How to Start an NBFC in India: Legal and Financial Requirements

Starting a Non-Banking Financial Company (NBFC) in India can be a great business opportunity, especially with the growing demand for financial services beyond traditional banks. However, setting up an NBFC requires proper planning, regulatory approvals, and compliance with Reserve Bank of India (RBI) guidelines. 

In this guide, we will break down the process of NBFC license registration with RBI, financial requirements, and other key aspects such as applying for PPI and P2P licenses and understanding the NBFC takeover procedure RBI.

Step-by-Step Process to Start an NBFC in India

1. Understand the NBFC Structure

Before starting, it is essential to understand what an NBFC is and how it differs from banks. NBFCs provide financial services such as loans, asset financing, and investment advisory but cannot accept demand deposits like banks.

Types of NBFCs in India:

• Loan Companies – Provide loans and advances
  
• Asset Finance Companies – Finance purchase of assets like vehicles and machinery
  
• Microfinance Institutions – Offer small loans to low-income individuals
  
• Account Aggregators – Collect and share financial data with user consent
  
• P2P Lending Platforms – Facilitate peer-to-peer lending
  

2. NBFC License Registration with RBI

To operate legally, an NBFC must be an NBFC License Registration with the RBI. Here’s how:

Eligibility Criteria

• The company must be registered under the Companies Act, 2013.
  
• The minimum Net Owned Fund (NOF) requirement is ₹2 crore (₹5 crore for certain categories like account aggregators).
  
• A detailed business plan is required.
  

Application Process

1. Incorporate a Company – Register as a Private or Public Limited Company.
   
2. Open a Bank Account – Deposit the NOF amount in a fixed deposit.
   
3. Apply Online – Submit the application on the RBI’s COSMOS portal.
   
4. Submit Physical Documents – Send a hard copy of the application and required documents to the RBI.
   
5. Approval & License Issuance – RBI reviews the application and grants the NBFC license if all conditions are met.
   

3. NBFC Account Aggregator License Online

An Account Aggregator (AA) NBFC helps users securely share their financial data across institutions. To apply for an NBFC account aggregator license online:

• Meet the ₹5 crore Net Owned Fund requirement.
  
• Submit an application to RBI with a detailed business plan.
  
• Obtain approval and comply with data security and privacy regulations.
  

4. NBFC Takeover Procedure RBI

If you are looking to acquire an existing NBFC instead of starting a new one, follow the NBFC takeover procedure RBI:

1. Due Diligence – Verify financial records, assets, and liabilities.
   
2. Agreement Signing – Sign a Memorandum of Understanding (MoU) with the existing owners.
   
3. Public Notice – Publish a notice in newspapers informing stakeholders.
   
4. RBI Approval – Apply for RBI approval by submitting the necessary documents.
   
5. Share Transfer & Business Handover – Once approved, complete the share transfer and take over management.
   

5. Apply PPI License

A Prepaid Payment Instruments (PPI) license is needed for businesses offering digital wallets or prepaid cards.

• Eligibility: Minimum net worth of ₹5 crore.
  
• Application: Submit an application to RBI with a detailed business model.
  
• Compliance: Follow RBI guidelines on cybersecurity and customer protection.
  

6. Apply P2P License

A Peer-to-Peer (P2P) lending license allows a company to operate an online lending platform.

• Eligibility: Minimum net worth of ₹2 crore.
  
• Application Process: Apply to RBI online, providing a detailed business plan and financial projections.
  
• Approval: Once approved, the company must follow RBI’s operational guidelines.
  

Financial Requirements for Starting an NBFC

1. Net Owned Fund (NOF): ₹2 crore (₹5 crore for account aggregators & PPIs).
   
2. Office Setup & Operations: Additional investment in infrastructure, technology, and employees.
   
3. Compliance & Legal Costs: Professional fees for registration, legal documentation, and audits.
   
4. RBI Regulatory Reserve: Certain NBFCs must maintain a percentage of their assets as a reserve.
   

Conclusion

Starting an NBFC in India requires careful planning and compliance with RBI regulations. Whether you want to go for NBFC license registration with RBI, apply for NBFC account aggregator license online, take over an existing NBFC, or apply for PPI and P2P licenses, it is important to follow the proper legal and financial requirements. With the right strategy and compliance, an NBFC can be a profitable venture contributing to India’s financial growth.

If you need expert assistance with NBFC registration or compliance, feel free to reach out Corpbiz Advisors!