy?

Non-Banking Financial Companies are emerging as the major contributors in the Indian economy after it was introduced. It has developed the country’s economy and made progressive contributions that lead to India’s development, especially in the banking sector. It has managed to modify the banking sector, acquire customers with different issues and solved them and impacted the country in a positive way.

Today, in this article, we will understand the concept behind the introduction of NBFCs and significant factors such as NBFC registration process, advantages, features, documents etc.

The Reserve Bank of India has the power to control the operations and govern the functions of non-banking financial companies, as per the provisions mentioned in the Reserve Bank of India (RBI) Act, 1934. It is registered under the Companies Act, 1956, some of NBFCs major business activities are acquisition of shares, stocks, bonds, debentures and offering loans and advances.

Defining Non-Banking Financial Companies

It is a financial institution established under Companies Act, 1956, engaged in the business of loans and advances and acquisition of shares, debentures, stocks, bonds and securities.

How are Non-Banking Financial Companies playing a critical role in stimulating the Indian economy?

They contribute to the economy by lending to infrastructure projects
NBFCs are established by taking into consideration individuals who require banking facilities but are not able to afford the banking services.
NBFC gives priority to the customers and offer services as per their preferences.
The objective of NBFCs is expansion and growth of industrial, commercial, institutional, and service sectors of the country.
NBFCs can decide the rate of interest at which they will sanction loans.
Deciding the interest rate gives them the flexibility to avail many benefits and charge short-term lending at a high rate of interest.
Aids to increase capital stock of a company
Provide assistance in the provision of long-term credit and specialized credit
Helps in Employment Generation
Help in development of Financial Markets
Helps in reducing poverty by providing them help of various types

Types of Non – Banking Financial Companies

The NBFCs are categorized into various types as per different factors such as –

Asset Finance Company
Micro Finance Company
Infrastructure Debt Company
Loan Company
Mortgage Guarantee Company
Peer to Peer Lending
Core Investment Company

Eligibility requirements for NBFC Registration

The company must be registered under Section 3 of Companies Act.
The company must hold a minimum amount of net owned funds (NOFs) of Rs. 2 crores.
The company must own the funds and prove their ownership and they should not be burrowed.
At least 1/3 of the Directors must have previous experience in the finance industry.
A plan must be prepared in detail for the next five years and presented to the authority.

Registration Process of Non-Banking Financial Companies

Company Registration: The Company must be registered as per the Companies Act 2013 or Companies Act 1956.
Ownership of Net Owned Funds: A minimum Net Owned Funds (NOFs) must be held by the company. The amount must be Rs2 crore or more.
Minimum requirement of Directors: There must be at least one director in the company.
Maintain CIBIL Score: Maintaining a Good CIBIL score is essential as it is an important aspect that is considered and it fulfills the eligibility requirements to register as an NBFC.
File the application form: The applicant must fill in the application form and submit it to the authority before the stipulated time.
Submission of documents: The applicant has to prepare and submit documents required by the authority along with the application form. The documents submitted must be verifies and accurate.
Obtain CARN Number: After the applicant submits the application form along with the documents, a CARN number will be provided to the applicant.
Obtain NBFC License: Once the application form is approved and is considered satisfactory, the applicant obtains an NBFC license after which he can commence his business.

Documents required for Non-Banking Financial Companies

Certified copy of certificate of commencement of business
Certified copy of Incorporation of company
Certified copy of Memorandum of Association
Certified copy of Articles of Association
Experience certificate of the directors of the company
Board resolution approving the submission of application and authorizing signatory
Board resolution which states that the company does not own any unregistered NBFC
Financial statements of the previous two years
Certified copies of fixed deposit receipt
Self-attested copy of bank statement
Business plan of the company

Conclusion

NBFCs emerged as a profitable business over the past few years and by helping individuals solve their financial needs, they contributed largely to the Indian economy. If they get to the roots of the problems they are currently facing and conduct an analysis of things that went wrong, possible improvements that could be implemented, they can regain their previous position in the Indian market.

Note: For more queries- visit at- Online NBFC Registration in India.