RBI Compliance Checklist for NBFCs

Non-Banking Financial Companies are registered under the Companies Act 2013 and engage in activities such as accepting deposits, loans, and advances. Purchasing government-issued bonds, shares, debent

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Overview of the RBI Compliance Checklist for NBFCs

Like banks, the RBI also has rules for NBFCs. But these rules keep changing according to the situation and circumstances. The managers and directors of an NBFC must be aware of these rules and keep up-to-date with them. According to the Reserve Bank of India (RBI), non-banking financial corporations (NBFCs) must adhere to specific annual requirements to operate in India legally. These include:

  • The submission of annual financial statements NFCs are required to provide their financial information for the year, which includes the balance sheet and the profit and loss account, in the form of a report to the RBI within no more than six months of the close of the financial year.
  • Annual Returns and Filing: NBFCs must file an annual report with the RBI within 30 days of the close of the financial year. The return must include information on the business's economic situation, business, and operations.
  • Submission of the Statutory Audit Report An accountant who has received RBI chartered status must review NFCs' accounts every year. The audit report should be provided to the RBI within three months of the close of the financial year.
  • Statement of Statutory Liquid Assets The NBFC must keep some proportion of their time- and net-demand obligations as liquid assets that are statutory, as per the requirements of the RBI. They are required to submit a report of their statutory liquid assets to the RBI within 15 days of the close of each quarter.
  • Conformity with the Fit and Proper Standards: The RBI has established specific fit and appropriate criteria for selecting directors and other key personnel in NBFCs. The NBFCs must make sure that they meet these standards at all times.
  • Complying with Additional Regulations: NBFCs must abide by any other regulations and guidelines issued by the RBI periodically, for example, those related to the protection of customers, asset classification and provisioning, a and capital adequateness.

Compliance Report of an NBFC Registered with the RBI

According to Master Direction, both an NBFC-NDs-SI deposit company and an NBFC-SI deposit company must file refund claims.

Deposit NBFCs must file refunds according to the following categories:

  • NBS-1 Return: Every NBFC that manages or receives public funds must submit an NBS-1 return every quarter to collect financial information such as Profit and Loss accounts, Assets and Liabilities Reporting Disclosures in Sensitive areas, etc.
  • NBS-2 Refunds: An NBFC that receives public funds must submit a quarterly refund to Prudential Norms to assess compliance with certain strategic principles, such as asset division, financial sufficiency, NOF provision, etc.
  • NBS-3 refunds: Also known as three-quarter returns, these refunds require all NBFCs that take deposits to submit applications each quarter to capture information on official investments in Liquid countries, such as Fixed Deposits with Commercial Banks or central or state government securities schedules, etc.
  • NBS-4 Recovery: Reimbursement must be lodged by any company holding public funds that has been rejected from using these funds, usually NBS-5, which was initially installed for this function but has since been suspended as its installation has become unnecessary.
  • NBS-1 is introduced every quarter.
  • NBS-6 Refunds: These refunds are paid out monthly when an NBFC enters a financial market by taking deposits with total assets equal to or greater than Rs 100 crore. Half-yearly ALM Returns are given when an NBFC receives public grants totaling more than 20 kg or whose bag size exceeds 100 crore.

Nonbank Financial Companies that receive public funds must submit an audited balance sheet and report annually. Branch Data Recovery: Every NBFC managing public funds must deposit quarterly refunds back into their branch data recovery account to reimburse expenses incurred while managing public funds. Submission of Annual Statements and Returns is also mandatory.

Non-deposit NBFCs must submit annual statements of capital funds, risk assets, and ratios digitally or physically for submission. Furthermore, capital adequacy norms were codified into the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions 2007 to ease disclosure norms outlined within them.

Exposure to the real estate sector both directly and indirectly. Maturity Patterns for assets and liabilities

NBFC Non-Deposit-SII permits ALM returns to be submitted.

  • ALM-1: Short-Term Dynamic Liquidity Statement—Monthly
  • ALM-2: Short-Term Systemic Liquidity Half-Annual Statement/Declaration [8.5003];
  • ALM-3: Declaration of Vulnerability to Interest Rates Half-Year Statement

As stated above, once you get an NBFC License, it is your obligation to follow its enforcement. Please do so to avoid severe fines or even the closure of your business.

Dobizindia Business Solution Pvt. Ltd.'s consultant can completely comply with NBFCs and ND-SIs' obligations as they pertain to compliance issues. NBFC-ND-SI is required to file specific reports.

  • The NBS-7 is a quarterly statement of capital expenditure, estimated asset risk, and risk assets in an NBFC-ND-SI and should be submitted regularly. On an ongoing basis, a monthly return should also be filed on the financial parameters of an NBFC-ND-SI.

Asset and Liability Management Returns (ALM Returns):

Asset-Liability Management Returns refer to the number of returns submitted by NBFCs-ND-SI periodically, as described below:

  • Monthly ALM Statement [NBS-ALM1]
  • Property Structure ALM Statement [NBS-ALM2]. Half Annual. Interest Rate Sensitivity Report in ALM format [Statement [NBS-ALM3]]. Half Year. Annual Asset Liability Mismatch Statement [ALM-YRLY]
  • Branch Data Recovery: To follow state requirements for nonbank financial institutions (NBFCs-ND-SI), all branches are required to submit quarterly information about them.
  • Quarterly profit from significant non-store monetary boundaries taken by NBFCs with resources more noteworthy than Rs 50 crore yet under Rs 100 crore.
  • Non-deposit-taking NBFCs with assets between Rs 50 crore and Rs 100 crore must submit basic details regularly for at least the last three years, such as company name, address, NOF number, and profit and loss data.

How Can an NBFC Raise Funds?

NBFCs usually raise money through banks or sell business papers as shared assets to raise capital, then lend the cash raised as loans to small and medium businesses, retail clients, etc.

Are Banks and LIC the Same Thing?

Banks are known as Banking and Financial Companies (BFCs), while LICI of India (LIC for short) is considered an NBFC. Banks specialize in deposit and lending issues, while LIC primarily provides life insurance protection coverage to its beneficiaries.

What are NBFCs and MFIs?

NBFC stands for nonbank financial institutions that act like banks but operate outside of them in rural regions. In contrast, MFI stands for miniature-scale account establishments that work less efficiently than their NBFC counterparts by granting small loans to less fortunate members of society, allowing them access to resources necessary for survival.

What Is a Systemically Important Non-Deposit-Taking Institution (NBFC-NDSI)?

A fundamentally significant nonbank monetary organization (NBFC-NDSI) is characterized as any nonbanking monetary organization not enduring open stores and having full-scale assets of Rs. The evaluation includes those banks with sizes far exceeding 2% of GDP as examples of systemically important institutions.

Can an NBFC Provide Loans?

NBFCs can offer various services, including loans and credit facilities, currency exchange, retirement planning services, money market trading services, underwriting of securities transactions, and merger activities.

Can an NBFC Offer Home Loans?

Home loans offered by nonbank financial companies (NBFCs) typically fall within the prime lending rate framework. Banks do not permit lending under their monthly credit loan ratio values, while Nonbank Financial Services have more flexibility to do this, sometimes benefiting clients by providing lower loan fees!

More Compliances In addition to those before outlined, more compliances under the Companies Act 2013 that all NBFCs PAN-India must observe include the following:

  • Appointing and Approving an Auditor (ADT-1)
  • Book and Account Maintenance

Holding the Regulatory Registers, Drafting Financial Statements, Convening Statutory Meetings, Filing Income Tax Returns (ITR), and Filing AOC-4 Financial Statements

  • • MGT-7 Filing Annual Reports with the ROC (Registrar of Companies) and submitting the RBI Notification Applicable to NBFCs.

Compliance that applies to an entire NBFC regardless of its functions:

  • Annual Report Submission to RBI: Every nonbank financial institution (NBFC) must file its annual report within 15 days of the AGM (Annual General Meeting). Each NBFC must also present its Audited Financial Spreadsheet and P&L Statement submitted at Board meetings; their directors also need to send Apex Bank a copy.
  • SAC, or Certificate of Examiners: NBFCs registered across India must get a Legal examiner's certificate as evidence that their Non-Banking Financial Company has fulfilled its functions according to Section 45-IA of the RBI Act 1934. Ideally, this should happen one month from the balance sheet's completion, but this deadline must be, at most, December 31.
  • Annual Refund: Every NBFC that accepts or holds deposits must submit an annual refund with the details specified by Apex Bank of India in the format required for submission.
  • Change of Management or Directors: Any time an NBFC changes its management or directors It must notify the RBI within one month of the event date and submit a written statement with details such as these:

  • Identification and Appointment of Chief Executive Officers
  • List of Company Directors
  • Sample Signature of an Authorized Signatory who may sign on behalf of the Company.

Also, any changes or amendments made by Apex Bank to the guidelines provided above will be reported by the Reserve Bank of India within one month of their effective date.

Prudential Regulations

Additionally, to comply with RBI for NBFCs with PAN-India registrations, more rules are provided by RBI for PNBFCs with national registrations in Chapter IV of the Master Director, known as Prudential Regulations. They should be strictly observed by all NBFCs operating across India. Compliance with this governmental legislation is mandated in the following ways:

  • Leverage Ratio: For their transactions to proceed smoothly, all NBFCs other than Infrastructure Finance Companies and microfinance institutions must maintain a leverage ratio between 3 and 7.
  • Accounting Investments: For Nonbank Financial Companies (NBFCs) For instance, their Board of Directors (BOD) must establish and put in place investment policies for long-term and current investments.
  • Create Policies for Call or Demand Loans: A relevant NBFC that plans on issuing call or demand loans must draft policies that will be adhered to by their business.
  • Resource Characterization: Under Section IV, all NBFCs subject to the RBI Expert Directorate will recognize their resources by classes as follows:

  • Standard Properties
  • Assets Sub-Standard Directors
  • Doubtful Properties 4. Losses Losses Assets

  • Standard Asset Provisioning: Each applicable NBFC should provide 0.25 percent of their outstanding provisions to cover standard assets.
  • Many NBFCs: To comply with Chapter IV of the RBI Master Path, all applicable nonbank financial companies will be aggregated to verify whether their asset size exceeds Rs 500 crore.
  • Company Balance Sheet Disclosures: Each related NBFC covered under Chapter IV of the RBI Master Guidance would have individual disclosure requirements about bad or questionable debts and investment depreciation.
  • Involving borrowing against shares is prohibited; no BFC subject to Chapter IV can make loans against their claims for loaning purposes.

Principal Business of an NBFC

An NBFC's principal business can generally be defined as any financial activity in which financial assets make up at least 50% of total assets and associated income exceeds 50% of gross income for any particular company. Achieving both criteria qualifies a company to register as an NBFC with the RBI. However, principal business is not explicitly defined; the RBI has clarified that companies engaged in financial activities will be registered and monitored. So companies involved with agriculture-related activities, sales or buying of goods, construction or sale of immovable property, industrial activity, etc. do not fall within its purview as NBFCs.

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Check Non-Deposit and Deposit Companies Based on Compliance guidelines.

Below is provided an annual NBFC compliance checklist for both non-deposit and deposit companies. See:

S.No. Particulars Time Limit
Annual Compliances
1. Undiscovered March Return/NNBS-7 Return On or before June 30
2. Statutory Auditors Certificate of Income and Assets On or before June 30
3. Details of companies with FDI or Foreign Funds On or before June 30
4. Inspected return for March/NNBS-7 Upon completion
5. The audited file of the annual balance and P&L Account One month from the date of signoff
6. Reconciliation of a Public Deposit Rejection Before the commencement of the new Financial year
7. Announcement of Auditors to the Annual Audit Company Annual basis
Monthly Compliance
1. Monthly Return By the 7th of each month
2. Upload Monthly Return By the 7th of each month
Periodical Compliances
1. Appointment of Director (Appendix-III) Within 30 days of the appointment
2. Resignation of Director that is DIR-12 + Challan report This must be done within 30 days of the appointment.
3. Receipt of any notice at the next Board Meeting and filing a certified copy with the RBI

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