Obtaining a NBFC License in India is not a tedious task these days, a businessman can hire a legal consultant to understand the nbfc registration process. In this article, we will discuss nbfc company registration in India.
Historical Background
Historically, NBFCs have been an integral part of the Indian financial ecosystem as significant financial intermediaries channeling savings and investments, particularly for the small-scale and retail sectors, as well as underserved and unbanked parts of the Indian economy.
Evolution
NBFCs have changed throughout the years as a result of substantial changes in the regulatory environment for NBFCs in India, which has gone from simplified rules to harsh and comprehensive restrictions, as well as toward rationalisation per the newly amended NBFC regulatory framework. Given these high levels of regulation, NBFCs have emerged as favoured choices for meeting credit demands, as their cheap cost of operations gives them an advantage over banks. With the evolution in this industry nbfc registration process has become easy and fast. Even one can avail the services like NBFC online registration, via this process you can obtain NBFC License at your doorstep.
Financial Aid and Government Programs to Assist
Furthermore, as a result of the advent of government-backed programmes such as the Pradhan Mantri Jan-Dhan Yojana, which has contributed to a considerable increase in the number of bank accounts, NBFCs have progressively become crucial mechanisms to drive growth and entrepreneurship. NBFC Company registration is currently in high demand and the government is providing various distinct benefits to the newcomers.
These NBFCs have also been critical in mitigating and managing the spread of risks during times of financial stress, and they are increasingly being acknowledged as banks' complementing services.
NBFCs in India have become an extremely crucial and integral part for all business services, including loans and credit facilities, planning of retirement, money market, underwriting, and merger, demerger and acquisition activities. As a result, these firms play a significant role in providing credit to the unorganised sector as well as small borrowers on a local level. Furthermore, hire purchase finance is the most important activity of NBFCs, and the fast expansion of NBFCs has steadily blurred the borders between banks and NBFCs, albeit commercial banks continue to be important. These NBFCs promote long-term investment and financing, which is difficult for the banking industry, and their rise broadens the choice of products available to individuals/institutions with resources to invest.
Possibilities for NBFCs
The ongoing difficulty in public sector banks (PSUs) as a result of rising bad debt and deterioration in rural lending has offered an opportunity for NBFCs to expand their footprint. Product lines, reduced costs, a broader and more effective reach, superior risk management skills to detect and contain bad debts, and a better understanding of consumer groups distinguish these NBFCs from PSUs.
Furthermore, increasing macroeconomic conditions, increased credit penetrations, consumer themes, and disruptive technology developments have all had an impact on NBFC lending growth. The stress in public sector units (PSUs), underlying credit demand, digital disruption for MSMEs and SMEs, increasing consumption and distribution access, and sectors where conventional banks do not lend are all important factors for the shift from traditional banks to NBFCs.
NBFC Categorizations and Industry Structure at the Present
As of January 22, 2021, there were 9,425 NBFCs registered with the RBI, which were classified as Asset Finance Companies, Loan Companies, Infrastructure Finance Companies (IFCs), Systemically Important Core Investment Company (NBFC – CIC – ND – SI), Infrastructure Debt Fund (NBFC – IDF), and Micro Finance Institutions (NBFC – MFIs). Investment Credit Companies (ICC) have retained a leading share of total assets in the NBFC industry, as have IFCs, as seen below for the 2019-2020 timeframe.
Where is the expansion?
Some of the significant sectoral credit growth across important sub-sectors includes MFIs, which grew by 80% in 2019-20, and housing loans, which grew by 37% in the same timeframe. Similarly, growth in loans and advances for NBFC-IDFs and NBFC-MFIs has been significant, at 46 percent and 8 percent, respectively, for the 2019-20 period, and has shown an increasing trend in 2018-19.
NBFC Growth Engines as Growth Drivers
NBFCs have also been a critical component of crucial financing for MSMEs, owing to considerable development in the rural, small-scale, and unbanked sectors. A huge lively startup and entrepreneurial environment has increased NBFC demand, while government policy efforts such as the Pradhan Mantri Yojana and the National Rural Financial Plan have further augmented the market.
These include the diverse financial demands of the Indian economy, which are being driven by expansion in lending, credit, and auto finance. As a result of these development factors, we see NBFCs with larger balance sheets and increased public money. Improved NBFC profitability ratios have been seen for NBFC-ND-SIs across measures for ROA, ROE, and NIMs, with significant year-on-year returns between 2019 and 2020. For 2019-2020, NBFC-Ds' ROA has been essentially stable, ROE has fallen, while NIMs have increased year on year.
Impact of GST on Banks and NBFCs
The implementation of GST in India represents a significant departure from the current tax framework. The service sector is likely to have a greater influence on GST than the industrial or trading sectors. Among the services offered by banks and NBFCs, financial services such as fund-based, fee-based, and insurance services would experience significant changes from the existing situation.
Due to the type and amount of activities offered by banks and NBFCs in terms of lease transactions, hire purchase, actionable claims, fund and non-fund based services, and so on, GST compliance would be challenging to execute in these sectors. The structure under the Model GST Law does not give much advantage or attention to banks and NBFCs based on an understanding of the kind of transactions they do on a continuous and voluminous basis.
Issues and impacts pertaining to the provision of GST Law
Currently, an NBFC or a bank with pan-India operations can fulfil their service tax obligations through a single 'centralised' registration. However, under GST, such banks/non-banking financial companies will be required to get a separate registration for each state in which they operate. In addition to registration, the compliance burden for filing returns has grown significantly in terms of the frequency of returns, the variety of return forms, and the degree of data required in these returns.
Input Tax Credit leveraged and de-leveraged
Currently, banks and NBFCs prefer to reverse 50% of CENVAT credit availed on inputs and input services, but CENVAT credit on capital goods can be obtained with no reversal requirements. Under GST, 50 percent of the CENVAT credit obtained on inputs, input services, and capital goods is to be reversed, leaving them with a 50 percent credit on capital goods, raising the cost of capital.
Assessment and Adjudication made bothersome
The evaluation will be carried out by the state regulators under which the relevant branch is registered. Every registered branch of a bank or an NBFC must now defend its chargeability position in the relevant state as well as the basis for using input tax credit in multiple states.
Because there would be more than one adjudicating authority engaged under GST, each authority may have a different conclusion on the same fundamental problem. This divergence of opinion will lengthen the adjudication procedure. Currently, a taxpayer is adjudicated on a single issue by a single adjudicating body. Various adjudicating authorities may take different positions on the same topic under GST. It would be difficult to resolve and cope with the differences of opinion supplied by the various adjudicating authorities.
Issues related to revenue recognition under GST
Financial Services That Are Account-Linked
The location of the recipient of services on the records of the supplier of services will be the site of provision. Identifying the state of location of the service receiver will be tough in India's digital and centralised setting. In cases where service recipients, such as professionals, manufacturers, traders, and other workers, frequently relocate from one location to another in search of better opportunities, the service provider may have multiple addresses, including a permanent address, a current address, a communication address, and a KYC address.
Financial Services That Are Not Account-Linked
The location of the service provider would be the place of supply of service in this case. This will again affect enterprises that are prevalent in distant places and run and transact from a back office situated in another state.
Relevant Claims
Because actionable claims do not qualify as a service under Service Tax, no tax is due under the existing regime. Actionable claims are now included in the definition of supply of goods under GST. Services delivered as a result of invoices reduced to securitization will now be taxed primarily on a B2C and B2B basis.
Know the NBFC registration fees?
For an NBFC License, a minimum capital of Rs. 2 crore is required; hence, an applicant must register a company with the appropriate capital as well as the required government fees. Legal professionals can help you with nbfc registration online in a timely and cost-effective manner.
This provided information is all you need for a nbfc registration online and attain a NBFC license. So, another important thing is to find a suitable legal consultant and advisor. As per my experience MUDS Management is India’s most trusted and leading corporation dealing with nbfc company registration. To know more about their services and book consultation for NBFC registration fees and nbfc registration process, you can visit the website.
Conclusion
With the expectation of further information, financial sectors confront a bag of worms in terms of business transactions, customer profiles, service matrix, IT systems, and operations to gather data at both the front and back end. IT systems will need to be more watchful in terms of solving the complexities associated with GST compliance and processes at a larger volume. The impact of GST on banks and NBFCs will be significant enough that operations, transactions, accounting, and compliance will all need to be reviewed.