Is Registration of NBFC with RBI Compulsory

In the ever-evolving financial landscape of India, Non-Banking Financial Companies (NBFCs) play a crucial role. They cater to diverse financial needs, offering a broad spectrum of services beyond traditional banking. But when it comes to new NBFC registration with the Reserve Bank of India (RBI), the question of compulsion often arises. Let’s delve into the legalities and explore the scenarios where RBI registration becomes mandatory.

Mandatory Registration: Understanding the Threshold

The Reserve Bank of India Act, 1934, under Section 45-IA, mandates registration with the RBI for all NBFCs. However, there’s an important caveat: Net Owned Funds (NOF).

  • NOF exceeding ₹ 25 crore (as of April 1999): If your NBFC’s NOF surpasses ₹ 25 crore, registration with the RBI becomes compulsory. NOF refers to the difference between your company’s owned funds (equity capital and reserves) and its borrowings.
  • Exemptions for Specific Categories: Certain NBFC categories are exempt from mandatory RBI registration even with a NOF exceeding ₹ 25 crore. These include:
    • Nidhi Companies: These are deposit-taking NBFCs with a specific regulatory framework under the Companies Act, 2013.
    • Government Companies: NBFCs wholly owned by the Central or State Government are exempt.
    • Agricultural and Industrial Development Banks: These specialized institutions established under specific Acts are exempt.

Benefits of RBI Registration (Even if Not Mandatory):

Even if your NBFC falls below the NOF threshold for mandatory registration, consider the advantages of obtaining an RBI Certificate of Registration (CoR). These benefits include:

  • Enhanced Credibility: An RBI CoR signifies regulatory compliance and fosters trust among potential customers and investors.
  • Access to Larger Funds: Registration opens doors to raising capital through public deposits and borrowings from banks and financial institutions.
  • Regulatory Oversight: RBI registration ensures adherence to established financial regulations, promoting sound business practices.
  • Scaling Up Potential: An RBI CoR facilitates future growth aspirations by removing limitations on business activities.

Conclusion: A Calculated Decision

While registration with the RBI isn’t compulsory for all NBFCs, it’s a strategic decision with significant long-term implications. Carefully assess your NBFC’s growth plans and financial requirements. If you envision future expansion or require access to larger funds, obtaining an RBI CoR becomes a wise investment in your company’s future.