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Complete Checklist for NBFC Compliance (2022)
NBFC Compliance

NBFC Compliance

NBFCs (Non-Banking Financial Companies) collect deposits, loans, and advances, as well as acquire stocks, shares, and other marketable securities issued by a government/local authority. These businesses are incorporated under the Companies Act of 2013. NBFCs are not banks, although they execute lending operations on par with banks. Just as banks must follow different rules and compliances, NBFCs must also fulfil certain compliances and file returns on a regular basis. Failure to do so can result in harsh fines and even termination of the NBFC Registration Certificate.

NBFC compliance has recently become increasingly challenging. There was a period when banks benefited from Non-Banking Financial Firms, and compliance with NBFCs was simpler and more permissive, but the RBI established new NBFC Compliance guidelines. According to the Master Direction, NBFC Returns (Reserve Bank) Directions, 2016, NBFCs must file different returns to the RBI regarding their deposit acceptance, ALM, Prudential Norms Compliance, and so on. The master directives serve as the cornerstone for RBI-compliant and secure NBFC operations. Because NBFC compliances and returns are complicated, they should be carefully examined to avoid large penalties.

What are the Essential Requirements for NBFC Compliances in India?

The current supervisory return online filing method has been transferred from the COSMOS platform to the XBRL system by the RBI. As a result, in order to submit returns on the new XBRL platform, NBFCs must have the following:

  • Obtain the Reserve Bank of India’s User ID and Password;
  • The installation of an XBRL RBI file is necessary.
  • On a regular basis, update your profile on the XBRL portal.

What are the Various NBFC Compliances & Returns in India

The month-to-month, quarter, and yearly NBFC compliance requirements and returns are as follows:

Monthly Compliance:

Form Types of NBFC Description Due Date
DNBS-04B  NBFCs-NDSI and NBFCs-D To capture:

The specifics of the mismatch in predicted future cash inflows and outflows for NBFCs-NDSI are based on the maturity pattern of assets and liabilities at the end of the reporting period.

Interest rate risk facts or information

Monthly, within 10 days after the end of the month.
NESL All Non-Banking Finance Companies All must submit their financial debt to NESL. In a week since the start of next month’s start.
CIC Reporting All Non-Banking Finance Companies Every NBFC should disclose its loans to all four CICs. On or before the 10th day of the next month.

 

Annual Compliances

Form Types of NBFC Description Due Date
DNBS-02 Return Non-NDSI NBFCs The return includes financial information such as asset and liability components as well as compliance with different prudential standards for non-deposit taking non-NDSI NBFCs. On or before May 30th (either audited or provisional basis); if provisional, file audited within 30 days of financial finalisation.
DNBS-010 All NBFCs & ARCs To guarantee that all Non-Banking Financial Companies maintain continual regulatory compliance (NBFCs). Within 15 days of the balance sheet’s finalisation date, but no later than October 31.

 

Additional NBFC Compliances:

Form Types of NBFC Description Due Date
DNBS09-CRILC SMA Details NBFCs-NDSI & NBFCs-D & NBFC-Factors For the day, all NBFCs-D, NBFCs-NDSI, and NBFCs-Factors with aggregate exposure more than $5 million to a single borrower were reported in SMA-2. If the account is classed (de-classified) as SMA-2,
CKYCR REs Every regulated company (including NBFCs) must do KYC before disbursing loans or creating account relationships. Within ten days of the account relationship’s start date
CERSAI All Financial Institutions While making secured loan payments Shift over the secured property as quickly as feasible for security purposes.
FIU-IND All regulated companies Such transactions must be reported to the FIU-IND agency, as specified in Rule 3 of the PMLA Rules 2005. Within seven days of being confident that the transaction is unusual, on the 15th of the following month.

 

Prudential Regulation of RBI Master Direction

Aside from the NBFC Compliances listed above, non-banking entities must adhere to the following regulations:

  • Accounting for Investments: The Board of Directors (BOD) of an NBFC is responsible for developing and implementing the company’s investment policy. For example, the criterion for categorizing assets as current or long-term;
  • Multiple NBFCs: All NBFCs will be aggregated collectively with the goal of verifying the asset size limit of Rs. 500 crores.
  • Loans against the company’s shares are forbidden, which implies that no relevant NBFC can lead or accept credit against its own shares.
  • Policy for Demand or Call Loans: The BODs of an appropriate NBFC that wishes to offer Demand or Call Loans should develop a policy that the firm would follow.
  • Asset Classification: Applicable NBFCs should classify their assets under the following categories:
  • Standard Assets;
  • Sub-Standard Assets;
  • Loss Assets;
  • Doubtful Assets.
  • Disclosure in the Balance Sheet: Each applicable Non-Banking Financial Company will have a separate disclosure provision for doubtful or bad debts and depreciation in investments 
  • Each applicable Non-Banking Financial Company should make provision for standard assets at 0.25 percent of the outstanding.

Penalties for Non-Compliance

If you are an NBFC and do not comply with the regulations on time, you will face harsh penalties from the RBI. The penalties for noncompliance vary according to the kind of NBFC. One of the most serious outcomes might be the confiscation of the NBFC license or possibly the dissolution of the firm.

Frequently Asked Questions

What Exactly are NBFCs?

NBFCs are popular financial firms that provide loans and advances, as well as acquire stocks, debt, equity, and other marketable assets issued by a government or local authority.

What are the implications of NBFC Compliances?

Once established, NBFCs must adhere to the regulatory authority’s numerous compliance criteria on a regular basis. To avoid incurring fines, these compliances must be met on schedule.

What exactly is the DNBS-01 return?

The return includes financial information such as asset and liability components, profit and loss accounts, exposure to sensitive sectors, and so on.

What exactly is the DNBS-05 return?

This return contains information on NBFCs that took public deposits but had their CoR denied.

What exactly is DNBS-03 Return?

Compliance with several prudential regulations, such as Capital Adequacy, Asset Classification, Provisioning, NOF, and so on, is captured in return for NBFC-Deposit Taking and NBFC-NDSI.

What exactly is DNBS-06?

The return includes financial information such as asset and liability components, as well as compliance with certain prudential standards for RNBCs.

Which NBFCs are excluded from the RBI’s registration requirement?

Not every NBFC is obliged to register with the RBI, but they must register with the regulators over whom they are governed. Nidhi, Chit, National Housing Bank, and insurance businesses are all NBFCs, however, they are governed by distinct regulations.

What is the mechanism for filing an appeal against the RBI’s termination of the registration of NBFC?

If an NBFC breaches the terms of the RBI Act or fails to fulfill the minimum conditions established by the RBI, the RBI has the ability to cancel the registration certificate. If an NBFC is dissatisfied with the RBI order, it may file an appeal. It may submit an appeal against the order within thirty (30) days of the date of the order canceling the registration certificate.

Existing firms can seek an NBFC license

A company that meets the requirements for the NBFC registration process may apply for an NBFC license. It stipulates that such a corporation be incorporated under the Companies Act of 2013 and have a minimum capital of two crore rupees.

What differentiates an NBFC from a bank?

NBFCs, unlike banks, are not allowed to accept demand deposits. Banks play an important role in the payment and settlement cycle, whereas NBFCs do not.

What authority does the RBI have over an NBFC?

The RBI Act of 1934 grants the RBI the authority to register, set policy, issue directives, inspect, regulate, oversee, and monitor NBFCs that meet the stipulated 50-50 criterion of primary business. The Reserve Bank may also fine NBFCs for breaking the requirements of the RBI Act or the RBI’s directives or regulations.

What are the updated NBFC regulatory regulations?

The amended NOF, IPO financing cap, ICAAP for NBFCs, RMC structure, board-approved policy, disclosure requirements, the appointment of a Chief Compliance Officer, and adoption of core banking solutions are among the new regulatory provisions for NBFCs.

What are the regulations that an NBFC must follow?

An NBFC must adhere to several NBFC compliances, such as submitting returns such as DNBS-01, DNBS-03, DNBS-06, and so on. They must also meet reporting standards, such as filing an audited annual balance sheet and profit and loss statement, a Declaration of Auditors to Act as Auditors of the Company, and maintaining a leverage ratio of no more than 7.

What are the Functions of NBFC?

NBFCs serve several purposes. Here are a few examples:

  • Purchase and Leasing of Hire
  • Financing for Retail
  • Venture Capital Services for Rural Financing
  • Trade Financing for MSME Financing

NBFC Registration Process

The term NBFC refers to a company rbi registered NBFC under the Companies Act of 2013, which is engaged in the business of providing loans and advances, acquiring shares/stocks/bonds/debentures/securities issued by the government or a local authority, or other marketable securities of a similar nature, leasing, hire-purchase, insurance business, and chit business.

Nevertheless, NBFCs do not include organizations whose primary business is agriculture, industrial activity, the acquisition or sale of products (other than commodities), the provision of services, or the sale/purchase/construction of an immovable property.

Furthermore, a Non-Banking Financial Firm is a company whose primary activity is to receive deposits under any scheme of arrangement in a lump amount or payments through contributions or in any other way (like a Residuary Non-Banking Company). As a result, any non-banking organization that wishes to engage in such operations should apply for the NBFC registration process.

NBFC Registration Process Cancellation

Certain causes that may result in NBFC registration process revocation must be understood by the firm owner. A Non-Banking Financial Company (NBFC P2P) is a sort of Non-Banking Financial Company that provides loan facilitation services to interested lenders and borrowers via an internet platform. This form of Non-Banking Financial Company may not accept deposits or provide loans on its own. Some of the grounds are included below:

  • If an NBFC fails to carry on its business activities
  • If the NBFC fails to fulfill the act’s standards or restrictions, as well as any other compliance needed by the RBI, such as capital requirements
  • In the event that an NBFC fails to comply or adhere to the RBI’s periodic directives.
  • If an NBFC fails to keep books of accounts or records as required by the RBI Act 1934 or fails to provide the books of accounts, records, and any other necessary documents to the RBI for inspection purposes, the NBFC would face penalties.
  • If the NBFC is unable to repay its deposits, its registration of NBFC may be forced to cancel; however, the RBI shall give such NBFC an opportunity to clarify its position before canceling an NBFC registration process, as there may be a case where it is discovered that the NBFC is in insufficient financial state to repay deposits.

 

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