NBFC Advisory

We at NBFC Advisory are your true partners for your NBFC’s growth. From providing a NBFC company registration for your NBFC to monitoring and offering legal and strategic advisory, our experts support the overall development you need. We also specialize in NBFC registration in India to ensure a seamless start for your Non-Banking Financial Company.

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NBFC License Cost in India

India’s financial sector has evolved, and NBFCs play a key role in making credit and loans accessible beyond traditional banks. Before operations, every NBFC must secure RBI approval. The NBFC license cost isn’t just registration fees—it includes professional advisory, audits, IT systems, office setup, compliance, and the crucial Net Owned Fund (NOF) of ₹10 crore. From Investment & Credit Companies to Microfinance and Housing Finance NBFCs, costs vary. With proper planning, experienced advisors, and phased infrastructure investment, you can manage expenses efficiently. Secure your NBFC license the smart way with expert guidance.

Know More:NBFC License Cost in India

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What is a Virtual CFO? Roles, Responsibilities & Benefits of Virtual CFO Services in India

A Virtual CFO is a cost-effective way for startups and growing businesses in India to access expert financial guidance without hiring a full-time executive. From budgeting, compliance, and cash flow management to investor readiness and strategic planning, Virtual CFOs provide flexible, tech-enabled support tailored to business needs. They help companies make smarter decisions with real-time insights, ensure compliance with Indian tax and regulatory requirements, and strengthen financial planning for sustainable growth. Especially for SMEs and NBFCs, Virtual CFO Services in India offer the perfect blend of expertise, affordability, and scalability—helping businesses grow stronger, stay compliant, and attract investors.

Know More: https://nbfcadvisory.com/what-virtual-cfo-roles-responsibilities-benefits/

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How to Register an NBFC in India

Non-Banking Financial Companies (NBFCs) play a vital role in India’s financial system, offering credit and loan services where banks often fall short. To start an NBFC, you must first register a private or public limited company, maintain a minimum Net Owned Fund (NOF) of ₹10 crore, and apply to RBI through the COSMOS portal. The process involves submitting audited financials, business plans, and compliance documents. After due diligence, RBI grants the NBFC license. Post-registration, ongoing compliance with KYC, AML, audits, and RBI returns is essential. With proper planning and expert guidance, NBFCs unlock massive growth potential.

Know More: https://nbfcadvisory.com/how-to-register-nbfc-india-step-by-step-guide/

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Due Diligence for NBFC Takeover: What to Check Before You Buy

Thinking of takeover an NBFC? Don’t skip due diligence! Hidden debts, weak compliance & legal gaps can cost you heavily later.

✅ Legal checks ✅ Financial audits ✅ Compliance review

A solid due diligence = safe & profitable takeover.

Know More: https://nbfcadvisory.com/due-diligence-for-nbfc-takeover-check-before-buy/

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What is an NBFC‑MFI? A Simple Guide to Microfinance Institutions

An NBFC‑MFI is a microfinance arm of an RBI‑registered non-banking financial company that specializes in small loans, savings, and insurance for individuals typically excluded from traditional banking.

Why NBFC‑MFI matters:

• Banks can’t reach everyone—these institutions bridge that gap. • They empower financially underserved communities, especially women entrepreneurs.

Key features:

Small-ticket loans (microcredit) and savings products

Regulated by RBI with interest rate caps (~26% p.a.)

Ideally licensed as NBFC‑MFIs to improve access to funding

Latest in India:

• MFIs increasingly transition into NBFCs to tap larger funding channels. • Example: Svatantra Microfin, established 2012, got NBFC‑MFI license in 2013 and now empowers rural women.

Bottom Line: An NBFC‑MFI combines the microfinance mission of serving low‑income, often rural clients, with the regulatory backing and funding edge of an NBFC—making it a powerhouse for inclusive finance in India.

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Thinking About an NBFC Takeover? Here’s What You Need to Know

What is an NBFC Takeover? It’s when one Non-Banking Financial Company acquires another to scale operations, diversify financial services, or enter new markets. Read more here

Why go for an NBFC Takeover?  - Faster business growth  - Access to new customer segments  - Strategic expansion without starting from scratch

Key Steps in the NBFC Takeover Process:

Identify a suitable RBI-registered NBFC Conduct financial and legal due diligence Draft takeover agreements and negotiate terms Seek RBI approval and comply with all formalities

What to Watch Out For: Compliance issues with RBI Integration of teams and systems Cultural or operational mismatches

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

What are AIFs?

Privately pooled investment vehicles targeting non-traditional assets like private equity, real estate, hedge funds, infrastructure, and more.

Why they matter:

They offer greater diversification beyond stocks and bonds—ideal for investors looking to expand into high-growth sectors.

🇮🇳 SEBI Regulations in India: AIFs are classified into 3 categories: • Category I – VC, SME, infra, social impact • Category II – Private equity, debt • Category III – Hedge funds, short-term strategies

Who should invest? High-net-worth individuals and institutions looking for long-term, high-impact investment avenues.

Looking to register your AIF? NBFC Advisory specializes in AIF registration and compliance—from documentation to SEBI approval. Let's get your fund SEBI-ready!

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

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Why Fintech Companies in India Are Choosing the NBFC Route to Scale

India’s financial ecosystem has undergone a massive transformation in the last decade, and fintech is at the center of this revolution. Today’s consumers expect faster, smarter, and more accessible financial services—and fintech startups are stepping in to deliver.

But to scale sustainably and legally, many fintech companies are now choosing a strategic path: acquiring an NBFC (Non-Banking Financial Company) license.

Why an NBFC License?

Unlike traditional banks, NBFCs provide greater flexibility and agility—key traits for tech-driven companies looking to disrupt the financial sector. Here's why the NBFC model is gaining traction:

1. Direct Lending & Investment Powers

With an NBFC license, fintech startups can offer loans and make investments directly—without needing a banking partnership or intermediary approval. This allows for faster decision-making and end-to-end control.

2. Faster Go-to-Market

Getting a banking license is a complex, long-drawn process. In contrast, setting up an NBFC is faster and more practical for startups aiming to launch lending, BNPL, or microcredit services.

3. Flexibility and Customization

NBFCs can structure diverse loan products—personal, business, vehicle, education, and more—allowing fintechs to tailor offerings to specific market needs.

4. Technology-Led Solutions

NBFCs run lean operations. With tools like AI-based credit scoring, digital KYC, and automated risk management, fintechs can deliver superior user experiences at scale.

5. Wider Market Access

India’s underbanked and unbanked segments present untapped opportunity. NBFCs, unburdened by legacy infrastructure, can reach these populations using mobile-first, data-driven models.

Use Cases Where Fintech Meets NBFC

Some of the most successful fintech-NBFC integrations are in:

Digital Lending Platforms

Buy Now Pay Later (BNPL)

SME Lending

Consumer Durables Financing

Microfinance and Credit-on-App Models

Read our Article: Why is NBFC licensing so popular among fintech companies?

Regulatory Snapshot: What Fintechs Must Know

Though flexible, NBFCs are regulated by the Reserve Bank of India (RBI) and must adhere to:

KYC/AML guidelines

Capital adequacy norms (minimum ₹2 crore NOF)

Fair Practices Code

Periodic audits and reporting

The good news? The regulatory environment encourages innovation while safeguarding customer trust.

Challenges to Consider

No journey is without hurdles. Fintechs must prepare for:

Capital requirements for registration

Risk and credit management

Staying updated with evolving RBI guidelines on digital lending

The Future: Fintech + NBFC = Scalable Innovation

From co-lending partnerships with banks to creating fully digital NBFCs, the future is bright for this hybrid model. As India’s fintech scene continues to thrive, NBFC licensing is becoming the preferred growth engine for credit-first startups.

📌 Insight: NBFCs offer fintechs the freedom to build, launch, and scale financial products on their own terms.

Want to Launch a Fintech with Lending Capabilities?

Setting up an NBFC might be the smartest move. It offers:

Faster time to market

Lending freedom without a bank license

Scalable, tech-first financial operations

Need expert advice? Contact NBFC Advisory for a custom roadmap tailored to your fintech vision.

📞 Call: [phone] 🌐 Visit: nbfcadvisory.com 📩 Request a free consultation today

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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/