Start a Finance Company in India: RBI NBFC Registration & Capital Requirements

For the new entrepreneurs, starting a finance company in India is an exciting journey. But still, to start it requires careful planning, adherence to compliance, and a solid blueprint of the finance company registration in India. The individuals who are thinking of entering the financial sector must go through the requirements of NBFC registration in India and approval from the RBI (Reserve Bank of India). This thorough guide will examine the capital requirements and the registration process for finance companies.

What Is a Finance Company in India?

A finance company in India is nothing but a type of company that offers financial services (products and services) such as loans, advances, investment activities, asset financing, and credit facilities. Under the Reserve Bank of India Act of 1934, the RBI regulates the non-banking financial companies (NBFCs) that make up India’s finance industry. 

However, the NBFCs are restricted from accepting demand deposits or participating in payment systems. For example, such finance companies cannot issue checks but can serve a crucial role in issuing credit to underserved markets and supporting financial inclusion. 

Why Does a Finance Company Need RBI Registration?

NBFC registration in India is mandatory to operate as a finance company lawfully. Registration is a legal process to obtain permission from the RBI that clarifies you meet all regulatory capital and management requirements. You must first register your financing company with the RBI if you want to operate an NBFC business in India. Under Section 45-IA of the RBI Act, 1934, registering a financing company guarantees customer protection. The following are some of the key reasons you must register with the RBI: 

• The RBI requires all NBFCs to have a certificate of registration to conduct financial services, as stated in Section 45-IA of the RBI Act, 1934. Without registration, no NBFC shall initiate or continue to conduct business as a financing company.
• Registration demonstrates that the financing company is financially strong and will provide a safe place for customers to deposit money and to whom to lend money and invest.
• The RBI monitors the minimum capital requirements for all financing companies. For example, financing companies must have a minimum N.O.F. of ₹10 crores.
• Fair Practice Codes, which the RBI issues, protect the borrowers.

The Financing Company Registration Legal Framework

The Financing Company operates under a well-defined legal framework in India under the provisions of the RBI Act, 1934, specifically under Section 45-IA. The key laws and rules pertaining to this issue are as follows:

• Companies Act, 2013: This law governs the incorporation, management, and compliance of various kinds of companies (both private and publicly traded).
• RBI Act, 1935 (Section 45-IA): This legislation imposes rules and regulations that will require every NBFC to obtain a Certificate of Registration (CoR) from the RBI to operate legally.
• Reserve Bank of India Directions, 2023:  This set of rules offers an overall framework for various types of NBFCs. 
• Foreign Exchange Management Act (FEMA), 1999: It regulates foreign investments (FDI) in financial institutions.

In India, finance companies can operate only as NBFCs after RBI approval and the issuance of a CoR. This is required to bring stability, accountability, and customer protection to the financial service ecosystem. 

The Types of NBFCs in India

Before applying for finance company registration in India, it is crucial to acknowledge what type of NBFC you are going to establish. Some common categories include: 

A suitable NBFC type decides the regulatory requirements, business layout, and capital needs. 

What Documents Are Required for Finance Company Registration?

For NBFC finance registration in India, it is required to submit several documents under the Companies Act. Providing the right, precise, and up-to-date documents is important. The following is the paperwork you need to provide:

Company Registration Proof

• Certificate of Incorporation (COI)
• Memorandum of Association (MOA) and Articles of Association (AOA)
• Digital Signature Certificate (DSC) for all directors
• Director Identification Number (DIN)
• PAN Card of the company/entity

Director & Shareholder Information

• PAN Card
• Identity Proof: Aadhar Card, Voter ID, Passport, or Driving License
• Address Proof: Bank Statement, Electricity Bill, or Telephone Bill (not older than 2 months)
• Recent Passport-size Photographs
• Credit Report (CIBIL) of directors

Financial & Operational Proof’

• Net Worth Certificate of directors and shareholders
• Banker’s Report/Certificate of “No Lien” on fixed deposits
• Auditor’s report confirming Minimum Net Owned Funds (e.g., ₹2 Cr or ₹5 Cr based on type)
• Board Resolution for RBI registration and fair practices code
• Detailed Business Plan for the next 3-5 years

Registered Office Address Proof

• Electricity/Utility bill of the registered office
• Rent Agreement and No Objection Certificate (NOC) from the owner if rented
• Ownership documents (if owned) 

How to Register a Finance Company in India?

Examining the RBI’s rules and regulations is essential when considering starting a non-banking financial company in India. Here is a step-by-step guide for the registration of a finance company.

How Much Capital Is Required for NBFC Registration?

Completing RBI’s capital requirements is one of the major steps.

The Net Owned Fund (NOF)

To register as an NBFC in India, an NBFC’s NOF must be ₹10 crores or more for all categories of NBFCs (examples include NBFC-ICC, NBFC-MFI, and NBFC-Factor). The NOF will only include the paid-up equity capital and free reserves. Borrowed funds do not count towards the NOF.

Exceptions in Capital Requirements

While NBFCs may operate with a limited NOF, there are some exceptions to the rule. Examples are NBFC-P2P and NBFC-AA, which typically will require fewer NOF.

The sufficient capital ensures that your finance company is financially stable and compliant with the RBI’s risk-based approaches. 

NBFC Registration Process: How Long Does It Take?

Documentation completeness and RBI’s review timeline decide how long it takes to complete the finance company registration in India. 

• Company Incorporation & Capital Setup: Takes 1–2 months
• Business Plan & Documentation: Around 1–2 months
• RBI Review & Clarification: Takes 3–6 months or more

The complete process from company registration to securing an RBI license takes almost 4 to 9 months, or can be longer. 

Different Costs Involved with Registering an NBFC In India

While the licensing itself does not have a fixed government fee, there are several costs associated with finance company registration. Here’s a summary of the costs associated with registering an NBFC:

• Minimum Capital Requirement—Rs. 2 Crore Net Owned Funds (NoF)
• Reserve Bank of India (RBI) Application Fee—Non-Refundable (Rs. 30,000)
• Professional/Consultant Charges—Costs Will Vary Based on the Service Type and Experience of Your Consultant.
• Documentation and Filing: Costs around Rs 50,000 (DIN/DSC, draft MoA/AoA, and other MCA fees)

What is Post-Registration Compliance?

Once you get the NBFC license in India for your finance company, you are required to meet the ongoing compliance. It includes:

• Periodic financial return submission to the RBI. 
• Maintaining minimum capital adequacy.
• Ensuring corporate governance and board reporting.
• Compliance with anti-money laundering (AML) and customer protection rules.

Failure to meet the post-finance registration compliance can raise potential challenges like hefty fines and legal penalties.

The Common Mistakes to Avoid during NBFC Registration

Often, the finance registration application is rejected by the RBI officials due to major errors. If documents are not accurate, complete, and matched with other paperwork, it leads to the application rejection or delay. The other major reasons the applications are rejected are the weak business plans and lack of clarity or financial projections. misunderstanding NOF components, and not verifying directors’ credit and legal histories in advance.

Final Discussion: Roadmap to Launch a Finance Company in India 

Launching a finance company in India can be rewarding when done with the right roadmap and preparation. With NBFC registration in India, your finance company can legally offer financial services under the RBI’s regulatory framework. No more challenges for you, as LegalRaasta offers a smooth and hassle-free finance company registration roadmap to businesses that want early success. Apply now with LegalRaasta professionals’ assistance!

Frequently Asked Questions

1. What is finance company registration?

Ans. Finance company registration is a legal process to register a business with the RBI as a Non-Banking Financial Company (NBFC) under the Companies Act, 2013.

2. Why does NBFC company registration matter?

Ans. The registered finance businesses with the RBI get the legal authorization to provide loans, advances, and credit services without a full banking license.

3. How much net owned fund (NOF) is required?

Ans. To register an NBFC (Non-Banking Financial Company) in India, the required minimum net operational fund (NOF) is Rs 2-5 crore. 

4. Who regulates the NBFC companies in India?

Ans. Reserve Bank of India (RBI) is the primary regulatory body that regulates NBFCs across India.

5. How can I apply online for a finance company registration?

Ans. To form an NBFC finance company in India, you must incorporate your business under the Companies Act, 2013, then provide all the supporting documents to the RBI via the COSMOS portal and wait for final approval. 

6. In how many days can I open my finance company?

Ans. To start a finance company, the registration process takes 4-6 months.

7. Can my NBFC company accept public deposits?

Ans. Only NBFCs specifically authorized by the Reserve Bank of India (RBI) with a valid Certificate of Registration (CoR) explicitly permitting deposit acceptance can accept public deposits.

8. What registrations are required to start an NBFC company?

Ans. Starting a Non-Banking Financial Company (NBFC) in India required the following registration:

• Company Incorporation
• RBI License
• Minimum Net Owned Fund (NOF)
• PAN and other Tax registrations
• Banker’s report

9. What is the NBFC registration cost?

Ans. The fee for NBFC is Rs 300,000, which is non-refundable. 

10. How does LegalRaasta help with finance company registration?

Ans. LegalRaasta experts assist BFCs, Nidhi companies, and microfinance institutions. They are experts in providing end-to-end online, expert-driven services to secure regulatory approvals.