How to Convert Your Company into an NBFC under Section 45‑IA

As financial markets evolve in India, Non-Banking Financial Companies (NBFCs) are playing an increasingly pivotal role in expanding credit access across sectors. If your company is already engaged in financial activities like lending, leasing, or investment but lacks regulatory recognition, it may be time to consider formal NBFC registration under Section 45-IA of the RBI Act, 1934.

This guide explains how you can convert your existing company into an NBFC, including the online NBFC registration process, eligibility criteria, compliance requirements, and the NBFC license cost involved.

What is an NBFC?

A Non-Banking Financial Company (NBFC) is a financial institution registered under the Companies Act, 2013, and regulated by the Reserve Bank of India (RBI). While NBFCs do not hold a banking license, they are authorized to provide a range of financial services such as:

• Personal and business loans
• Leasing and hire purchase
• Investment in securities
• Asset financing
• Microfinance and fintech-based credit

NBFCs are critical for financial inclusion, especially in underbanked regions, and offer significant flexibility compared to traditional banks.

Why Convert to an NBFC?

If your company is already involved in financial activities—such as issuing loans, investing, or asset financing—without an NBFC license, it may be operating in violation of RBI norms. According to Section 45-IA of the RBI Act, companies engaged in financial business must obtain an NBFC license if:

• Financial assets constitute more than 50% of total assets, and
• Financial income is more than 50% of total income.

This is known as the 50-50 test. Failing to comply can result in penalties and regulatory action.

Eligibility Criteria for NBFC Registration

Before applying for NBFC conversion, ensure your company meets the following RBI requirements:

Note: The ₹10 crore requirement may vary depending on the NBFC category (e.g., NBFC-MFI, NBFC-Factor, Investment Company).

Step-by-Step: How to Convert Your Company into an NBFC under Section 45‑IA

Step 1: Assess 50-50 Test and NOF Compliance

Ensure your company’s financial statements meet RBI’s 50-50 test. Arrange for statutory audit to verify:

• 50% or more of assets are financial assets.
• 50% or more of income is derived from financial activity.
• Net Owned Fund is at least ₹10 crore.

Step 2: Restructure Company (If Needed)

If your company is not a Private or Public Limited Company, restructure accordingly. LLPs or partnership firms cannot be converted into NBFCs.

Also, review your Memorandum of Association (MoA) and ensure the primary object clause includes financial business activities such as lending, investment, or leasing.

Step 3: Compile Required Documents

Key documents required for NBFC registration include:

• Incorporation Certificate
• MoA and AoA with financial business clause
• Net worth certificate from a Chartered Accountant
• Audited financial statements for the last 3 years
• Banker’s report and NOF confirmation
• Income tax returns of directors and company
• Credit reports of directors and shareholders
• KYC documents of directors and shareholders
• Organizational structure and board resolution for NBFC conversion

Step 4: Apply Online via RBI COSMOS Portal

The NBFC registration online process is conducted via the COSMOS portal of the RBI:

1. Create a user profile on the portal.
2. Fill out Form-A with required details.
3. Upload scanned copies of all supporting documents.
4. Submit the application and note down the Application Reference Number.

Link: https://cosmos.rbi.org.in

Step 5: Submit Hard Copies to RBI

After online submission, send a hard copy of the application and all annexures to the regional RBI office under whose jurisdiction your registered office falls.

Step 6: RBI Review and Clarifications

RBI may seek additional information or clarifications. Respond promptly to avoid delays. The process may take 3–6 months depending on the case complexity.

Step 7: Receive NBFC License

If approved, the company is granted a Certificate of Registration (CoR) under Section 45-IA, authorizing it to operate as an NBFC. The company must then update its website, branding, and compliance policies in line with RBI directions.

NBFC License Cost

The cost of registering an NBFC in India includes various components:

Total Estimated Cost: ₹12 – ₹15 crores (including capital)

Note: The ₹10 crore NOF must be shown as available and unencumbered in the company’s bank account or assets.

Post-Registration Compliance

Once registered, NBFCs are required to meet ongoing compliance standards, including:

• Periodic returns (NBS-1, NBS-2, etc.)
• Statutory audit by RBI-approved auditorsAnnual compliance with Fair Practices Code
• KYC and Anti-Money Laundering (AML) adherence
• Filing of statutory returns on RBI portals

Non-compliance can lead to cancellation of license or monetary penalties.

FAQs

1. Can an existing LLP be converted into an NBFC?
No, only Private Limited or Public Limited companies can be registered as NBFCs under Section 45‑IA. LLPs and partnerships are not eligible.

2. How long does it take to obtain an NBFC license?
The typical timeframe is 4 to 6 months, depending on document completeness, RBI\'s review time, and responses to clarifications.

3. Is ₹10 crore NOF mandatory for all NBFCs?
As per the latest RBI circulars, ₹10 crore is the minimum NOF for most NBFC categories. However, specific categories like NBFC-MFI or NBFC-Factor may have lower or category-specific requirements.

Final Thoughts

Converting your financial services company into an NBFC under Section 45-IA is not only a legal necessity but also a strategic move. It enhances your credibility, regulatory standing, and access to funding. While the process involves substantial documentation and capital requirements, the long-term benefits of operating as a licensed NBFC are significant.

If you’re considering NBFC conversion, it’s advisable to consult experienced professionals to guide you through the NBFC registration online process, documentation, and compliance planning.