As India is progressing in a big finance hub, most entrepreneurs might want to understand what is the function of a non-banking financial company, how to register it, and how they can do a finance business with the permission of the reserve bank of India. Queries like structure which are not regulated by reserve bank of India and they want to carry out the finance business. So, this query is going to be explained in detail.
What is NBFC?
A company which carried on as its business or part of its business the following activities like financing, acquisition of securities, hire purchase, insurance, chit fund, a mutual benefit company but it does not include a company which carries on as its principal business of either agricultural operations, industrial activities, sale and purchase of goods, providing of services, purchase of sale and construction of the immovable property or movable property. So, here the principal business refers to most of the entrepreneurs and businessman wants to understand what is the principal business of a finance sector so, non-banking finance company what is their principal business? The principal business is defined under the reserve bank of India in 1999 when they prescribed the definition of a principal business they have given a test called the fifty-fifty test, now what is this fifty-fifty test? If your business is carrying out a financial business of more than fifty percent of your total income and if your assets are more than fifty percent of your total assets than your finance business then your principal business will be considered as a finance business. So the next query maybe what if the principal business is not of the finance but still, you’re carrying out the financial activity is it possible? Yes, it is very true it is possible how? Because of the fifty-fifty test which is given in 1999 most of the existing companies which are incorporated before 1999 and are caring out the financial business they have to register before the reserve bank of India if they have a principal business and substantial business considered from the financial activities.
Can any new company incorporated by the nonfinancial business principal business carry out the financial activities after 1999 also? The answer for this query is going to be no because if any company incorporated after 1999 there is a section prescribed by resolve bank of India which is 45(i)(a) which clearly specify you should have a net owned funds of a minimum of 2 crores and you have to carry out the principal business as a financial business.
If you are containing these two terms into an account so, any new company you want to carry out a financial business after 1999 they have to register in the 45(i)(a) then their companies which were registered before 1999 and carry out the financial to the test of fifty-fifty you can till carry out the financial activity. So, just to bring the clarity of the definition of net owned funds it is your capital plus free reserves deduct your accumulated losses and deduct any investments and deposits which you have done in your associated groups more than ten percent. In an associated group, your investments, and deposits are allowed to the level of ten percent but, after ten percent you have to deduct from your net owned funds.
How to carry out your finance business in a credit cooperate company? Credit corporate societies are not related by the reserve bank of India and those are registered by the central registrar societies. Central registrar societies prescribe their own rules and laws to which they have to comply. Reserve bank of India regulations they do not want to comply with. In a very press release, notices, and circulars the reserve bank of India has already clarified that it is not going to regulate credit corporation societies and chit fund companies.
Conclusion
NBFC Registration process– the application registration should consist of identification, capital funds, and risk assets, and information on management, MOA, AOA, board resolution, accounts, and business plan, and application should be filed online. The management background check takes place. In order to apply for fresh registration for the reserve bank of India non-banking financial company you have to take a credit rating from the institution and mostly they prefer the B plus rating for the promotors and very difficult promoter business in getting in today’s market. Because most of the promoters are not following their good accounting practices and not maintaining the company record or doing the property business and investment business in one or other name of the relatives and friend so, obviously their credit rating to credit background will suffer.
NBFC collaboration- the main reason behind the nbfc collaboration is a new business term which nbfc ties up with the bank or the fintech company for the sourcing of need of the company.