Why do Fintech startups want NBFC License?

Defining Fintech

Financial technology, popularly known as Fintech, is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.

Benefits that Fintech startups enjoy after acquiring NBFC License

• Lowers the cost of capital of the business
• It helps in quickening the loan disbursal process
• It builds credit assessment and collection processes
• Technology helps to detect frauds and scandals
• The registration process is simple
• The possibility of expansion and growth is easier
• Minimal documentation involved

Reasons why Fintech startups are acquiring NBFC License

• To enter into co-lending with their lending partners
• To offer loans and advances at better interest rates to their customers
• To lend comfort to the financial partners
• To enhance the scalability of the business’s programs
• To spread their scope of work

On the basis of the nature of activity, NBFC license is granted to the below categories of NBFCs –

• Asset Finance Company (AFC)
• Investment Company
• Loan Company
• Infrastructure Finance Company (IFC)
• Micro Finance Institution
• Core Investment Company
• Infrastructure Debt Fund (IDF),

NBFC license is granted on the basis of deposit the company holds as well as the size or minimum capital requirement. Based on the classification under these two categories, NBFCs are divided into deposit-accepting NBFCs, non-deposit accepting NBFCs, systemically important NBFCs and non-deposit holding NBFCs.

In order to receive a NBFC License, the Fintech startups and corporations must follow the below mentioned steps –

Documents for receiving NBFC License

Some documents that are crucial and must be submitted to RBI along with the application form are as mentioned below –

• Certified copies of Certificate of Commencement of Business and Certificate of Incorporation of the company.
• Certified copies of Articles of Association (AOA) ad Memorandum of Association (MOA) of the company
• Copies of PAN/CIN made for the company.
• Director’s profile filled and signed by every director.
• Experience certificate of the directors from the NBFCs from where the directors have gained experience related to NBFC.
• The CIBIL Data concerning the directors of the company.
• Certified copy of the Board Resolution for the presentation of “Fair Practices Code”.
• Board Resolution in particular that approves the submission of the application and authorizing signatory.
• Board Resolution that the company has not kept any deposits and has not accepted any public deposits. Also, it must mention that it will not accept any in the near future without any prior approval from the Reserve Bank of India.
• Board resolution that mentions that the company does not own any NBFC unregistered NBFC and no business activities are being initiated without getting it registered from RBI.
• Financial Statements of the previoustwo years of Unincorporated Bodies.
• A list that mentions Authorized Share Capital and the updated shareholding outine of the enterprise.
• Copies of Fixed Deposit receipt and Bankers certificate that mentions balances of Net Owned Funds.
• The details of Profit & Loss account and Audited Balance Sheet of three years along with directors & auditors report.
• Details related to bank accounts/ postal address of the branch/bank, loan/credit facilities.
• Self-attested Bank Statement/Income Tax returns.
• The business strategy or plan of the firmof the next three years clearly mentioningessential details about the business, market segment and balance sheets, cash flow statement, asset or income statement without any inclusion of public deposits.

NBFC Procedure for Registration in India

Following the mentioned steps for NBFC Registration Process is crucial for the timely establishment of the company.

• Company Registration as per law

The company must be registered under 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.

• Requirementof Directors

There must be at least one director in the company.

• Maintenance a 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.

• Filing the Application form

The next step in the process is to file an application form on the website of RBI.

• Submission of crucialdocuments

Next, the applicant must Submission of all the required documents along with the application form.

• Acquiring CARN Number

After the submission of the application form and the documents, a CARN number will be provided to the applicant.

• Submission of the application form

A hard copy of the application form is then submitted to the branch of RBI.

• Receiving the NBFC License

At the last step, after the application is approved and verified, the License is provided to the company after which they can proceed with undertaking various activities.

Conclusion

NBFCs are considered by the Fintech startups because of various reasons which include the ease in which they can acquire a license. The growth and the working of the NBFCs has encouraged various corporations to undertake activities that are similar to the NBFCs as it serves both the startups and their customers.