Vehicle Finance Company
SATYANARAYANA K
(Querist) 25 December 2009
This query is : Resolved
One client approach me for guidance, how to register the Three wheeler vehicle finance company to supply the vehicle on the basis of Hypothication, at Visakhapatnam in A.P, India, exmaple Sriram Motor Vehicle Finance Company Ltd, (4 partners with my client ready to invest Rs.30 Lakhs)please advice if any format or section, please give full procedure and method, waiting for your valuable suggestions
A V Vishal
(Expert) 26 December 2009
Your case will fall under purview of NBFC laws and your clients needs to be registered as a NBFC under RBI Act.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/ bonds/debentures /securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/ construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company). NBFCs are doing functions akin to that of banks; however there are a few differences:
(i) an NBFC cannot accept demand deposits;
(ii) an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques drawn on itself; and
(iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks. In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.
However, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982 or Housing Finance Companies regulated by National Housing Bank. Originally, NBFCs registered with RBI were classified as:
(i) equipment leasing company;
(ii) hire-purchase company;
(iii) loan company;
(iv) investment company.
However, with effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as
(i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)
AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.
The above type of companies may be further classified into those accepting deposits or those not accepting deposits.
A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999).
The company is required to submit its application online by accessing RBI’s secured website https://secweb. rbi.org.in/ COSMOS/rbilogin. do (the applicant companies do not need to log on to the COSMOS application and hence user ids for these companies are not required). The company has to click on “CLICK” for Company Registration on the login page. A window showing the Excel application forms available for download would be displayed. The company can then download suitable application form (i.e. NBFC or SC/RC) from the above website, key in the data and upload the application form. The company may note to indicate the name of the correct Regional Office in the field “C-8” of the “Annx-Identification Particulars” worksheet of the Excel application form. The company would then get a Company Application Reference Number for the CoR application filed on-line. Thereafter, the company has to submit the hard copy of the application form (indicating the Company Application Reference Number of its on-line application) , along with the supporting documents, to the concerned Regional Office. The company can then check the status of the application based on the acknowledgement number. The Bank would issue Certificate of Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied. All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorisation to accept Public Deposits can accept/hold public deposits. NBFCs authorised to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank. There is a ceiling on acceptance of Public Deposits. An NBFC maintaining required NOF/Capital to Risk Assets Ratio (CRAR) and complying with the prudential norms can accept public deposits.
