With India witnessing rapid urbanization, the demand for home loans has skyrocketed, especially in urban regions. However, despite the strong lending sector, most home-seekers with a weak CIBIL score face disappointment as traditional banks simply ignore their application. This has created a huge credit gap that private lenders, such as NBFCs, can fulfill. NBFCs can provide a loan against property (LAP) while maintaining their status of “shadow bankers”. It also implies that you can start a mortgage company as an NBFC in India. If you are unsure about how to do so, this article can help.
Efficient Routes to Start a Mortgage Company in India
In India, there are three legal routes to start a mortgage company. These include
Housing Finance Company (HFC):
These are essentially NBFCs specialized in facilitating loans for the purchase and construction of properties. Since they can only cater to residential properties, they have limited flexibility. The Reserve banks govern them, and they require at least Rs 2 crore NoF in a non-lien account to maintain HFC status. On the positive side, they have access to the National Housing Bank (NHB). NHB funds HFCs so they can continue disbursing loans to new customers, eliminating maturity mismatches.
Nidhi Company
Nidhi company can only provide moderate credit to the small-scale community, making them an unviable option for expansion and scalability.
NBFC-ICC
NBFC-ICC (Investment and Credit Company) offers much more flexibility regarding credit diversity and the amount it can lend, making it the most suitable option for starting a mortgage company in India. Essentially, NBFC-ICC can lend to credit-seekers looking for residential as well as commercial properties. Additionally, they can provide a Loan Against Property (LAP).
How to Secure an NBFC License to Start a Mortgage Company
The route to start a mortgage company begins with securing an NBFC license in India. Here’s what this route looks like.
Step 1: Incorporation & Capital Infusion
You must incorporate a company, either as a private or public limited company. Once the incorporation completes, open a non-lien company’s bank account and infuse capital, viz, Net Owned Fund (NoF) worth INR 2 Crore (this is a mandatory threshold). Make sure the company and its officials have a robust credit and legal background; that is the key to successful approval.
Step 2: Meet Management And Governance Norms
Make sure your company has seasoned directors with at least 10 years of experience in the finance or banking sector. Besides, your company must demonstrate that they are the right fit for the lending business. This involves drafting
- A Fair Practices Code (FPC)
- An Interest Rate Policy
- A robust KYC and AML manual
Step 3: Contact Advisou and File RBI Application (CoR)
Next, partner with a seasoned consultant, viz, Advisou, to fill out the RBI application on the COSMOS portal. Though association is not mandatory, it is highly recommended given the rate of rejection. The application must go along with the mandatory documents (discussed in the next section)
Step 4: Send Physical Documents to RBI
Next, share the physical application and hard copies of documents with the RBI regional office
Step 5: “Fit and Proper” Assessment and Legal Checks
The RBI[1] will assess the documents for compliance. Also, they will cross-check directors and other key officials against their “Fit and Proper” criteria to determine their qualification.
Step 6: Grant of Certificate of Registration (CoR)
Finally, you will receive the CoR, provided the Reserve Bank found no error or non-compliance during assessment.
Mandatory Documents to Start a Mortgage Company
Corporate & Incorporation
- Certificate of Incorporation issued by the MCA.
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Certified Board Resolution authorizing the NBFC application and appointing an authorized signatory.
- Form INC-22 and DIR-12 filings confirming registered office and director appointments.
Financial & Capital Records
- Statutory Auditor Certificate verifying a minimum Net Owned Fund (NOF) of ₹10 Crore.
- Audited Financial Statements, including Balance Sheets and P&L for the last three years or since inception.
- Confidential Banker’s Report regarding the company’s financial conduct and accounts.
- Source of Funds Evidence proving capital is equity-based, clean, and not borrowed.
Management “Fit and Proper” Dossier
- KYC Documents (PAN, Aadhaar, Passport) for all directors and promoters.
- Form DNBS.02 detailing professional history and credit reports for each director.
- Experience Certificates proving that at least one director has a substantial financial services background.
- Fit and Proper Declarations signed by directors regarding clean criminal and credit history.
Operational & Regulatory Policies
- 3-to-5 Year Business Plan
- Board-approved Fair Practices Code (FPC) outlining transparent lending and recovery.
- KYC/AML Framework for customer identification and anti-money laundering compliance.
- IT and Cybersecurity Policy for loan management systems and data protection.
- Interest Rate & Risk Management Policy defining risk premiums and lending rate logic.
Post-Registration Compliance for Mortgage Companies in India
- Demonstrating the Fair Practices Code (FPC) is mandatory in the vernacular language. It must show that your company embraces transparency in loan pricing and recovery.
- Implementing the latest Know Your Customer (KYC) and Anti-Money Laundering (AML) policies is mandatory to prevent fraud.
- Meeting strict RBI norms for asset classification is essential to prevent penalties. The RBI can verify whether the company’s assets are standard, sub-standard, or Non-Performing Assets (NPA).
- Maintaining the required Capital-to-Risk Weighted Assets Ratio (CRAR) is compulsory. This will demonstrate that the company can effectively withstand credit losses.
- Share periodic returns and financial statements with RBI via a COSMOS portal before the deadline.
- Any changes to the interest rate model must have the consent of the board member and the RBI.
- Meet RBI’s cybersecurity guidelines to show that the company is effectively handling loan affairs and data security.
Conclusion
Excessive red tape can stall your vision to become a private lender in India unless you have the right partner who has your back. At Advisou, we simplify the licensing process through a comprehensive compliance evaluation and accurate paperwork. With years of licensing experience and an immaculate track record that speaks volumes, Advisou has become a one-stop destination for securing compliance-laden registration in India. Contact us now to book a hassle-free consultation.
FAQs
Why is there a discrepancy between the ₹2 Crore and ₹10 Crore NOF?
₹2 Crore is the historical statutory minimum, but the RBI’s updated scale-based framework now pushes the entry-level requirement for new NBFC-ICCs toward ₹10 Crore for better stability.
Can an NBFC provide mortgage loans to NRIs for Indian property?
Yes, provided the loans are serviced through NRE/NRO accounts and comply with FEMA guidelines regarding immovable property.
Is registration with Credit Information Companies (CICs) like CIBIL mandatory?
Yes, upon receiving a CoR, a mortgage NBFC must join all four RBI-authorized CICs to report data and access borrower credit histories.
Does offering “Construction Finance” to builders require extra permission?
While a standard NBFC-ICC can provide these, your 3-to-5-year business plan must explicitly detail this intent due to specific risk-weighting and provisioning norms.
How long does the RBI licensing process typically take?
The comprehensive “Fit and Proper” assessment and regional office verification generally take between 4 and 8 months to complete.
