NBFC Compliance

RBI compliance for NBFCs has been more complicated lately. There used to be a time when banks enjoyed benefits from non-banking financial firms. There was a moment when compliance with NBFCs was much easier and lenient, but RBI drafted new compliance for NBFCs after the Sahara case and kept them under screening. Securitization of standard assets and instructions for a private placement of NBFCs are a portion of the important regulations. RBI continues to bring forward attempts to resist theory in NBFCs.

Non-Banking Financial Firms are registered under the 2013 Companies Act and are engaged in the business of collecting deposits, loans and advances, buying stocks/bonds/shares, government-issued debentures, and securities. The NBFCs are actively engaged and registered in the financial operations of the Reserve Bank of India. Without getting a license from the Reserve Bank of India, no NBFC can run its business.

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    The annual NBFC compliance checklist defines the NBFC compliance due date and returns that every NBFC is required to file. The list is rendered according to the RBI guidelines and master directions.

    Non-banking financial companies must comply with the compliance later mentioned in this blog, as per the Non-Banking Financial Company Returns (Reserve Bank) Instructions, 2016.

    Based on Liabilities

    • Deposit Accepting NBFCs;
    • Non-Deposit Accepting NBFCs;
    • Systematically Important (NBFC-ND-SI);
    • Other Non-Deposit Holding Companies;

    Based on Activities

    • Infrastructure Finance Company (IFC)
    • Investment and Credit Company (ICC)
    • Systemically Important Core Investment Company (CIC)
    • NBFC- Non-Operative Financial Holding Company (NOFHC)
    • Mortgage Guarantee Companies
    • NBFC-Factors
    • NBFC- Microfinance Companies (MFIs)
    • Infrastructure Debt Fund Non-Banking Financial Company (IDF-NBFC)

    Below we have compiled an annual NBFC compliance checklist for every Non-Deposit and Deposit Company. See below:

    S. NoParticularsTime Limit
     Annual Compliances 
    1.Undiscovered March Return / NBS-7 ReturnOn or before 30th June
    2.Statutory Auditors Certificate of Income and AssetsOn or before 30th June
    3.Details of companies with FDI or Foreign FundsOn or before 30th June
    4.Inspected return for March / NBS-7Upon completion
    5.The audited file of annual balance and P&L AccountOne month from the date of signoff
    6.Reconciliation of a Public Deposit RejectionBefore the commencement of the new Financial year
    7.Announcement of Auditors to Annual Audit CompanyAnnual basis
     Monthly Compliance 
    1.Monthly ReturnBy the 7th of each month
    2.Upload Monthly ReturnBy the 7th of each month
     Periodical Compliances 
    1.Appointment of Director (Appendix-III)Within 30 days of appointment
    2.Resignation of Director that is DIR-12 + Challan reportThat too in 30 days of appointment
    3.Receipt of any notice at the next Board Meeting and filing a certified copy with the RBI 

    According to Master Direction [1] – The NBFC-NDs-SI and NBFC-SI deposit company must file the following refunds as set out below:

    Deposit NBFCs are required to submit the following refunds:

    • NBS-1 Refunds: Every NBFC that receives or manages public funds must file an NBS-1 return quarterly. The purpose of filing this return is to take financial information such as Profit and Loss Account, Assets and Liabilities, Disclosures in sensitive areas, etc.
    • NBS-2 Refunds: NBFC Receiving Public Funds is required to file a quarterly refund to Prudential Norms. The purpose after submitting this refund is to take into account compliance with a number of strategic principles such as the division of assets, Financial Sufficiency, NOF, Provision, etc.
    • NBS-3 refunds: Also, it is a three-quarter refund where every NBFC who takes a deposit needs to apply every quarter. In addition, the purpose of introducing this return is to capture information regarding official investments in Liquid countries. In addition, statutory investments include Fixed Deposits in the Commercial Bank, Central or State Government Securities Schedules, etc.
    • NBS-4 Recovery: The type of annual return of critical parameters. Reimbursement must be lodged by the rejected company holding public funds. Earlier it was installed on NBS-5. However, now NBS-5 is suspended as
    • NBS-1 is introduced quarterly. The purpose of the NBS-4 application is to obtain the payment status of the rejected NBFCs that receive public funds.
    • NBS-6 refunds: It is a monthly refund when the financial market is found by NBFC taking deposits with total assets equal to or in excess of Rs. 100 crores.
    • Halm-Yearly ALM Returns by the NBFC receives a public grant of more than Rs. 20 kg or bag size in excess of Rs. 100 crores.
    • Audited Sheet and Audit Report of Non-Bank Financial Companies receive public funds. Branch Data Recovery: It is a quarterly refund in which every NBFC that receives or manages public funds needs to deposit it.

    NBFC Non-deposit type is needed to send or submit the annual statement of capital funds, risk assets, ratio, etc. it can be submitted either digitally or physically. Moreover, capital adequacy, Liquidity, and other disclosure norms have been consolidated in Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) directions, 2007.

    CRAR

    • Exposure to the reality sector both direct and indirect.
    • Maturity Patterns for assets and liabilities.

    ALM Returns are allowed by NBFC Non-Deposit-SII to be submitted

    • ALM-1- Short Term Dynamic Liquidity Statement-Monthly Dynamic Liquidity Statement-
    • ALM-2- Short Term Statement, Systemic Liquidity- Half Annual Statement
    • ALM-3- Declaration of vulnerability to interest rates- Half a year

    Moreover, if you have already obtained the NBFC License, as mentioned above, you are expected to comply with NBFC enforcement. In addition, the effects of non-compliance can lead to severe fines and even to the business being shut down.

    However, if it is challenging for you to follow up on NBFC compliance, you can contact the Legalraasta consultant. We will take full care of your Non-Banking Financial Company’s compliance.

    • NBS-7: It is a quarterly statement of capital expenditure, estimated asset risk, risk assets, etc., for NBFC-ND-SI. Therefore, you need to install it quarterly.
    • A monthly return on the required financial parameters of the NBFCs-ND-SI should be submitted on a monthly basis.

    ALM Returns: ALM (Asset-Liability Management) Returns refers to the number of returns that must be submitted by NBFCs-ND-SI from time to time as described below:

    • ALM Statement [NBS-ALM1] Changing Temporary: Monthly.
    • Property structure ALM Statement [NBS-ALM2]: Half Annual.
    • Interest Rate Sensitivity in ALM format – [Statement [NBS-ALM3]: Half Annual.
    • Assets Liability Mismatch Statement [ALM-YRLY]: Annually.
    • Branch Data Recovery: All NBFCs-ND-SI must submit branch information on a quarterly basis.

    Quarterly return on substantial non-deposit financial parameters taken by NBFCs holding assets above Rs. 50 crores and higher but below Rs. 100 crores.
    Non-deposit taking NBFCs with an asset size around Rs. 50 crores and Rs. 100 crores The basic details must be submitted periodically over the last three years, such as company name, address, NOF, and profit/loss.

    In addition to the above compliances, there are several other compliances under the provisions of the Companies Act, 2013 that must be observed by all NBFCs PAN-India, which are as follows: 

    • ADT-1, Auditor’s Appointment
    • Book and Account Maintenance
    • Holding the Regulatory Registers
    • Drawing up the financial statements
    • Statutory Meetings Convene
    • ITR (Income Tax Returns) Filings
    • AOC-4, Financial Statements Filing
    • MGT-7, Filing Annual Reports ROC (Registrar of Companies)

    Compliance that applies to the whole NBFC regardless of the following functions:

    • Completion of Annual Reports to RBI: All NBFC (Non-Banking Financial Institution) must submit their Annual Report within 15 days, from the date of the AGM (Annual General Meeting). Each financial institution must provide its Audited Financial Spreadsheet, as well as the Audited P&L (Profit and Loss Statement) submitted by the company to the Board Meeting. Company directors also need to submit a copy of the Board Report or Directors’ Report to Apex Bank.
    • SAC or Certificate of Examiners: All NBFCs registered with PAN-India are required to collect a certificate from Legal Examiners. This certificate will serve as a declaration that the NBFC or Non-Banking Financial Company has performed the functions of the NBFC and is included under section 45-IA of the RBI, Act, 1934. Besides, the date on which this certificate is due is one month from the date of completion of the Balance Sheet. However, the time will not exceed December 31.
    • Annual Refund: All NBFC receipts that receive or hold deposits must submit an annual refund containing details of the format set by Apex Bank of India.
    • Change of Directors and Directors: If the NBFC decides to change its management or directors, then it is compulsory to notify the RBI within 1 month, from the date of the event. Besides, all non-bank financial institutions must submit a written statement, including the following details:

    1. Name and Official Appointment of its Chief Executive Officers.
    2. Name and residential address of company directors.
    3. Sample Signature of Chief Executive Officer authorized to sign on behalf of the Company.

    Also, any changes or amendments made by Apex Bank to the guidelines provided above will be notified by the Reserve Bank of India within 1 month from the date of the change or amendment.

    In addition to the above-mentioned compliance with RBI for NBFCs with PAN-India registration, there are some other regulations provided by RBI referred to in Chapter IV of the Master Director. These laws are referred to as the Prudential Regulations. Again, it is mandatory for any NBFC to comply with the regulations as follows:

    • Leverage ratio: In every course of action, all NBFCs other than the NBFC-IFC (Infrastructure Finance Company) and the NBFC-MFI (Micro Finance Institution) must maintain a leverage ratio of up to 7.
    • Accounting Investments: It is mandatory for the NBFCs’ BOD (Board of Directors) to frame and enforce investment policies for the company. The criteria for categorizing investments into long-term and current investments, for instance.
    • Frame Policies for Call or Demand Loans: The BOD (Board of Directors) of a pertinent NBFC that plans to call or demand loans must frame a policy that will be adopted by the business.
    • Asset classification: All NBFCs applicable to the RBI Master Directorate under Chapter IV shall identify their assets in classes as follows:

    1. Standard Property
    2. Assets Sub-Standard directors.
    3. Doubtful properties
    4. Assets Loss

    • Standard asset provisioning: Each applicable NBFC is expected to include 0.25 percent of the total outstanding provisions on the standard assets.
    • Multiple NBFCs: All NBFCs applicable to the RBI Master Path under Chapter IV will be aggregated jointly to verify the asset-size threshold of Rs 500 crores.
    • Company balance sheet disclosures: Each related NBFC under Chapter IV of the RBI Master Guidance will have separate disclosure requirements for bad or questionable debts and investment depreciation.
    • A loan taken against the company’s shares is prohibited: no BFCs applicable to the RBI Master Directorate under Chapter IV can either take over or lend credit against their own shares.

    Procedure to obtain NBFC Annual Compliance

    Accuracy is a specialty of ours! After the paperwork has been completed, we will not waste time preparing and filing your submission. We will share the acknowledgment with you once it has been filed.

    We know your company needs! We align a specialist to ensure that you address your company’s enforcement criteria and comprehensive assistance in the process in depth.

    Exactness guarantees timelines!

    Our team warrants report free of hassle. To guarantee timely filing and distribution, we collect the necessary documents and exchange the appropriate drafts.

    Holding you updated is our duty!

    We are pleased to keep you updated about the status of your application until it is done. You are brought to your attention to every creation of your application.

    After the collection of all the documents and its verification is done then the application is finally submitted online. We deliver what we commit!

    Frequently Asked Questions​

    Non-banking financial companies’ aka NBFCs are the financial institution that do not hold banking license but deals in financial services. They are allowed to involve in financial activities under section 45-IA of the RBI Act. NBFCs have increased in its types and it has played a massive role in meeting the credit demand that has been largely unmet by traditional financial institutions.

    NBFCs are managed by different financial bodies of India such as RBI, IRDA, SEBI, National Housing Bank, etc. NBFCs deal in various aspects of financing, and they are regulated different financial bodies as per their nature of the activity.

    Not every NBFC is required to register under RBI, but they are need to register with the respective regulators that they are regulated by. For example, Nidhi, Chit, National Housing Bank, Insurance companies are also NBFC, but they are regulated under different laws.

    For NBFC registration, there is a requirement of minimum capital of Rs. 2 cr; therefore, an applicant needs to register a company with the prescribed capital along with the requisite government fees.

    NBFCs offer various banking and non-banking services to the people in need. They do not own a banking license for the services they render but they must follow the rules and regulations laid down by the RBI. NBFC registration is necessary in order to extend the functions of an NBFC. Only a registered NBFC can commence full fledged NBFC operations. Reserve Bank of India regulates and supervises the functions of NBFCs according to the provisions mentioned in Chapter III B of the RBI Act 1934.

    All NBFCs cannot accept public deposits. The NBFCs can accept/renew public deposits for a minimum 12 months period and maximum 60 months period. NBFCs cannot accept deposits repayable on demand.

    A business that fulfils the criteria for grant of NBFC registration is eligible to apply for NBFC license. It includes that such company should be registered under the Companies Act 2013 and should have the minimum capital of 2 crores rupees.

    It is not mandatory to get NBFC software; you can get it once you are licensed.

    An NBFC company cannot take a loan to meet Rs 2 crore requirements.

    Yes, you can use an initial fixed deposit but for a specified period of time.

    Well, it is necessary to have a certain amount of experience to get this license.

    The RBI has been accorded the powers under the RBI Act 1934 to register, lay down policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs which comply with the defined 50-50 criteria of principal business. The Reserve Bank can also penalize NBFCs for violating the provisions of the RBI Act or the directions or orders issued by RBI.

    If companies that are needed to be registered with the RBI as NBFCs are found to be conducting non-banking financial activity, like lending, investment or deposit acceptance as their principal business activities, without seeking registration, the Reserve Bank has the power to levy penalty or monetary fine on them or can even prosecute such companies in the court of law.

    RBI has the authority to cancel the certificate of registration if an NBFC violates the provisions under the RBI Act or fails to meet the minimum requirements prescribed by the RBI. However there is a provision of appeal if an NBFC is not pleased with the RBI order. It may file an appeal against the order within a period of thirty (30) days from the date of the order of cancellation of the certificate of registration.

    The list of registered NBFC is available on the official website of RBI. One can check the same by visiting www.rbi.org.in.

    Net owned fund of a company means the amount left after investment of such company in shares of its subsidiaries, companies in the identical group and other NBFCs and the book value of debentures, bonds, loans & advances outstanding including hire purchase & lease finance made to & deposits with subsidiaries and companies in the same group, to an extent that it goes beyond 10% of the owned fund.

    As per the RBI guidelines, Net Owned Funds at the time of takeover should not be less than INR 2 crores.

    There are two major sources from where NBFC can get funds. These include borrowing from other financial institutions or accepting term deposits however all NBFCs cannot accept deposits. Apart from this NBFCs can also raise funds through commercial papers.

    It should not be less than INR 2 crores though limit can exceed.

    NBFCs stand for Non-banking Financial Institutions. Some of the common examples of NBFCs include investment banks, mortgage lenders, money market funds, insurance companies, private equity funds, hedge funds and Peer 2 Peer lenders.

    A company registered by the Companies Act, 2013 and seeking to commence business of non-banking financial institution as defined under Section 45 I(A) of the RBI Act, 1934 must comply with the below things: i) It must be a company registered under Section 3 of the Companies Act, 2013. ii) It must have a prescribed minimum amount of net owned fund of ₹ 200 lakh (The minimum net owned fund (NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated separately by RBI on specialized NBFCs).

    Unlike banks, NBFCs are not allowed to accept such deposits which are repayable on demand. Banks form an integral part of payment and settlement cycle while NBFC, is not a part of the system.

    Well the documents required for obtaining such registration involves documents submission by directors, shareholders and Applicant Company. Some necessary documents include Certificate of Incorporation, updated KYC of the Shareholders and Directors, Net-Worth Certificate of directors, shareholders, and the company, education and qualification proof of the directors, company’s PAN & GST number, documents in support of the address of the company, details of the bank account of the company, the board’s resolution approving the formation of NBFC, etc.

    The answer is No. Although Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Nidhi Companies, Insurance companies, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, and Chit Fund Companies are NBFCs, however, they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions. These are regulated by different authorities under different rules.

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