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Payment Aggregator vs Payment Gateway

This article explains the core differences between payment aggregators and payment gateways, especially in the context of NBFCs (Non-Banking Financial Companies).

Payment Gateway: A tech tool that encrypts and authorizes online transactions, connecting customers, merchants, and banks. Suitable for large enterprises needing control over payments.

Examples: Razorpay, PayU, CCAvenue, PayPal.

Payment Aggregator: Allows multiple businesses to accept payments under one master merchant account without needing individual bank accounts. Ideal for startups and SMEs due to fast onboarding and lower compliance.

Examples: Instamojo, Cashfree, Paytm for Business.

Key Differences:

Merchant account: Required for gateways, not for aggregators.

Onboarding: Faster with aggregators.

Settlement: Direct with gateways; routed via aggregators.

Compliance: Aggregators manage KYC and RBI norms.

Best use: Gateways for large NBFCs, aggregators for small NBFCs and startups.

NBFC Benefits:

Easier EMI collection and loan disbursement

Faster onboarding via eMandates and KYC

Reduced operational burden

Better compliance with RBI guidelines

Access to analytics, dashboards, and APIs

Choosing the Right Option:

Choose a gateway for control and existing infrastructure.

Choose an aggregator for speed and simplicity.

Considerations Before Choosing:

Check for RBI approval, PCI-DSS compliance, settlement timelines, MDR fees, and technical support.

Regulatory Notes: RBI mandates registration, KYC, card tokenization, and escrow accounts for aggregators to ensure transparency and reduce fraud.

Conclusion: Both tools are crucial for NBFCs’ digital growth. Payment gateways provide secure processing, while aggregators simplify operations and compliance. The choice depends on business scale and regulatory needs.

Know More: Payment Aggregator vs Payment Gateway

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NBFC Compliance Checklist and Calendar – The Ultimate Guide for 2025

Non-Banking Financial Companies (NBFCs) play a crucial role in India's financial ecosystem, providing lending and investment services outside the traditional banking sector. However, with increased regulatory scrutiny, NBFC compliance is now more critical than ever.

Failure to comply with RBI regulations for NBFCs can result in hefty fines, restrictions, and even revocation of licenses. This guide provides a detailed NBFC compliance checklist and an annual compliance calendar to ensure your NBFC remains compliant throughout the year.

This guide covers: ✅ NBFC Compliance Checklist – Key regulatory requirements ✅ NBFC Compliance Calendar 2025 – Important filing dates ✅ Consequences of Non-Compliance ✅ How to Stay Compliant?

Why is NBFC Compliance Important?

The Reserve Bank of India (RBI) has strengthened regulatory oversight on NBFCs to ensure financial stability, customer protection, and risk management. NBFC compliance ensures:

✔ Avoidance of penalties & fines ✔ Legal & financial credibility ✔ Better investor & customer trust ✔ Smooth business operations

Ignoring compliance obligations can lead to ₹10 lakh/day penalties and even the cancellation of your NBFC license. 

NBFC Compliance Calendar – 2025

1️⃣ Annual Compliance Requirements

S. No. Compliance Requirement Description Applicable NBFCs Filing Deadline Regulating Document 1 Statutory Auditor Certificate (DNBS10) Confirmation of compliance with RBI norms All NBFCs & Asset Reconstruction Companies (ARCs) Within 5 days from approval of financial statement by the Board but not maximum by 31st December RBI (Filing of Supervisory Returns) Directions, 2024 2 Statutory Auditor Certificate for HFCs Compliance certification for HFCs Housing Finance Companies (HFCs) 30th June RBI (Returns HFC Circular) 3 FATF Compliance Certificate Reporting investments from FATF non-compliant jurisdictions Housing Finance Companies (HFCs) 30th June RBI Circular on FATF Compliance 4 Board Resolution for Public Deposits Declaration on non- acceptance of public deposits NBFC – Investment and Credit Companies (NBFC-ICC) 30th April NBFC Public Deposit Directions, 2016 5 Board Resolution for Acquisition of Shares/Securities Resolution regarding investment in group or subsidiary companies All NBFCs investing in shares/securities 30th April NBFC Public Deposit Directions, 2016 6 Appointment of Statutory Central Auditor (Form A) Certification of appointed statutory auditors All NBFCs 30th April RBI (Filing of Supervisory Returns) Directions, 2024 7 Income Tax Return (ITR Filing) Filing of annual tax returns with authorities All NBFCs 31st July Income Tax Act 8 Balance Sheet & Profit/Loss Statement Submission of annual financial statements All NBFCs 30th September RBI Master Circular 9 GST Annual Return (GSTR-9, 9C) Annual tax return submission for GST All NBFCs 31st December GST Act 10 FEMA & FDI Compliance Adhering to FEMA guidelines & reporting foreign investments to RBI NBFCs with Foreign Direct Investment 30th June FEMA & RBI FDI Guidelines 11 Grievance Redressal & Customer Protection Compliance Ensuring a proper grievance redressal mechanism and adherence to RBI’s Fair Practices Code (FPC) All NBFCs 30th April RBI Fair Practices Code

2️⃣ Half-Yearly Compliance Requirements

S. No. Compliance Requirement Description Applicable NBFCs Filing Deadline Regulating Document 1 Prudential Norms Information (Schedule-II Return) Reporting capital adequacy, provisioning, NOF, and asset classification Housing Finance Companies (HFCs) 12th May, 12th November Returns HFC Circular 2 ALM-II Statement Reporting liquidity and interest rate sensitivity Deposit-taking & Large NBFCs 12th May, 12th November Returns HFC Circular 3 FDI Compliance Certificate (FDI–SAC) Compliance with foreign investment rules HFCs with Foreign Direct Investment 30th April, 31st October Returns HFC Circular 4 Interest Rate Futures (IRF) Transaction Statement Reporting hedging transactions NBFCs engaging in derivatives 30th April, 31st October Scale Based Regulation Master Circular 5 Loan Securitization & Borrowing Compliance Ensuring adherence to RBI securitization & direct assignment guidelines NBFCs engaged in loan securitization 30th April, 31st October RBI Securitization & Direct Assignment Guidelines

3️⃣ Quarterly Compliance Requirements

S. No. Compliance Requirement Description Applicable NBFCs Filing Deadlines Regulating Document 1 Financial Details Return (DNBS02) Reporting financial position, asset classification, and liabilities NBFCs (Base Layer) 21st April, 21st July, 21st Oct, 21st Jan RBI (Filing of Supervisory Returns) Directions, 2024 2 Capital Adequacy Ratio (CAR) Reporting Reporting minimum capital adequacy compliance All NBFCs 31st March, 30th June, 30th Sept, 31st Dec RBI Master Circular 3 DNBS-01, DNBS-03 Returns Various prudential returns related to financial performance, risk, and deposits Middle Layer & Upper Layer NBFCs 21st April, 21st July, 21st Oct, 21st Jan RBI Returns Master Direction 4 DNBS-4A Return Return of Short Term Dynamic Liquidity Base Layer NBFC with Asset Size of 100 Crore and Above Middle Layer NBFCs Middle Layer NBFCs 21st April, 21st July, 21st Oct, 21st Jan RBI Returns Master Direction 5 Statutory Compliance Board Meetings Quarterly meetings discussing regulatory updates All NBFCs 4 times a year Companies Act 6 Return of Overseas Investments (DNBS13) Return of Overseas Investments NBFCs (Base Layer) 21st April, 21st July, 21st Oct, 21st Jan RBI (Filing of Supervisory Returns) Directions, 2024

4️⃣ Monthly Compliance Requirements

S. No. Compliance Requirement Description Applicable NBFCs Filing Deadline Regulating Document 1 GST Returns (GSTR-1, GSTR-3B) Monthly tax filing under GST Act All NBFCs 10th & 20th of every month GST Act 2 TDS Filing & Payment Deducting and depositing TDS for employees and contractors All NBFCs 7th of every month Income Tax Act 3 RBI Liquidity Risk Reports Submission of liquidity risk reports for NBFCs Systemically Important NBFCs 15th of every month RBI Liquidity Risk Framework 4 FEMA Foreign Investment Reporting Report any foreign direct investment (FDI) transactions to RBI NBFCs with FDI Monthly FEMA & RBI FDI Guidelines 5 Customer Complaint Tracking Maintain records of customer grievances and resolutions as per RBI guidelines All NBFCs Monthly RBI Fair Practices Code 6 DNBS-4B Return Return of Structural Liquidity & Interest Rate Sensitivity Base Layer NBFC with Asset Size of 100 Crore and Above Middle Layer NBFCs Middle Layer NBFCs Within 15 days from end of Month RBI Returns Master Direction 7 DNBS08 – CRILC-Main Return for Large Credits & SMA Base Layer NBFC with Asset Size of 500 Crore and Above,  Middle Layer NBFCs Middle Layer NBFCs Within 30 days from end of Month RBI Returns Master Direction

5️⃣ Weekly Compliance Requirements

S. No. Compliance Requirement Description Applicable NBFCs Filing Deadline Regulating Document 1 CERSAI Reporting (Central Registry of Securitization and Asset Reconstruction) Reporting securitization and asset reconstruction transactions NBFCs engaged in secured lending Weekly SARFAESI Act 2 CKYC Uploads Reporting new customer onboarding under Central KYC All NBFCs onboarding new customers Weekly CKYC RBI Circular 3 FIU-IND Reporting (Suspicious Transaction Reporting - STR) Submission of suspicious transaction reports to FIU-IND All NBFCs Weekly Prevention of Money Laundering Act 4 DNBS09 – CRILC-Weekly Return for Large Credits & SMA Base Layer NBFC with Asset Size of 500 Crore and Above,  Middle Layer NBFCs Middle Layer NBFCs On or before Wednesday of the following week RBI Returns Master Direction

⚠️ Missing deadlines can result in penalties up to ₹10 Lakh/day!

Consequences of Non-Compliance with RBI Regulations

Failure to meet NBFC compliance requirements can lead to:

❌ Heavy penalties (up to ₹10 Lakh per day for certain violations). ❌ License cancellation or suspension of operations. ❌ Legal action and reputational damage. ❌ Restrictions on lending and financial activities.

To avoid these risks, ensure strict adherence to the NBFC compliance checklist and follow the compliance calendar.

(🚨 RBI recently penalized multiple NBFCs for violations, including non-submission of NBS-1 and AML non-compliance.)

How to Stay RBI Compliant?

📢 NBFC Compliance can be complex, but we’re here to help! ✅ Get a FREE NBFC Compliance Checklist to track your filings & deadlines. ✅ Schedule a 15-Minute Free Compliance Consultation with our experts.

📥 Download Your NBFC Compliance Checklist 2025 – 📩 Click Here 📞 Book a Free Compliance Consultation – 📅 Schedule a Call

Final Thoughts

RBI regulations for NBFCs are evolving, making it crucial for NBFCs to follow a structured compliance checklist and adhere to a compliance calendar. Ensuring timely submissions, regulatory filings, and financial disclosures can help avoid legal troubles, penalties, and operational disruptions.

At NBFC Advisory, we specialize in helping NBFCs stay fully compliant with RBI regulations, taxation laws, and corporate governance requirements. Our team of compliance experts ensures that you never miss a deadline, keeping your business legally sound and financially stable.

Need assistance with NBFC compliance? Let NBFC Advisory handle it for you!

Stay ahead of compliance challenges and focus on growing your business—NBFC Advisory has you covered! Source: https://nbfcadvisory.com/nbfc-compliance-checklist-and-calendar-the-ultimate-guide-for-2025/

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A Step-by-Step Guide to Surrendering Your NBFC License in India

Non-Banking Financial Companies (NBFCs) play a crucial role in India’s financial ecosystem by providing credit, investment, and other financial services. However, due to regulatory changes, financial constraints, or strategic shifts, an NBFC may decide to surrender its license.

The NBFC license surrender process involves multiple steps, regulatory approvals, and documentation to ensure compliance with the Reserve Bank of India (RBI) guidelines.

In this guide, we provide a comprehensive breakdown of how to surrender an NBFC license in India, the challenges involved, and the key factors to consider while making this decision.

Why Surrender an NBFC License?

Several factors may lead an NBFC to cancel its license, including:

Regulatory Changes: Stricter compliance requirements by the RBI, such as tighter norms for capital adequacy, liquidity management, or governance (Source: RBI Compliance Updates).

Financial Viability: Declining profitability or high operational costs may make continuing operations unsustainable. According to industry reports, several NBFCs have struggled with asset-liability mismatches and liquidity pressures in recent years.

Strategic Business Shifts: The NBFC may choose to move into other sectors, such as fintech, to align with emerging business trends and consumer demand.

Mergers & Acquisitions: An NBFC may decide to surrender its license as part of a strategic merger or acquisition with a larger financial entity.

Understanding these reasons can help in making a well-informed decision regarding NBFC RBI license cancellation.

Step-by-Step Process to Surrender an NBFC License

Step 1: Board Resolution

The first step in the NBFC license surrender process is obtaining approval from the company’s board of directors. A formal resolution should be passed, stating the intent to voluntarily cancel the NBFC license.

Step 2: Settle Liabilities

Before submitting the surrender request, the NBFC must ensure that:

All outstanding debts and liabilities are cleared.

Depositors and creditors are paid off.

The balance sheet reflects no financial obligations.

Statistical Insight: According to recent RBI data, as of 2023, approximately 80% of the total outstanding loans by NBFCs were related to the housing, vehicle finance, and microfinance sectors. Clearing these obligations before surrendering the license is crucial to avoid any legal or financial complications.

Step 3: Prepare and Submit Documents

The following documents must be compiled for submission to the RBI:

Board Resolution Copy

Audited Financial Statements (up to the latest financial year)

No Objection Certificates (NOCs) from creditors and depositors

Declaration of No Pending Complaints or Liabilities

Surrender Application Letter addressed to the RBI

Know More: https://nbfcadvisory.com/a-step-by-step-guide-to-surrendering-your-nbfc-license-in-india/

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Recovery mechanism and tools in NBFCs India

The Reserve Bank of India often issues master directions and notifications regarding the working of NBFCs. Hence, it helps NBFC adhere to the public interest and safeguards itself when borrowers fail to repay and restore their financial assets in the event of the same. 

Thus, it includes the recovery of NPAs, and the Ministry of Finance has notified [1], dated 24.02.2020 in the Budget Speech, announced that NBFCs have assets worth Rs. 100 crores instead of Rs. 500 crores or loan amount from existing Rs. 1 crore to Rs. 50 lakhs[3] shall be qualified for debt recovery under the SARFAESI. 

This blog will look at the recovery mechanism and tools regarding NBFCs’ debt recovery. 

Objective and Aim of Recovery Policy

In securing debts, recovery policies and debt recovery monitor the fairness and transparency in repossession, valuation, and realization of security — ultimately, making sure it must be compatible with the law. Further, it includes: 

To slippage of accounts with regards to the NPA level of the company and accelerating recoveries in the existing NPAs. 

To take a proactive approach which could involve restructuring loans if it finds that borrower’s intent was positive. 

To update the identification and reporting system and provide direction for accounts showing signs of slippage in the ‘NPA’ category. 

Compromise and Settlement regarding NPAs are as follows:

It ensures recovery of dues to the maximum extent possible at minimum expense and within the shortest possible time frame. 

While conducting it, a proper distinction will have to be made between willful defaulters and defaulters due to circumstances beyond their control. 

In the case of the wilful defaulter, tough action has to be taken; in the latter case, a moderated view will be required. 

Moreover, while arriving at a negotiated settlement, the advantage available to the MFI for prompt recycling of funds should be weighted, such as if recovery is following legal or other protracted courses of action. 

The settlement only allows if the account has been classified as loss assets. However, in case of genuine reasons, settlement can be made in the case of a Non Performing Assets account too. 

How is RBI directing NBFCs regarding the recovery of debt?

The recovery of debts is not easy; it requires continuous efforts of highly trained personnel to deal with the customers and recover the amount due from them. The reason why RBI has enforced them and what it includes: 

NBFCs must avoid undue harassment toward borrowers. It can count instances where borrowers are disturbed at odd hours, rude behavior towards borrowers, use of muscle strength for recovery, etc.

That’s why it’s necessary that NBFCs must train their employees to deal with customers without any coercive collection methods.

Further, recovery must be made at the central designated place, and if the borrower fails to appear, the recovery staff can be allowed to reach the place of residence.

know More: https://nbfcadvisory.com/recovery-mechanism-and-tools-in-nbfcs-india/

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Understanding Core Investment Companies (CICs): Role, Regulation & its significance in NBFC‘s sector

NBFC (Non-Banking Financial Company) is the main component of the Indian financial system and among the NBFCs in the recent past, Core Investment Companies have come up with a very specific and significant role. Although the roles of CICs may not always be visible they are very critical in the corporate structure, particularly about investments in group companies.

In this Blog, we will explain what are Core Investment Companies (CICs), how they are regulated, their role in NBFC space and the CIC registration process for businesses. Whether you are planning to register as an NBFC or just want to know how CICs work this comprehensive guide will answer your questions.

What Are Core Investment Companies (CICs)?

Core Investment Companies are NBFCs which invest in shares and securities usually within a corporate group. Unlike other NBFCs which may be into lending, leasing or microfinance, CICs are strictly into investment management within group companies. This focus is what differentiates them from other financial entities.

Here are few key characteristics of CICs:

Investment Focus: CICs invest at least 90% of their net worth in shares, bonds or loans of same group companies.

Limited Financial Activities: They do not engage in other financial activities like lending, asset financing or lending to external entities.

Group Oriented: At least 60% of the net worth should be invested in equity shares of group companies so that their primary focus is around the parent company and its subsidiaries.

This framework allows large corporate groups to consolidate their investments in an organised manner, ensuring a streamlined approach to managing financial resources.

Role of CICs in the NBFC Ecosystem

Core Investment Companies (CICs) may appear to be a niche segment within the financial sector, but they are essential to the NBFC ecosystem. CICs assist group companies in optimizing their investments and establishing a robust financial framework, which enhances operational efficiency. By overseeing equity investments within the group, CICs ensure that resources are allocated effectively and that risks are managed more effectively.

Additionally, CICs facilitate the smooth flow of funds throughout the group, maintaining liquidity and efficiency. Their responsibilities extend beyond mere financial management; they contribute to the overall financial stability of the group. With regulatory oversight from the RBI, CICs play a vital role in risk mitigation, allowing group companies to concentrate on growth and strategic initiatives while remaining secure in a dynamic financial environment.

Here’s how this is beneficial to the larger financial landscape:

Investment Management: CICs manage investment portfolios on behalf of group companies, allocating funds in such a manner as to support the overarching financial strategy of the corporate group.

Structured Financial Control: Because of concentrated investments, CICs provide the advantage of having more structured financial controls over the interunit flows, which aids the group in focusing on its long-term strategic goals.

Smooth Capital Allocation: . The CIC helps ensure proper capital allocation among subsidiaries. Group companies have access to the right amount of capital without having to seek outside funding.

Essentially, CICs allow corporate groups to be financially sound and stable while ensuring the effective management of group investments. Know More: https://nbfcadvisory.com/understanding-core-investment-companies-cics-role-regulation-its-significance-in-nbfcs-sector/

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What Are Credit Information Companies (CICs) and How Do They Work?

Introduction: Understanding the Backbone of Credit Reporting in India

In today’s financial ecosystem, making informed lending decisions is crucial, both for financial institutions and individual borrowers. But how do banks and Non-Banking Financial Companies (NBFCs) assess someone’s creditworthiness? That’s where Credit Information Companies (CICs) step in. These specialized entities gather and maintain individuals’ and businesses’ credit data, shaping India’s financial landscape. In this post, we will explore what CICs are, how they work, and their growing importance in India’s financial sector, especially for NBFCs.

What Are Credit Information Companies (CICs)?

Credit Information Companies (CICs) are regulated entities licensed by the Reserve Bank of India (RBI) under the Credit Information Companies (Regulation) Act, 2005. They function as credit bureaus, collecting data about the credit histories of borrowers and providing comprehensive credit reports to lenders. These credit reports and credit scores help lenders make informed decisions when sanctioning loans or setting interest rates.

Key Highlights of CICs:

Legal Framework: Regulated under the CIC Regulation Act, 2005.

Four Major Players: CIBIL, Equifax, Experian, and CRIF High Mark are the four licensed CICs in India.

Scope: CICs collect data from various sources, including banks, NBFCs, and other financial institutions.

Fun Fact: Did you know that in 2023 alone, CICs processed data on over 700 million credit accounts in India? This demonstrates their vast influence on India’s financial system.

How Do CICs Work? A Step-by-Step Breakdown

CICs have a structured process for collecting, analyzing, and distributing credit information. Let’s break down the workings of these credit information companies in simple terms:

Data Collection: Banks, NBFCs, and other financial institutions regularly share credit-related data with CICs. This includes information on loan repayments, credit card usage, defaults, and other credit behaviors.

Data Validation and Maintenance: CICs validate this data to ensure accuracy and consistency. Any discrepancies are flagged for correction.

Credit Score Calculation: Based on the validated data, CICs use complex algorithms to calculate a credit score. This score typically ranges from 300 to 900, with a score of 750+ being ideal for securing loans with favorable terms.

Report Generation: Credit scores are integrated into comprehensive reports, which are then provided to lenders for decision-making.

Data Security and Privacy: CICs are responsible for safeguarding this sensitive information, ensuring data privacy and protection.

Importance of CICs for NBFCs

NBFCs play a significant role in India’s lending landscape by providing access to credit for individuals and businesses often underserved by traditional banks. For NBFCs, CICs are invaluable in assessing and mitigating credit risk. Here’s why:

Credit Risk Assessment: CICs offer detailed insights into a borrower’s credit history, enabling NBFCs to evaluate potential risks accurately.

Streamlined Lending Decisions: By using credit scores and reports from CICs, NBFCs can make quicker and more reliable lending decisions.

Portfolio Diversification: CIC data allows NBFCs to identify creditworthy customers and explore new lending opportunities, leading to portfolio diversification.

Know More: https://nbfcadvisory.com/what-are-credit-information-companies-cics-how-do-they-work/

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Why is FIU-IND Compliance Necessary for NBFCs?

In today’s rapidly changing financial scenario, compliance has taken the dimension of being not only a regulatory requirement but is the backbone of the best financial system there can be. A very significant compliance requirement for financial institutions in India pertains to guidelines issued by the Financial Intelligence Unit of India, FIU-IND. FIU-IND, being a national key agency under the Ministry of Finance, was established in 2004 with the objective of collecting, analyzing, and disseminating financial information considered suspicious, which may point to possible money laundering.

NBFCs have to adhere to the FIU-IND norms not as a mere legal compliance but as a potent factor that helps them protect their reputation, maintain transparency, and earn stakeholders’ trust. The all-inclusive guide will explain why FIU-IND compliance is important, what it means for NBFCs, and how such regulations benefit the entire financial institutions fraternity in India.

What is FIU-IND Compliance?

Financial Intelligence Unit – India is the national agency which combats money laundering and finances of terrorism. It was setup by the Prevention of Money Laundering Act of 2002. FIU-IND mandate involves detection, prevention and deterrence of illegal financial activities such as Suspicious/Reportable Money Transfers, fraudulent transactions, etc.

Main Functions for FIU-IND:

Monitoring and Reporting: FIU-IND monitors the manner in which these financial institutions adopt AML guidelines and how suspicious transactions are reported instantly.

Regulatory Oversight: It offers an integrated framework concerning the fight against money laundering as well as funding of terrorism to commercial banks, NBFCs, and insurance companies.

Data Analysis: FIU-IND conducts thorough analysis on financial transactions and generates reports for the detection of illicit financial flows.

FIU-IND received and processed more than 2.5 million Suspicious Transaction Reports during 2023, a number that reflects the large scale of efforts taken to detect financial malpractices in India. https://fiuindia.gov.in/pdfs/downloads/AnnualReport2022_23.pdf

Why is FIU-IND Compliance Critical for NBFCs?

NBFCs form the backbone of the financial sector in India, which grants credit and other financial services to persons and enterprises that normally fall outside the conventional banking structure. Nonetheless, the nature of their operations exposes them to many risks among them being misused for illegal purposes.

Important Reasons Why NBFCs Should Comply with FIU-IND Requirements:

Compliance with Regulatory: Compliances of FIU-IND are under the PMLA Act, and non-compliance is likely to attract heavy penalties and regulatory actions.

Trust and Repute: Compliance ensures stakeholders, customers, and investors that the NBFC is committed to the norm of following legal norms and transparent practices.

Risk Reduction: Through proper implementation of strict AML measures, NBFCs can reduce the risk of using the NBFC for money laundering, financing terrorists or other illegal purposes.

Reputation Management: In a very competitive financial market, the nexus or non-compliance with illegal activities might seriously affect an NBFC’s brand reputation and its market place.

The RBI study reported in the year 2023 has revealed that more than 60% of money laundering cases witnessed have been of the kind relating to the misappropriation of financial services. Such statistics show how necessary it is for the financial institutions to be in compliance with FIU-IND regulations, more especially the NBFCs. Source: https://nbfcadvisory.com/why-is-fiu-ind-compliance-necessary-for-nbfcs/

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A Beginner’s Guide To Alternative Investment Funds (AIFs)

Alternative Investment Funds(AIF) are in high demand among HNIs and institutional investors, and India’s investment landscape is growing at a fast pace. The asset size of the AIF market in India had reached ₹6.94 lakh crore as of the end of March 2024, having grown at an approximate rate of 30% every year. AIFs attract this investor class as they are seeking higher returns and more diversified options beyond the standard stocks and bonds. This white paper takes a broad overview of AIFs-they cover different types, key regulations, and how to register an AIF-on the last page of which you’ll learn how to assess whether AIFs match your goals.

What Are Alternative Investment Funds (AIFs)?

An AIF, is a privately pooled investment vehicle that collects funds from sophisticated investors for investment into securities other than traditional equities and bonds. It can be said that the regulations and rules of the AIFs in India under SEBI (Alternative Investment Funds) Regulations, 2012, have become the epitome of an important addition to the investment ecosystem by chipping in towards infrastructure, even through startups and distressed assets.

Key Features of AIFs:

Pooled Investment: Numerous investors contribute funds to be professionally managed by the fund managers.

Other, not-so-conventional asset classes: They invest in alternative assets like private equity, hedge funds, real estate, and venture capital, among others.

Designed for HNIs: AIFs, with minimum ticket sizes of ₹1 crore, are primarily available to high-net-worth individuals (HNIs), family offices and other institutional investors.

Types of Alternative Investment Funds

AIFs have been categorized into three, which cater to different types of investors and regulatory regimes.

Category I AIFs

These types of funds invest in social or economic activities such as start-ups, infrastructure, and SMEs. Category I AIFs are often exempted from certain regulations as they contribute to the country’s economic development.

Some of the Key Types

Venture Capital Funds: This type of fund mainly focuses on early-stage businesses that have a high potential for growth.

Infrastructure Funds: This segment would include the infrastructure developing projects of roads, bridges, power plants, etc.

Social Venture Funds: These would raise financial returns in addition to some social returns.

Category II AIFs

Category II AIF is not exposed to any of the preferential or special privileges/controls of SEBI. Chiefly these consider the instruments of equity and debt.

Major ones are:

Private Equity Funds: Invests in a company that is unquoted publicly, or will require a controlling share such that the companies can utilise those for attempting to make decisions over business lines.

Debt Funds: Invest in debt securities including corporate bonds, debentures, and structured debt instruments.

Category III AIFs

These funds are using sophisticated strategies which include leverage and derivatives. Most of the funds fall in the category of hedge funds.

Key Features:

Short-Term Orientation: It is using the strategy of short-term gain through trading in derivatives and arbitrage.

High-Risk, High-Return: These funds are meant for investors with a high risk appetite.

source: https://nbfcadvisory.com/a-beginners-guide-to-alternative-investment-funds-aifs/

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How to Set Up Digital Lending in India: A Comprehensive Guide

India’s financial landscape is changing rapidly, with the dominance of digital lending on the rise. In the future that had dawned for fintech startups as much as it had done for established financial institutions, credit was offered expeditiously and efficiently through digital lending. The Indian digital lending market is likely to grow at a CAGR of 36% during 2023-2028 and reach $515 billion by 2028. (Boston Consulting Group). It speaks enough for the exponential growth in the market, which may make it the most profitable setup for a digital lending platform.

We are going to walk you through the process of setting up a digital lending business in India. From understanding digital lending, its benefits, and how it works to various types of lenders and how NBFC advisory can add value in helping your business outplay and survive in this fast-paced field.

What is Digital Lending?

Digital lending refers to the fact that loans are distributed on an online platform or through mobile applications rather than through traditional, branch-based banking systems. Every step of the lending cycle -loan application and credit all the way to disbursal and repayment-is rendered digital. This makes digital lending faster, more efficient, and more accessible, especially to underserved populations and small businesses.

India’s digital lending sector has seen an explosive growth from $9 billion in 2012 to nearly $110 billion by 2023, as estimated in a recent report by the Boston Consulting Group. Boston Consulting Group, The sheer potential this sector presents for disrupting traditional lending in India speaks volumes of the growth witnessed.

Benefits of Digital Lending

Borrowers and lenders are discovering the many advantages that digital lending has to offer. Here is why digital lending is on the fast lane:

Faster Approvals: Nothing beats the notion that traditional loans take a substantial amount of days, even weeks, to process. Now, any digital lending platform will approve loans in minutes or a maximum of hours thanks to smart algorithms and automated systems.

Convenience at Your Fingertips: Digital lending lets you skip the hassle of visiting a bank branch. You can apply for a loan anytime, anywhere, using just your smartphone or computer. This is especially helpful for people living in rural or remote areas.

Lower Costs: Automation enables the capacity to avoid large teams and, therefore, can save on digital lending costs. This means better interest rates and even more flexible loan terms for a borrower.

Reaching More People: Digital lending platforms utilize non-traditional sources of data in making credit decisions, therefore allowing them access to a much larger audience who may not have traditional credit histories. This is particularly effective in reaching underserved communities.

Better Experience for Customers: With apps and websites that can easily be navigated, lending platforms digitally have a seamless experience. Here, the applicant can find everything- updates related to their loan balance, payment reminders, and everything else all at one place.

According to the RBI Financial Stability Report 2023, around 70% of all digital loans in India were approved and disbursed within 24 hours, showcasing just how efficient this system is.

RBI Financial Stability Report 2023- https://www.drishtiias.com/daily-updates/daily-news-analysis/financial-stability-report-june-2024

Source: https://nbfcadvisory.com/how-to-set-up-digital-lending-in-india-a-comprehensive-guide/

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Enhancing CKYC Verification for NBFCs: Leveraging Credit Scores from Major Bureaus

  In the financial world, especially for NBFCs, verifying customers is crucial to keeping things running smoothly. As competition increases, having a simple yet effective verification process has never been more important. Whether you’re just starting out or already established, getting this step right can make all the difference in building trust and growing your business.

  Because of the increasing regulatory review and the rise of fraud, Central Know Your Customer (CKYC) verification has been introduced mainly to make the activities of financial firms more transparent on the one hand and easier on the other hand.

However, many NBFCs are still exploring how to take their verification process to the next level—by leveraging credit scores from major bureaus.

This blog will discuss how the NBFCs can truly maximize their CKYC verification process through the addition of credit scores from bureaus such as CIBIL, Experian, Equifax, and CRIF High Mark. . We’ll explore why this integration is critical, the benefits it offers, the steps to implement it, and how NBFCs can stay compliant with RBI regulations while doing so.

Additionally, we’ll touch on best practices and real-world examples to illustrate how integrating CKYC and credit scores can improve your NBFC’s risk assessment capabilities and operational efficiency.

Why CKYC Verification Matters for NBFCs

One of the commonly asked questions is the method through which NBFCs conduct the customer onboarding process that is streamlined by verifying KYC details in a centralized manner using CKYC.

The Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) is currently in charge of this particular registry which allows financial institutions to access customer KYC records in real time. It removes the necessity of collecting the client’s documents repeatedly, streamlines the onboarding process, and assures the compliance of the NBFCs with the law.

Key Benefits of CKYC Verification for NBFCs:

Simplifies Compliance: CKYC reduces the burden of compliance by centralizing the storage and retrieval of KYC documents.

Faster Onboarding: If a customer is already listed in the CKYC database, the onboarding process becomes much quicker. This means less effort and time spent by the customer, making the whole experience smoother and hassle-free.

For NBFCs, this process is an essential part of risk management. However, a credit score from leading bureaus added to this process will transfer risk analysis to the next level and will further provide NBFCs with the opportunity to make their lending decisions more wisely.

The Role of Credit Scores in Enhancing CKYC Verification

The credit score provides NBFCs with the opportunity to know the customer’s creditworthiness, therefore, enabling them to train (the consideration of) their financial history and to predict their capacity for loan repayment.

The use of credit scores in the CKYC verification process allows the lenders to make faster decisions and add an extra level of caution. In this way, a win-win situation is developed; the lender and the client both benefit as the loan is offered to the party considered more likely to repay, while the fortress of risky lending is avoided. It provides a living balance to coattailing the diversification and maturity of the credit lifeline.

NBFCs incorporate credit scores from leading reporting agencies by using up-to-date CKYC technology to make profile evaluations strong and sophisticated enough to cover all risks entailed in the customer/client’s business transactions.

Source: https://nbfcadvisory.com/enhancing-ckyc-verification-for-nbfcs-leveraging-credit-scores-from-major-bureaus/

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How to Set Up a FinTech Company in India: A Comprehensive Guide by NBFC Advisory

The financial technology (FinTech) market in India is showing remarkable growth, which is becoming one of the most exciting sectors for innovation and startups that are in debt. Therefore, the country is now turning out to be digitalized quickly and banking products are also available easily. Currently, you can open a business in this space and this has become the ever-prevailing demand in the market.

However, the procedure still encounters difficulties. Talking about regulatory gaps, risks, and the competition in the segment require regular monitoring, and hence, business owners need to invest their time on strategic planning and product development effectively. This manual gives a comprehensive report on the various stages of the establishment of a FinTech company in India.

Through NBFC Advisory, we guide FinTech startup owners not only at the ideation but also in the course of setting up to the point where the compliance and strategic guidance are hands-free during the whole setup.

Understanding India’s FinTech Ecosystem

India has become a global leader in FinTech, with innovations such as the Unified Payments Interface (UPI), Bharat Bill Payment System (BBPS), as well as the regulatory sandbox by the Reserve Bank of India (RBI) are the causes of the country’s success and it’s anticipations of great development. The country’s initiative to cause financial inclusion, along with government programs such as Digital India, has driven the populace to adopt digital financial services.

The market presents a high number of opportunities in areas like payments, lending, insurtech, and wealth management. Nonetheless, to boost this, the new arrivals must comprehend the regulatory setting and the unique difficulties that India’s FinTech ecosystem faces.

Key Steps to Setting Up a FinTech in India

1. Conducting Market Research and Feasibility Analysis

Before launching any business, it is quite important to conduct thorough market research. The FinTech sector is very competitive with several players already in the market. To be successful, you are required to identify your market target, seize customer\’s needs, and figure out which areas are not provided well. If you intend to operate in payments, digital lending, or insurance technology you must gauge the demand anticipation of these products, major problems in regulation, and the competitive setup.

A feasibility analysis is used to check if your business idea has got a chance to be real in the current market atmosphere. It enables you to adjust your finance model and give your clients practical suggestions informed by what is happening in the market. Properly thought out market entry strategies improve the company\’s chances of gaining success by creating the right fit between the products or services that they produce and the market needs.

2. Choosing the Right Business Structure

Choosing the fitting legal structure is an important thing to consider because it will affect everything from compliance to funding options. For FinTech startups in India, the following are the most popular types of business structures:

Private Limited Company: This is the model most favored by new companies since it provides a quick way of getting funds and offers protection from limited accountability.

Limited Liability Partnership (LLP): This offers a say in partnership and shields partners from personal debt, but it may be not as attractive as a private limited company for investors because of the internal control of the organisation or the hesitance of the partners to give their shares rapidly changing.

The choice of structure influences taxation, the regulation of your activities, and the ease with which you can raise capital. It is important that you elect a legal form that is congruent with your long-term plans of growth.

3. Regulatory Compliance and Licensing

One of the significantly regulated sectors in India is the country’s FinTech sector, and business entities will need to observe different laws according to the operations they want to run. The Reserve Bank of India (RBI) is the main regulator of most microfinance services including payments and lending. Based on the business model you chose, you would have to apply for one or more of the licences listed below:

NBFC License: In case your career objective is lending, you most likely will need to register as a Non-Banking Financial Company (NBFC). This course is mandatory for digital lenders and other businesses engaged in financial intermediation.

Payment Gateway Licence: If your operations happen in the payments sector, you have to comply with the Payment and Settlement Systems Act and the RBI must also approve your complete set up.

PPI Authorization: Such wallets aka Prepaid Payment Instruments (PPI) must be approved by the RBI to see if they comply with the legal requirements.

Of the various regulatory processes and formalities, the most difficult one for the Indian startups is the regulation of financial institutions. This is because the startups are very diverse and many of them are doing innovative projects. Often, when people break the designated rules, they may face penalties, fines that they have to get or sometimes even the companies may have to be terminated.

In NBFC Advisory, we specialise in guiding businesses through the complex regulatory landscape, helping them secure the necessary licences and remain compliant with all applicable laws.

4. Building a Robust Technology Infrastructure

Technology is the backbone of any FinTech business. Irrespective of the stage of development of a payment platform, an AI-based lending solution, or a blockchain-powered system, your technology infrastructure should remain secure, reliable, and scalable. Some of the main degrees are:

Scalability: In the scenario, where the number of users is growing rapidly, your system should support the increase in the traffic and data volume.

Security: Cybersecurity is a very critical issue because financial data is usually very sensitive. One major move to keep your customer data safe is by constant compliance with data laws, such as the Bill of Data Security for Personal Data in India.

Innovation: Innovation is the bedrock of the FinTech space, and using futuristic technologies such as AI, blockchain, and machine learning can drive you ahead of the competition.

When you work with the right technology partners, there is a guarantee that your platform will deliver the expected regulatory compliance and will be a fun user experience.

5. Financial Planning and Securing Funding

Fintech startup struggles with lack of funding can be regarded as one of the biggest problems. No matter if you are going for raising fund through venture capitalists, private equity investors, or government schemes, a good financial plan is a must. Investors are the ones that will require the clearing up of the financial outlook, a defined revenue model, and a roadmap that states the objectives of the business scaling.

Elements of a financial plan that have to be included are:

Initial Capital Requirements: You should calculate an amount which will cover the start-up expenses like tech development, jurisdiction compliance, and marketing.

Revenue Model: First of all, tell how your business will get money. Will transaction fees be the only source of income or are there other monetization strategies in place?

Break-Even Analysis: Compute the duration it will take your business to reach breakeven, and put forward a plan to ensure proper cash flow management during the period.

A financial plan of high quality will not only help the effort to find the sources of finance but also provide a precise and clear way to manage your resources.

Navigating Regulatory Compliance

– RBI Guidelines and Licensing Requirements

There are some really tough guidelines and rules set up by RBI FinTech businesses that are based in India. The smart investment decision is made only when such companies are to be compliant with the new regulations—all these realities ought to be highly respected. Make all possible efforts to always stay on top of new regulatory affairs since the law is changing fast.

  Also, in the case of the loans and credit business, a National Bank License is the way to go. This permit has many regulatory duties, such as, for instance, the observance of liquidity norms established by the RBI, clearance of capital adequacy ratios and the guarantee of transparency in the operations of the company.

–Data Protection and Security Regulations

When it becomes evident that data breaches are happening very often, the data that your users are supposed to be kept secure is the first priority of your company. India’s Draft Personal Data Protection Bill is going to become the law of the land very soon and it will introduce new compliance rules and procedures to all businesses whose data handling includes sensitive financial data. Adherence to the provisions of these laws not only protects you from legal actions but also wins the trust of users.

  Know More: https://nbfcadvisory.com/how-to-set-up-a-fintech-company-in-india-a-comprehensive-guide-by-nbfc-advisory/

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The Rise of LendingTech: Transforming the Lending Industry

Technology plays an essential role in the financial world, especially in lending. The term LendingTech, a combination of lending and technology, refers to a modern set of digital tools that make lending easier and more efficient. It is revolutionizing the way financial institutions and businesses handle loan applications, simplifying the process while improving risk management.

At NBFC Advisory, we recognize that LendingTech is the future of finance. Our company offers specialized services to help businesses leverage modern technology in this fast-paced world. This blog will delve into what LendingTech is, who uses it, and why it is a crucial aspect of modern lending practices.

What is LendingTech?

It is the word given to Lending Technology. In other words, it’s the broad term that encompasses a range of distinct software, platforms, and digital tools that serve to make lending easier. These technologies help automate many aspects of the lending process-things like starting loans, checking credit, giving approvals, and managing repayments. It is towards the aim of ensuring the experience is smooth and efficient for lenders and borrowers alike while also ensuring everything is more accurate while cutting costs and lowering risks.

More people use this for faster, clearer lending processes. Whether you are a new lending tech company wanting to break new ways or an old bank with years of tradition wanting to improve, it provides you with the complete solution.

Some of the key features of LendingTech are:

Automated Loan Applications: The classic mode of loan applications involves a lot of paperwork and takes ages to get approved. These platforms make, much easier as it permits people to apply online and receive responses in much faster ways.

AI-Powered Risk Assessment: Advanced information analytics and synthetic intelligence (AI) permit creditors to evaluate borrower threat extra accurately, the use of a wider variety of facts points than traditional techniques. This allows lessen defaults at the same time as expanding lending possibilities to underserved markets.

Scalable Infrastructure: This platforms can manage many transactions at once, allowing businesses to grow without being limited by manual tasks or old systems. This is really helpful for lending tech companies which are growing rapidly.

Data-Driven Decision Making: It empowers the lenders to make better data-based decisions through big data power, which doesn’t only expedite loan approval but also provides superior quality.

Key Benefits of LendingTech

They have several benefits for the lending industry, and it simply makes business sense for companies to engage in such practices to gain an upper hand in a fiercely competitive market. Some of them include:

Faster Loan Processing: Automation cuts down the time required for loan approval, making it possible for borrowers to receive funds much faster than traditional methods.

Better Customer Experience: It provides an easy, digital-first experience that is quite attractive to today’s tech-smart customers. All borrowers can do is apply for loans, check their applications, and handle repayments—all from the very confines of their mobile devices.

Cost savings: Automating manual tasks helps LendingTech save the additional expenses arising with loan processing. This ultimately saves the lender time and keeps operations costs down without sacrificing efficiency.

Better Compliance and Transparency: This platforms include the facility to assist lenders in better compliance with industry standards. This reduces the chances of penalties and lets everyone involved know what is going on.

Who Uses LendingTech?

Perhaps one of the most attractive things about it is that could be used in a lot of exclusive ways and for a whole lot of exclusive purposes, so it’s now not just restricted to at least one sort of enterprise – or even businesses in any respect in case you consider it.

Banks and Financial Institutions: The early adopters of LendingTech had been big economic establishments who used the era to upgrade their legacy structures. With this, banks can provide faster and extra customised offerings to their clients, and also store expenses on overheads.

Lending Tech Startups: Disruptions is the main goal for startups in the lending sector especially when using LendingTech. Most lending tech startups are leveraging on that to develop new innovative lending models or solutions that overcome traditional constraints. Many times such solutions are unique enough to serve the underbanked or underserved population.

Peer-to-Peer (P2P) Lenders: As a result, It has a key function of creating P2P lending marketplaces and connecting individual lenders with borrowers directly. This process is made safer and more transparent with the aid of this platforms because they provide a safe environment to make the transactions and they are all legal.

Small and Medium Enterprises (SMEs): Obtaining finances from conventional sources like banks has always been an issue for SMEs because of long processing time, or strict standards. It offers a solution by making loan applications easily accessible to SMEs and grant them funding for business expansion.

Alternative Lenders: The FinTech companies have found LendingTech to be the best solution for non-bank financial institutions for lending facilities. These firms mainly deal in exotic clients’ products which main-streamed banking institutions do not undertake; examples include, micro loans, payday loan facilities or micro-enterprise loans among others.

Source: https://nbfcadvisory.com/the-rise-of-lendingtech-transforming-the-lending-industry/

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Surrendering Your NBFC License: What You Need to Know

A Non-Banking Financial Company (NBFC) is a financial institution that provides financial services but does not accept public deposits and is regulated by the Reserve Bank of India (RBI).

In recent years, Non-Banking Financial Companies (NBFCs) have emerged as vital players in the financial landscape, serving as an alternative to traditional banks. These institutions have played a significant role in promoting financial inclusion, extending credit facilities to underserved sectors, and driving economic growth. 

However, amidst their growth and development, surrendering an NBFC license has become an important topic of discussion in recent years. As Non-Banking Financial Companies (NBFCs) have evolved and expanded their services, some licenses have been canceled or voluntarily surrendered. Understanding the reasons behind these developments is crucial for individuals and entities in the NBFC sector.

In this blog, we will explore the factors contributing to the surrendering of NBFC licenses, enabling readers to make informed decisions within the regulatory framework.

Ways to Surrender NBFC License

NBFCs can surrender their license to the Reserve Bank of India (RBI) through voluntary or compulsory means. 

Voluntary Surrender: This occurs when an NBFC submits an application to the RBI, typically due to reasons such as the inability to operate profitably, acquisition by another financial institution, or a strategic decision to exit the financial services industry. 

Compulsory Surrender: On the other hand, compulsory surrender occurs when the RBI cancels an NBFC’s license due to violations of its regulations.

Compulsory Surrender of NBFC License

Compulsory surrender of an NBFC license by the Reserve Bank of India (RBI) can occur for two main reasons. 

Firstly, if an NBFC violates any of the regulations set by the RBI, such as non-compliance with capital adequacy requirements, failure to maintain proper records, or engaging in prohibited activities, the RBI has the authority to cancel its license. This serves as a measure to enforce regulatory discipline and maintain the financial system’s integrity.

Secondly, if an NBFC is unable to fulfill its financial obligations, such as meeting its repayment obligations, honoring customer deposits, or maintaining liquidity, the RBI may also compel the surrender of its license. This ensures the protection of stakeholders and prevents further financial risks from arising.

When an NBFC’s license is compulsorily surrendered by the RBI, it means that the NBFC is required to wind down its business operations immediately. The NBFC will need to cease all lending and investment activities, close its branches, and initiate the process of liquidating its assets. This ensures an orderly exit from the financial market and minimizes potential disruptions.

The RBI’s ability to compulsorily surrender an NBFC license underscores the significance of adhering to regulatory guidelines and maintaining financial soundness. It serves as a reminder for NBFCs to prioritize compliance and prudential financial management to avoid the severe consequences of license cancellation.

Voluntary Surrender of NBFC License

The voluntary surrender of an NBFC license is a decision made by the NBFC itself, typically due to various factors that may prompt them to exit the financial sector. There are several reasons why NBFCs choose to surrender their licenses voluntarily:

Lack of profitability: An NBFC may find it challenging to operate profitably due to factors such as increased competition, changing market dynamics, or unfavorable economic conditions. In such cases, surrendering the license allows the NBFC to exit the industry and explore other business opportunities.

Strategic considerations: An NBFC may decide to surrender its license as part of a strategic move, such as merging with or being acquired by another financial institution. This decision could be driven by the desire to achieve synergies, expand market presence, or streamline operations.

Changing business focus: Over time, an NBFC may reassess its business objectives and realize that its current line of financial services no longer aligns with its long-term strategy. In such cases, surrendering the license allows the NBFC to transition its operations to a different sector or explore new business avenues.

Regulatory compliance: Voluntary surrender may also arise from the realization that the NBFC is unable to meet the regulatory requirements set by the RBI. Rather than facing potential penalties or regulatory scrutiny, the NBFC may voluntarily surrender its license and exit the industry in a compliant manner.

The Procedure of Voluntary Surrender of NBFC License

The procedure for voluntarily surrendering an NBFC license is relatively straightforward. However, it is essential to note that this is serious and should not be taken lightly. The RBI will only approve applications for voluntary surrender of licenses made for legitimate reasons.

If you are considering voluntarily surrendering your NBFC license, there are a few things you should keep in mind. First, one must have a valid reason for surrendering the nbfc license. The RBI will not approve applications for the voluntary surrender of licenses that are simply made for convenience or to avoid regulatory requirements.

Second, a plan for winding down your operations. This plan should include a timeline for repaying debts and a strategy for disposing of assets.

Third, be prepared to pay a surrender fee to the RBI. The amount of the surrender fee will vary depending on the size of your NBFC.

Know More: https://nbfcadvisory.com/surrendering-nbfc-license/

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NBFC takeover checklist with RBI approval

With the increasing demand for credit in India, the growth of Non-Banking Financial Companies (NBFCs) is at an all-time high. The registration of NBFCs is a complicated process, so the takeover of an already RBI-registered NBFC has become a preferred way to enter into or expand the company.

Since the Reserve Bank of India has loosened the stringent provisions to take over an NBFC now, the entire process has become easier. With simplified RBI rules and regulations, it takes about 50-65 working days only to take over an NBFC.

In this blog, we are going to explain the complete checklist for NBFC takeover along with other necessary details.

What is an NBFC takeover?

An NBFC takeover simply means an acquirer NBFC (the NBFC which wants to take over) purchases the target NBFC (an already existing RBI-registered NBFC). After the takeover, all the assets, liabilities, shares, etc., of the target NBFC will belong to the acquirer NBFC.

Types of NBFCs takeover

There are certain things that you must consider before an NBFC takeover. Given below is the list.

1. Background verification

The first thing to consider is thorough background verification and research about the target NBFC. Go through all the aspects of that NBFC that might affect your NBFC in the future. For instance, their history, capital structure, management efficiency, etc.

2. Determine your goals

Before taking over an NBFC, determine your financial goals with respect to the target NBFC. Determine whether or not you can achieve your goals and accordingly take the decision about the takeover.

3. Explore the market

Explore the market and seek different options available before finalizing your takeover decision.

4. Know the financial position and stability

Take a closer look at your financial position, stability, cash flow, etc. Decide what the maximum amount you can pay is, what's the best option for financing that amount, etc. Also, have a look at the target company's financial position and stability so that you can prepare the best possible acquisition proposal.

Conditions and RBI approvals

You must take the prior approval of RBI if the following conditions exist:

If there is no surety of a change of management after the takeover.

If there will be variation in the shareholding of an NBFC, which results in a 26% acquisition or transfer of the paid-up capital, including progressive increases over the period of time.

There will be a change in the management by way of change in more than 30% of the directors of the NBFC.

There is no need for RBI's prior approval in the following conditions:

If shareholding goes beyond 26% due to the buyback of shares or reduction in the capital by obtaining the approval of a competent court.

There will be a change in the management by 30%, inclusive of Independent Directors or by rotation of the directors in the Board after the takeover.

Documents necessary for NBFC takeover

The following documents are necessary for an NBFC takeover:

A detailed list of proposed shareholders and the board of directors.

Information about the source of funds required to obtain the shares by the proposed shareholders.

A declaration that the proposed shareholders are not associated with another deposit-accepting entity.

Another declaration is that they are not associated with any RBI-rejected entity.

A declaration by the proposed shareholders and board of directors about their non-criminal, non-conviction background.

The banker's report of all of them.

Financial accounts of the previous 3 years, along with annual reports.

How we can help!

NBFC takeover is an excellent way to expand and increase the company's market share. If done right, no doubt, it is very profitable for the company. But, it can not be denied that a single mistake can also hurt the company badly. So it is advisable to take the help of experienced professionals.

We at NBFC Advisory, with 8+ years of experience in advisory and counseling, have experts helping you simplify the process of the NBFC Takeover with RBI.

Book a call NOW!

Source: https://nbfcadvisory.com/nbfc-takeover-checklist-with-rbi-approval/

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How to set up your NBFC- Registration, Operational manual, Licensing, and more

NBFCs (non-banking financial companies), unlike other banking institutions they don't adhere to banking regulations but are regulated by Reserve Bank of India and are registered institutes under the companies act 1956 or Companies Act 2013.

In India, there are mainly two kinds of NBFC:

Depositing accepting NBFCs - regulated by RBI

Non-deposit accepting NBFCs - other financial sector regulators

Advantages of NBFC Registration in India

Provides loans and other credit options

NBFCs are more profitable than private and public sector banks because of less investment.

The registration process is simpler than other banks or lending institutions

Loan processing feature takes lesser time as compared to banks

NBFCs helps in managing portfolios of stock and shares

Helps to trade in money market instruments

CIBIL or credit score does not become hindrance in getting loan

Financial Companies NOT requiring NBFC License

Companies exempted from NBFC registration or don’t require an NBFC license as they regulate by other financial sector regulators - 

Housing Finance Companies – National Housing Bank,

Insurance Companies – Insurance Regulatory and Development Authority of India (IRDA),

Chit Fund Companies – respective State Governments,

Stock Broking – (SEBI) Securities and Exchange Board of India,

Companies that run Collective Investment Schemes – SEBI, 

Merchant Banking Companies – SEBI,

Mutual Funds – SEBI,

Venture Capital Companies – SEBI, 

Nidhi Companies – by Ministry of Corporate Affairs (MCA).

How to Register an NBFC?

Step 1: Register a company under the Companies Act 2013 or 1956.

Step 2: Business financial plan for at least 5 years

Step 3: Minimum Net Owned Funds (except for NBFC-MFIs, NBFC-Factors and CIC) should be Rs. 2 crores. Along with minimum assets should be worth Rs. 200 crores or above

Step 4: Must comply with the capital compliance and FEMA

Step 5: There should be atleast one director in the company from the same background, or one-third of directors should have financial experience

Step 6: A proof of good CIBIL score is requires to register as NBFC.

Step 7: Next, visit RBI’s official website and fill in the application form.

Step 8: Submit all the required documents along with the application form.

Step 9: Once you have submitted the application form, a CARN number will be generated.

Step 10: Send application copy to the regional branch of RBI, along with all attachments– Capital test, Profile of the promoters, High-level business plan, and Area of operation.

Documents for NBFC Registration

Certificate of Company Incorporation.

Information about management with a brochure of the company.

Company's PAN/Corporate Identity Number (CIN) hard copy.

Office location and address documents. 

Documents like Articles of Association (AoA) and Memorandum of Association (MoA).

Director’s duly signed each other’s profile.

CIBIL/credit reports of the Directors.

A copy of the board resolution that certifies the company will not carry out any activity until the registration is granted from RBI.

Resolution on the “Fair Practices Code” by the board.

Certificate by statutory auditor stating - the company will not hold public deposits or accept them.

Information regarding bank account, balances, loans, credits, etc.

Audited balance sheet and P&L statement along with the director's and auditors' report of three years, if applicable.

Copy of bank statements and Income Tax Returns.

Information detailing the company’s plan, generally for the next 3 years, along with the forecasted balance sheets, cash flow statements and income statements.

Calculating Net Owned Funds as per RBI Definition- a formula Operational manual Customer KYC Policy:  In order to maintain transparency and safeguard NBFC and banks from fraudulent customers- RBI directs financial institutions to follow KYC(know your customer) procedure - which helps to monitor malicious transactions like money laundry activities and further reports to applicable authorities. It includes- ID, face, biometric verification and document verification of utility bills as resistance proof. Its compliance responsibility rests with the banks not customer.  Anti-Money Transaction/ Laundering:  To make illegally obtained money legally accepted- anti-money laundering (AML) takes place under the observation of FATF (financial action task force) - operated by DBOD (Department of Banking Operations and Development) and RBI. All NBFC and regular banks need to comply with the benchmark set up by FATF as it’s crucial to keep the international financial relations. Customer Acceptance Policy:  It's a document which defines the basis of an NBFC to enter into a relationship with a customer. It includes:

Banks must avoid opening an account with false name or details.

Customer classification based on risks and other factors such as payment mode, location, business activity, annual turnover, etc.

Time-to-time documentation per the Reserve Bank of India guidelines and PML Act, 2002.

Needed checks before opening a new bank account.

If a customer acts on behalf of another person, it duly needs to spell out clearly. 

Bank cannot close or open the account in case of customer insubordination.

How we can help!

How we can help! We at  NBFC Advisory, with the end-to-end professional assistance in NBFC registration from application filling to registration certificate obtainment - handle everything for your NBFC to kick start!  With 15+ years of experience in advisory and counselling —our team of professionals is your one-stop solution for NBFC-related requirements and needs.  Book a call today!

 Source: https://nbfcadvisory.com/how-to-setup-your-nbfc-registration/

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Comprehensive Guide to NBFC Registration in India: A 2024 Perspective

Non-Banking Financial Companies (NBFCs) play a crucial role in India’s financial sector by providing services that traditional banks often overlook, such as asset financing, microfinance, and infrastructure lending.

As the Indian economy continues to grow, the demand for NBFCs has surged, making them a lucrative business opportunity.

However, establishing an NBFC in India involves navigating a complex registration process governed by the Reserve Bank of India (RBI).

This blog provides a detailed guide on the NBFC registration process, eligibility criteria, required documents, necessary licenses, and the benefits and challenges of becoming an NBFC in 2024.

Understanding NBFCs: A Quick Overview

Before diving into the registration process of NBFC, it’s important to understand what an NBFC is.

An NBFC is a financial institution that offers various banking services but does not hold a banking license. Unlike traditional banks, NBFCs cannot accept demand deposits, such as savings or current accounts, but they can offer loans, credit facilities, savings schemes, and investment products.

NBFCs are regulated by the RBI under the RBI Act, 1934, and are classified into different categories based on their activities.

Eligibility Criteria for NBFC Registration in 2024

The RBI has set forth stringent eligibility criteria for registering an NBFC to ensure that only credible entities enter this highly regulated space. As of 2024, the key eligibility criteria include:

Minimum Net Owned Fund (NOF): The company must have a minimum NOF of ₹10 crore.

Incorporation: The applicant must be a company registered under the Companies Act, 2013, either as a Private Limited or a Public Limited Company.

Directors’ Expertise: At least one-third of the directors must have relevant experience in finance, particularly in banking, finance, or economic management.

Creditworthiness: The company’s promoters and directors must have a clean credit history, free from any defaults or blacklisting by financial institutions.

Ownership and Control: Foreign investment is allowed in NBFCs under the automatic route, but ownership and control should remain with resident Indian entities.

Documents Required for NBFC Registration

Documentation is a critical part of the NBFC registration process. As of 2024, the following documents are required:

Certificate of Incorporation: Issued by the Registrar of Companies (ROC) under the Companies Act, 2013.

Memorandum of Association (MOA) and Articles of Association (AOA): These documents should clearly state the financial objectives of the company.

Detailed Business Plan: A comprehensive business plan covering at least the next three years, including projected financial statements, market analysis, and growth strategy.

Directors’ and Shareholders’ KYC Documents: This includes Aadhaar, PAN, passport, and photographs.

Net Worth Certificate: Certified by a Chartered Accountant (CA), showing that the company has the required NOF of ₹10 crore.

Credit Reports: Personal credit reports of all directors and shareholders from credit bureaus like CIBIL.

Bank Account Details: Proof of the NOF being deposited in the company's bank account.

Income Tax Returns: The last three years' income tax returns of the directors.

Audited Financial Statements: The company’s balance sheet, profit & loss account, and auditor’s report for the last three years (if applicable).

Step-by-Step NBFC Registration Process in 2024

Here’s a detailed breakdown of the NBFC registration process in 2024:

1. Incorporate the Company

The first step is incorporating a Private or Public Limited Company under the Companies Act, 2013. The company name should reflect its financial nature, as per the naming guidelines provided by the Ministry of Corporate Affairs (MCA).

2. Ensure Compliance with NOF Requirement

Deposit the minimum NOF of ₹10 crore into a bank account under the company’s name. This amount will be locked in until the RBI grants the Certificate of Registration (CoR).

3. Prepare the Necessary Documents

Gather all required documents, including the business plan, NOF certificate, and KYC documents. Make sure all documents are duly signed, notarized, and attested where necessary.

4. Submit the Online Application

Submit the application through the RBI’s COSMOS portal. You’ll need to upload all the required documents electronically and pay the applicable fee.

5. Submit the Physical Copies

Send hard copies of the application and all documents to the regional office of the RBI. Ensure that the documents are submitted in the prescribed format.

6. Respond to RBI’s Queries

During the review process, the RBI may request additional documents or clarifications. Promptly responding to these queries is crucial to avoid delays in the registration process.

7. Receive the Certificate of Registration (CoR)

If the RBI is satisfied with your application, you will receive the Certificate of Registration, allowing you to operate as an NBFC in India. This certificate must be prominently displayed at your place of business.

Licenses and Approvals Required for NBFCs

Apart from the RBI’s Certificate of Registration, certain NBFCs may require additional licenses based on their business activities. These include:

NBFC-MFIs (Microfinance Institutions): Require special approval to offer microfinance services.

NBFC-Factors: Need to register as Factors under the Factoring Regulation Act, 2011.

NBFC-Investment and Credit Companies (NBFC-ICC): May need approvals if they engage in credit activities like issuing credit cards or offering loans against securities.

Benefits of NBFC Registration

Registering as an NBFC offers several advantages:

Wider Market Access: NBFCs can cater to a broader market, including underserved segments like MSMEs and the unbanked population.

Flexible Operations: NBFCs have fewer operational restrictions compared to banks, allowing them to innovate and offer customized financial products.

Growth Potential: With India’s growing economy, NBFCs have significant growth opportunities, especially in lending, asset management, and microfinance.

High Returns: Given the high demand for financial services, especially in rural and semi-urban areas, NBFCs can generate substantial returns on investment.

Challenges in NBFC Registration

While the benefits are significant, there are also challenges:

Stringent Regulatory Compliance: NBFCs must comply with numerous RBI guidelines, including regular audits, reporting, and adherence to capital adequacy norms.

High Capital Requirement: The initial NOF of ₹10 crore and ongoing capital requirements can be a barrier, particularly for small businesses.

Operational Risks: NBFCs face various operational risks, including credit risk, liquidity risk, and market risk, requiring effective risk management strategies.

Competition: The financial sector is highly competitive, with NBFCs competing against banks, fintech companies, and other financial institutions.

Conclusion: The Importance of Professional Guidance

Registering an NBFC in India offers numerous opportunities but comes with its set of challenges. The process involves strict compliance with regulatory requirements, and missing out on any detail can lead to significant delays or rejection of the application.

Therefore, it is crucial to seek professional guidance to navigate the complex registration process efficiently. With expert assistance, you can ensure that your NBFC is set up correctly and is well-positioned to thrive in India’s dynamic financial landscape.

By understanding the updated eligibility, documentation, and procedural requirements, as well as the benefits and challenges of NBFC registration, you can make informed decisions that align with your business goals. As the financial landscape continues to evolve, staying informed and prepared will be key to your success in the NBFC sector.

Source Link: https://nbfcadvisory.com/comprehensive-guide-nbfc-registration-india-2024-perspective/

[nbfcadvisory]

Complete Guide to Setting Up an NBFC in India

The Non-Banking Financial Company (NBFC) sector is a critical component of India's financial ecosystem, providing credit and other financial services where traditional banks may not operate. For anyone looking to enter this industry, setting up an NBFC involves understanding various regulatory norms, compliance requirements, and the necessary documentation. This comprehensive guide will walk you through the essential steps, highlighting the latest updates from the Reserve Bank of India (RBI).

Types of NBFCs in India

Based on Type of Liabilities

Deposit-Accepting NBFCs: These NBFCs accept deposits from the public, similar to banks. However, they are not allowed to issue bank notes or provide checking account facilities.

Non-Deposit-Accepting NBFCs: These NBFCs do not accept deposits from the public but raise funds through other means, such as issuing bonds or debentures.

Based on Size

Systemically Important Non-Deposit Holding Companies (NBFC-NDSI): These are large NBFCs that can pose a significant risk to the financial stability of the system.

Other Non-Deposit Holding Companies (NBFC-ND): These are smaller NBFCs that do not pose a systemic risk.

Based on Activities

Asset Finance Companies (AFCs): These NBFCs primarily engage in financing assets like machinery, vehicles, and equipment.

Loan Companies: These NBFCs offer various types of loans, including personal loans, home loans, education loans, and more.

Investment Companies: These NBFCs invest in securities, such as shares and bonds.

Infrastructure Finance Companies (IFCs): These NBFCs specialize in financing infrastructure projects, such as roads, bridges, and power plants.

Microfinance Institutions (MFIs): These NBFCs provide small loans to low-income individuals and groups, often in rural areas.

Housing Finance Companies (HFCs): These NBFCs primarily focus on providing home loans.

Merchant Banking Companies: These NBFCs offer various financial services, including underwriting, mergers, and acquisitions.

Core Investment Companies (CICs): These NBFCs primarily invest in other companies.

Each type of NBFC is regulated differently based on its risk profile, asset size, and specific focus areas

Regulatory Requirements for NBFC Registration

The RBI has established a robust regulatory framework to ensure the stability and integrity of the NBFC sector. The key requirements for registering an NBFC in India include:

  Minimum Net Owned Fund (NOF): The latest RBI guidelines have increased the NOF requirements in a phased manner: NBFC-ICC, NBFC-MFI, and NBFC-Factors: NOF requirements will increase to ₹10 crore by March 31, 2027. Currently, these companies need to have ₹5 crore (₹2 crore for the North-Eastern region) by 2025. NBFC-P2P, NBFC-AA, and NBFCs without public funds or customer interfaces continue with an NOF requirement of ₹2 crore

Company Incorporation: The entity must be registered as a Private Limited or Public Limited company under the Companies Act, 2013.

Directors' Experience: At least one director must have relevant experience in the banking or NBFC sector, emphasizing the need for professional expertise in managing NBFC operations

NPA Classification: The RBI has introduced stricter norms for classifying Non-Performing Assets (NPAs). NBFCs must adhere to a 90-day NPA classification norm by March 31, 2026. The phased approach aims to enhance risk management across all NBFC categories

Internal Capital Adequacy Assessment Process (ICAAP): NBFCs must conduct an internal assessment of their capital needs based on their business risks, aligning with the guidelines set for commercial banks. This requirement encourages better internal risk management techniques for NBFCs

RBI Approval: A detailed application, including the company’s business plan, audited financial statements, and other relevant documents, must be submitted to the RBI for approval.

Key Documents Required for NBFC Setup

Setting up an NBFC involves preparing and submitting a series of essential documents to ensure compliance with regulatory standards. The key documents include:

Incorporation Certificate: Proof that the business is registered as a Private Limited or Public Limited company.

Memorandum of Association (MOA) and Articles of Association (AOA): These outline the company’s objectives and operational guidelines.

Detailed Business Plan: The business plan should include an overview of the NBFC’s strategy, market analysis, and financial projections.

KYC Documents of Directors and Shareholders: Identity and address proofs such as PAN, Aadhaar, and passport copies.

Audited Financial Statements: Financial statements for the past three years, validated by a certified Chartered Accountant.

Net Worth Certificate: A certificate from a CA confirming compliance with NOF requirements.

Bankers’ Report: A report from your banker detailing the company’s account status, creditworthiness, and available funds.

Conclusion

Establishing an NBFC in India is a promising venture that comes with regulatory complexities. The recent updates from the RBI, such as the increased NOF requirements and stricter NPA classifications, reflect the evolving landscape of the financial sector. By understanding the types of NBFCs, meeting the latest regulatory requirements, and preparing the necessary documents, aspiring entrepreneurs can navigate the registration process with confidence.

Consulting with financial experts or regulatory advisors can further streamline the setup process and ensure full compliance, positioning your NBFC for success in India’s dynamic financial market.

Source: https://nbfcadvisory.com/complete-guide-to-setting-up-an-nbfc-in-india/