Different Types of NBFC and Rules for Filing Returns?

The Non-Banking Financial Companies (NBFCs) are private institutions responsible for providing financial services to its customers. They provide services to their customers ranging from loans or advances and are involved in acquisitions of shares, bonds, debentures, stock, and securities which are actually issued by the government and also involve other services like the marketable securities which are involved in leasing, or insurance business. These companies accept the deposits from their customers in any manner or scheme and provide them with their other financial services which are in their power as stated in the Companies Act 2013 which the NBFCs are incorporated.

For one to start an NBFC, he/she needs to be familiar with all the terms and conditions of licensing and the documents that will be required in the process. But before applying for the licensing procedure, we must first learn about what are the types of NBFC licenses according to their type, category, and rules for filing returns by NBFC.

Different Types of NBFC:

• Asset Finance Company (AFC): As the name suggests, an AFC is an NBFC whose business lies in financing for the amount used for buying assets which can be very useful for industrial customers. Those who need to have a certain type of assets at disposal to perform their work such as tractors, automobiles, electric generators, fieldwork equipment, etc. The one thing to be noted is that it provides funding for physical assets and only deals in them.

• Investment Company (IC): IC is the type of NBFCs which deal in acquisition of securities and carries on its business completely in that field. They deal with the acquisition of securities like shares, bonds, stocks, and other financial securities.

• Infrastructure Finance Company (IFC): IFC is an NBFC which has some very specific defining factors. It deploys at least 75% of its total assets in infrastructural loans. Its minimum owned funds are at least Rs. 300 Crores and maintains a credit rating of an above “A” or equivalent to that along with a Capital to Risk Asset Ratio of 15%.

• Systemically Important Core Investment Company: Systemically Important Core Investment Company is an NBFC which consists of assets of over Rs. 100 Crores and is involved in the business of acquisition of shares and securities which satisfy some specific conditions.

• Loan Company (LC): A LC can be defined as any company which is carrying out its business in the field of providing its customers with financial funds in the form of loans or advances and any other activities it can perform but it doesn’t include an Asset Finance Company to any extent.

• Infrastructure Debt Fund: Infrastructure Debt Fund is an NBFC which raises its resources using denominated bonds of minimum 5-year maturity period through Rupees or Dollars alike. They facilitate long term debts to infrastructural projects and by the means of the resources, they generate from bonds.

• Micro Finance Institution: Micro Finance Institution is an NBFC which does not involve in taking deposits and engages in micro-financing activities.

• NBFC Factor: NBFC Factor is like the Micro Finance Institution in the way that it too is a non-deposit taking NBFC and doesn’t involve in taking deposits and engages in factoring as its principal business.

NBFC Guidelines on Returns for NBFC-D:

Below are guidelines for returns which are to be followed by the NBFCs which accept deposits. So, as per the NBFC guidelines:

• NBS-1: Returns on the deposits of the first schedule, and are to be filed quarterly a year.
• NBS-2: Returns on prudential norms, to be filed quarterly a year.
• NBS-3: Quarterly Returns per year on liquid assets.
• NBS-4: Returns on the important parameters by rejected deposit holding NBFC are to be filed annually a year.
• NBS-6: Returns on exposure to the capital market by deposit-accepting NBFC which have total assets of Rs. 100 crore or more and are to be filed per month.
• ALM Returns: These are to be filed half-yearly (every 6 months) by NBFC holding public who have deposited over Rs. 20 Crore or asset size over Rs. 100 Crore.
• Audited Balance Sheet and Auditor’s Report.
• Branch Info Return.
• Returns for NBFC-ND as per the NBFC Guidelines.

Below are guidelines for returns which are to be followed by the NBFCs which are non-deposit accepting NBFCs. So, as per the NBFC guidelines:

• NBS-7: Multiple statements like the statement of capital funds, risk-weighted assets, risk assets ratio, etc. These are to be filed quarterly per year.
• NBS-2: Returns on the important financial parameters of the company which are to be filed per month.
• ALM Returns: Monthly statement of the short-term (dynamic) liquidity in form NBS-ALM-1. A 6-month statement of (structural) liquidity in the form NBS-ALM-2. And another 6-month statement of interest rate sensitivity in the form NBS-ALM-3.
• Branch info return: Returns on important financial parameters of ND-NBFCs where the assets are over Rs. 50 crores but are less than Rs. 100 crores. It all has to be calculated and filed per month.
• Basic Information: Like the name and address of the company, Net Owned Funds, profit or loss in the last 3 years.

Guidelines by RBI for NBFC Returns:

The NBFC must submit various returns to the RBI about their deposit acceptance, prudential norms guidelines, ALM, etc. The list of those guidelines is as under:

• NBS-1: These are the Returns on Financial Indicators by NBFC-SI-D when it has the approval from RBI to accept or hold any deposits. The financial details that this would include are Assets and Liabilities, Profit and Loss account, Exposure to sensitive sectors, etc. This statement is required to be submitted quarterly and within 15 days.
• NBS-2: The Returns on Prudential Norms by NBFC-SI-D, when it has the approval from RBI to accept or hold the deposits. The details included here are Capital Adequacy, Asset Classification, Provisioning, Net Owned Funds, etc. This statement is required to be submitted quarterly and within 15 days.
• NBS-3: The Returns about Liquid Assets by NBFC-D, when it has been approved by the RBI to accept or hold any deposits. It includes the details of Statutory Investments in Liquid Assets like Government Securities, Fixed Deposits in Scheduled Commercial Bank, etc. This statement is required to be submitted quarterly and within 15 days.
• NBS-4: The Returns of the status of public deposits by NBFC-D, whose Certificate of Registration was rejected by RBI. Details to be filed are the repayment statuses of the public deposits whose payments were somewhat due and it is required for them to be filed annually.
• ALM: Asset-Liability Management Returns for NBFC-D when it has an asset base of Rs. 100 crore or more, or is holding public deposits of Rs. 20 crores or more which is taken in completely irrespective of their asset size, and in their latest balance sheet as of 31st March of the last financial year. ALM is to be filed on a half-yearly basis (6-months period) and within 30 days. This return enables RBI to assess any mismatches with the assets & liabilities and exposures to interest rate risks and is helpful in effective risk management.
• NDSI-500cr Return: All NBFCs-ND-SI are always required to submit NDSI-500cr return so that they can enable the RBI to know about the Important Financial Parameters. Details to be filed in this return are components of Assets and Liabilities, Profit and Loss account, Sectoral deployment of credit, Exposure to sensitive sectors, etc. These are to be filed quarterly and within 15 days.
• NBS-7: All NBFCs-ND-SI need to submit this to show compliance with various kinds of prudential norms which have been put into action, for example, Capital Adequacy, Asset Classification, Provisioning, Net Owned Fund, etc. These are to be filed for every quarter, and within 15 days.
• Multiple ALM Returns: These are Multiple Asset-Liability Management Returns for NBFCs-ND-SI:
• NBS-ALM-1: Statement of short term (dynamic) liquidity – Time Period is quarterly and within 15 days.
• NBS-ALM-2: Statement of (structural) liquidity – Time Period is half-yearly and within 30 days.
• NBS-ALM-3: Statement of Interest Rate Sensitivity – Time Period is half-yearly and within 30 days.
• ALM-YRLY: Statement on Assets Liability Mismatch – Time Period is annual and within 15 days.

The purpose of these statements given below is to effectively manage the interest rate risks and asset-liability mismatches. They are:

• SAC: Every NBFC must submit a Statutory Auditor Certificate which is prepared by the Statutory Auditor that it is engaged in the business of the non-banking financial services and is needed to hold the Certificate of Registration. It has to be filed annually, and within a month of finalizing the balance sheet, but it cannot be any later than the 31st December. It ensures compliance with the NBFC regulation in a continuous manner.
• Branch Information Return: It has to be submitted by NBFC-ND-SI and by those NBFCs which are accepting or holding public deposits, and to capture the reach of the NBFCs in doing so. It has to be filed quarterly and within 15 days.
• FDI Compliance: This certificate is to be signed by the NBFC’s Statutory Auditor, consisting of Foreign Direct Investment, and certifies compliance with the existing norms of FDI. This declaration is to be submitted on a half-yearly (6-month period) basis, and within 30 days, to the Regional Office of RBI in whose jurisdiction the registered office of the company is located. This ensures that the NBFC is following guidelines of the stipulated minimum capitalization and that its activities are confined and are being carried out in a limit which has been commanded by FEMA.
• Overseas Investment Return: NBFC has to submit in detail whether it is accepting deposits or not using overseas investment. It has to be submitted quarterly and within a time frame of 15 days to the Regional Office of RBI in whose jurisdiction the registered office of the company is located. And also, another copy has to be sent to the DSIM (Department of Statistics and Information Management), Central Office, Mumbai.
• Auditor’s Certificate: Statutory auditors of the NBFC with the overseas investment are needed to submit this certificate to the concerned Regional Office of the RBI, and it has to certify that it has fully complied and agreed with all of RBI’s guidelines. This has to be filed annually.
• ARC Return: NBFC-ARC (Asset Reconstruction Companies) needs to submit in details about its financial parameters such as the Non-Performing Assets (NPA) which were acquired by the company, acquisition cost experienced, their recovery status, etc. It has to be submitted quarterly and within 15 days.
• NBS-8: Returns of NBFC-NDs whose asset size more than Rs. 100 crores but does not go above Rs. 500 crores. It has to be submitted on the year-end basis, and within 60 days at that. This presents profile information and financial details about the NBFC in terms of the Assets and Liabilities, Profit and Loss account, Exposure to sensitive sectors, Branch Information, etc.
• NBS-9: Returns by NBFC-NDs whose asset size is below Rs. 100 crores, with profile information and financial details about the NBFC, i.e. components of Assets and Liabilities, Profit and Loss account, Branch Information, etc. It has to be submitted on the year-end basis and within 60 days.
• NBS-1A & NBS-3A: These returns are to be filed by the RNBCs with its financial details, such as the components of Assets and Liabilities, Profit and Loss account, Statutory Investments in Liquid Assets, Exposure to sensitive sectors, etc. It has to be submitted every quarter.
• CRILC: Returns by all NBFC-ND-SI, NBFC-D, and NBFC-Factors, with the information on all the borrowers along with them, having an aggregate fund-based and a non-fund based exposure of Rs. 5 crores or above, and the status of SMA (Special Mention Account) of each borrower. It has to be filed online for every quarter and within 21 days.
• SMA-2: All the NBFC-ND-SIs, NBFC-Ds, and NBFC-Factors, with an aggregate fund-based and a non-fund based exposure of Rs. 5 crores or above, need to report all the SMA-2 (Special Mention Account-2) accounts so that RBI can assess the Financial Distress, Prompt Steps necessary for the Resolution and Fair Recovery for the Lenders. It has to be reported on the Friday of the week when the relevant account first came in the SMA-2 category and in case the Friday is a holiday, then it has to be reported on a prior working day.
• Statement on Interest Rate Futures transaction: The NBFCs which are hedging their underlying exposures and participating in IRF exchanges have to submit this statement. It helps RBI to know about to what extent are the NBFCs participating in the IRF market. It has to be submitted half-yearly (within one month from the close of the half-year) to the Regional office of the DNBS (Department of Non-Banking Supervision) of RBI in whose jurisdiction their company is registered.

Documents Required for NBFC Licensing:

The application for NBFC License must be submitted by online or offline mode with all the necessary documents addressed to the Regional Office of the Reserve Bank of India.

• Information about the management of the company.
• Copies of the Certificate of Incorporation and Certificate of Commencement of Business in case of public limited companies.
• Up-to-date Memorandum of Association and Articles of Association copies from the company. The details of clauses relating to financial business should be present in the certified copy of the memorandum.
• Copy of PAN (Permanent Account Number) or CIN (Corporate Identification Number) which has been allotted to the company.
• The profile of all the company directors to be filled up separately and signed by each director.
• Certificate of their respective NBFCs where the Directors of the company have gained their NBFC experience.
• CIBIL (Credit Information Bureau (India) Limited) Data of Directors of the company.
• The Financial Statements of the past 2 years of unincorporated bodies, if present, in the group where the directors may be holding directorship with or without substantial interest.
• A Board Resolution that is specifically approving the submission of the application, its contents, and authorizing signatory.
• A Board Resolution to the effect that the company has not yet accepted any public deposit at any specific point in time in the past or does not hold any public deposit as of on the date and will not accept the same in future without the prior approval of Reserve Bank of India in written form.
• A Board Resolution stating that the company is not carrying on with any NBFC activities or have stopped all the NBFC activities and will not carry on or commence the same before getting the registration from RBI.
• A Certified copy of the Board Resolution for the formulation of the “Fair Practices Code”.
• The Statutory Auditors Certificate certifying that the company is or is not holding or does not accept any Public Deposits.
• The Statutory Auditors Certificate certifying that the company is not continuing or carrying on with any NBFC activities.
• The Statutory Auditors Certificate certifying clearly the Net Owned Funds as on the date of the application.
• The details of Authorized Share Capital and the latest pattern of the company’s shareholding including the percentages.
• A copy of Fixed Deposit receipt & banker’s certificate of no lien, indicating the balances in support of Net Owned Funds.
• The details of the bank balances or the bank account with a complete postal address of the branch, loan or credit services, etc. that was availed by the company.
• Last three years of Audited balance sheet and Profit & Loss account along with the director’s & auditor’s report or for any shorter period if available. This is only for the companies which are already in existence.
• The Business plan of the company for the next three years giving details about its:
  • The thrust of the business,
  • Market segment and
  • Projected balance sheets, cash flow statement, asset, or income patterns statement without any of public deposits included in them.
• The source of the capital at the start-up of the company along with all the documentary evidence.
• A Self-attested copy of Bank Statement, IT returns, etc.

All the above documents will be required for the licensing but it might be possible that more documents may be required as per the RBI’s requirement for the NBFC Licensing procedure.