A Non-Banking Financial Company (NBFC) is a company
•
Registered under the Companies Act, 1956
•
Its principal business is lending, investments in various types of
shares/stocks/bonds/debentures/securities, leasing, hire-purchase,
insurance business, chit business
An NBFC does not include any institution whose principal business is
agricultural activity, industrial activity, trading activity or
sale/purchase/construction of immovable property.
Entities NOT regulated by RBI
Insurance companies, stock broking and merchant banking companies,
venture capital companies, Nidhis, housing finance companies and Chit
Fund Companies not regulated by the Reserve Bank of India – to avoid
dual regulation – Coordination through State Level Coordination
Committee (SLCC) between various regulators
The Company needs to fulfil the Principal Business Criteria of being an NBFC.
The definition of ‘Principal Business’ given, vide, Press Release 1998-99/1269
dated April 8, 1999
(No NBFC shall commence or carry on the business of a NBFI without
obtaining a certificate of registration and having the net owned fund of
twenty-five lakh rupees or such other amount, not exceeding two hundred
lakh rupees)
The auditors of all NBFCs are required to report directly to the Reserve Bank
the non-compliance by any company of the above statutory provisions.)
Based on Liabilities
Category ‘A’ companies (Deposit taking) - NBFCs having public
deposits or NBFCs-D
Category ‘B’ companies (Non-Deposit taking) - NBFCs not having
public deposits or NBFCs-ND. The Companies having asset size more
than Rs.100 crore considered as NBFCs-ND-SIs (Systemically
Important)
Based on Activities
Loan Companies (LCs), Investment Companies (ICs), Asset Finance
Companies (AFCs), Infrastructure Finance Companies (IFCs), Core
Investment Companies (CICs), Factor Companies, Micro Finance
Institutions, Mortgage Guarantee Companies, RNBCs
Chapter III B
Section 45-IA - Requirement of registration and net owned fund
Section 45IB - Maintenance of percentage of assets (To be invested in
unencumbered approved securities not less than fifteen percent of the
deposits outstanding at the close of business on the last working day of the
second preceding quarter (5% in the form of bank fixed deposits) Penal
Interest - @ 3% over Bank Rate in case of shortfall in that quarter @ 5%
over Bank Rate for subsequent quarter
Section 45IC- Maintenance of Reserve fund (Every NBFC shall create a
reserve fund and transfer therein a sum not less than twenty per cent of its
net profit every year as disclosed in the profit and loss account and before
any dividend is declared)
Section 45MA - Powers and Duties of Auditors (Auditors have been
assigned greater role in indirect supervision of the NBFCs and made
accountable to submit exception reports on violation/contraventions of RBI
Directions/Act)
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Onsite
Offsite
Market Intelligence
Statutory Auditors
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DNBS (PD) CC No. 334 / 03.02.001 / 2013-14 July 1, 2013 - “Non-Banking
Financial Companies Auditor’s Report (Reserve Bank) Directions, 2008.”
Press Release April 8, 1999 – Principal Business Criteria
DNBS (PD) CC No 331/ 03.02.001 / 2013-14 July 1, 2013 - “Non-Banking Financial
Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998”
DNBS (PD) CC No.332 / 03.02.001/ 2013-14 July 1, 2013 - “Non-Banking Financial
(Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank)
Directions, 2007”
DNBS (PD) CC No.333/ 03.02.001 / 2013-14 July 1, 2013 - “Non-Banking
Financial (Non - Deposit Accepting or Holding) Companies Prudential Norms
(Reserve Bank) Directions, 2007”
DNBS(PD).CC.No 344./03.02.001/2013-14 July 1, 2013 - Master Circulars Miscellaneous Instructions to All Non-Banking Financial Companies
DNBS (PD) CC No.343/ 03.10.001/2013-14 July 1, 2013 - Master Circulars Miscellaneous Instructions to NBFC- ND-SI
DNBS.PD.CC.No.335 /03.10.042/2013-14 July 1, 2013 Master Circular - Returns to
be submitted by NBFCs
Directions apply to every auditor of an NBFC as defined in Section 45I(f) of the
RBI Act, 1934. Auditors to submit Report to the Board of Directors in addition to
the Report made under Section 227 of Companies Act, 1956 – Auditor’s Report
Matters to be included in Auditor’s Report
For all NBFCs
(To be submitted within one month from the date of finalization of the balance sheet
and in any case not later than December 30th of that year)
i)
ii)
iii)
iv)
Whether the Company is engaged in NBFI activity and obtained CoR
(Section 45-IA – minimum NOF)
Whether the NBFC is entitled to hold CoR for its asset/income pattern as on
March 31 (PBC) (Press Release)
In case of an AFC/MFI/Factor, whether it continues to be classified as per
extant guidelines
NBFCs not to be partner in partnership firms
For Deposit Taking NBFCs
i)
ii)
iii)
iii)
iv)
v)
vii)
viii)
ix)
x)
The public deposits (PDs) held by the Company are not excluded from the
definition of public deposits.
In case of AFCs – whether the Company is accepting PD within admissible
limits.
CRAR – 15% (AFC/LC/IC), whether CRAR has been arrived correctly
Default in paying its depositors, both Principal and Interest
Compliance to prudential norms on income recognition, accounting standards,
asset classification, provisioning and concentration of credit/investments
Compliance to maintenance of liquid assets
Filing of Returns – NBS-1, Half-yearly returns
Opening/Closing Branches – Prior written permission required.
AFC not to invest in Land or Building and unquoted shares beyond 10% of
owned funds. (LC/IC – 10% & 20%)
Rotation of partners of the statutory auditors audit firm - with public
deposits/deposits of Rs.50 crore and above
i)
ii)
iii)
iv)
v)
For Non-Deposit Taking NBFCs
Board Resolution for non-acceptance of PDs.
Whether the Company has accepted PDs.
Compliance to prudential norms on income recognition, accounting standards, asset
classification, provisioning and concentration of credit/investments
In case of NBFCs-ND-SIs (>Rs.100 crore asset size – SA to inform)- CRAR
disclosed in NBS_7 correctly arrived and the Company is in compliance to
minimum CRAR (15%). Whether the Company has furnished the annual statement
of capital funds, risk assets/exposures and risk asset ratio.
Disclosures in the balance sheet:
 Provisions for bad and doubtful debts and depreciation in investments.
 ND-SIs to disclose
 Capital to Risk Assets Ratio (CRAR)
 Exposure to real estate sector, both direct and indirect; and
 Maturity pattern of assets and liabilities.
 All ND-SI and deposit taking NBFCs to disclose the amount related to fraud,
reported in the Company for the year
Exemption from registration
In case the Company has been exempted from registration, to confirm whether it is
complying with the conditions stipulated as advised by the Bank.
Reasons for unfavourable or qualified statements
The auditor report shall state reasons, where the auditor is unable to express any
opinion the report, the report shall indicate fact together with reasons therefor.
Obligation to submit an exception report
In case the Company has not complied with
a)
Provisions of Chapter III B of the RBI Act,
b)
NBFC Acceptance of Public Deposits Directions
c)
NBFC (Deposit Accepting or Holding) Prudential Norms
d)
NBFC (Non-Deposit Accepting or Holding) Prudential Norms
The Auditor shall report only contraventions of the provisions of the RBI Act, 1934
and shall NOT contain any statement with respect to compliance of any of those
provisions.