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Non-Banking Financial Company (NBFC) Compliance – A Complete Guide

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Introduction

Non-Banking Financial Company (NBFC) is one of the most renowned forms of financial institutions in India. NBFC participates in an outstanding role in the GDP of the country’s economy. RBI and other related regulators set rules and regulations, which keep on altering because of changing needs and circumstances. It is important for the NBFC management to know about what to do and how to do it, and there is a strong need to keep abreast of the times. It is equally important for NBFC business owners to follow-up with the NBFC annual compliance checklist. By any chance any NBFC found noncompliance; would have to pay hefty penalties. It could also lead to the NBFC license cancellation and closure of the company. As you might have noticed on November 16, 2018 RBI cancels the registration of 65 NBFC’s due to non-maintenance of the compliances

NBFCs as financial institutions refer to a set of rules and regulations which keep on changing on the basis of wavering needs and scenarios. It is important for the NBFC management to know about what to do and how to do, and there is a strong need to keep up with the present dynamic times.”

Please find below the checklist of NBFC compliances, which will help you to file returns on time.  Corpseed with expert compliance advisory can help you achieve the end-to-end compliances, let us take care of your Company’s compliance & you enjoy your business!

In September 2016, RBI issued “Master Direction – NBFC–Non-Systemically Important Non-Deposit intriguing Company Directions, 2016”, to be followed by all the NBFCs. There is an exclusive Master Direction for NBFCs which obtains public deposit or NBFCs with asset size above Rs five hundred crores (500cr). Therefore, this direction is irrelevant to such NBFCs.”

Manual of Master Directions:

The following are a list of the most imperative directions, enclosed in the said master directions. However, it is prudent for the readers to read the entire master direction.”

Master Direction applicability and Exemption  

  • NBFC having an asset size below Rs five hundred crores and do not accept public deposits.”
  • Directions mentioned under Chapter four (Prudential Regulations), paragraph 68 (KYC Directions) and Chapter five (FPC guidelines) shall not pertain to those NBFCs who have not retrieved any public funds and customer interface.”
  • NBFCs having public funds but no customer interface are excluded from the applicability of paragraph sixty eight (KYC Directions) and Chapter five (FPC procedure) of the directions.”
  • NBFCs having customer interface but not retrieving public funds are excluded from the applicability of Chapter four of the directions.
  • NBFC-Factor, Micro Finance Institution, Infrastructure Finance Company having an asset size of less than Rs five hundred crores. 

Important definition (i) customer interface and (ii) public funds”

  • Public funds refer to the funds elevated through  inter-corporate deposits, public deposits,  bank finance and the funds received through outside sources such as funds raised by issue of Commercial Papers, debentures and so on, however it excludes funds raised by issue of instruments mandatorily convertible into equity shares enclosed in a period not exceeding five years from the date of issue.”

Prudential Regulations (Chapter IV)

  • Accounting standards – Accounting standards & guidance notes released by ICAI must be convoyed along as far as they are not specious with any of these directions.”
  •  
  • Investments Accounting – The investment policy for the enterprise shall be defined by the Management of the company and must follow the same,
  • Call loans - Management aiming to grant demand or call loans must define policies for the company and shall service the same for every NBFC.
  • Categorization of Asset - Categorization of Assets shall be categorized as follows -
  1. Standard assets
  2. Doubtful assets and
  3. Sub-standard assets
  4. Loss assets”
  • Provisioning of standard asset – A prerequisite must be created for standard assets at 0.25 percent of the outstanding assets for each NBFC.”
  • Various NBFCs – For the purpose of investigative, the perimeter of five hundred crore-asset size all the NBFCs must be merged.
  • Balance sheet – The prerequisite for bad and uncertain debts and reduction in investment must be individually revealed by every NBFC.
  • Schedule to the balance sheet – The facts in the schedule as set out in the directions shall be attached to the balance sheet of every NBFC.
  • NBFCs own shares guideline – NBFC shall not fund against its own shares.

  • Combine loans to the security of shares – NBFC with asset size of Rs 100 crores and above offering loan against the security of listed shares must, maintain a Loan to Value ratio of 50% for loans held against the security of shares. In case of fall it shall be made good within 7 days. Group 1 securities for loan above 5 lakh can be accepted, where loan is done for investment in capital market. Reporting prerequisite to stock exchanges on quarterly basis.”
  • Change in address, directors, auditors, etc. to be submitted – Incas of any change in the address, auditors or directors, The same shall be communicated by every NBFC within a period of 6 month.

Fair Practices Code for NBFC 

A fair practice code shall be adopted by every applicable NBFC having a customer interface which interalia shall include Loan appraisal and terms/conditions, Disbursement of loans, and General, Responsibility of Board of Directors. “

Governance Issues/ Misc Instructions

  • Acquisition of Authority of Applicable NBFCs: Prior written approval from the bank is required.
  • Open a Branch or Joint Venture or Supplementary or Representative Office or commission Investment Abroad: Prior permission for RBI is necessary.
  • Ratings of NBFCs: In case of any amendment in rating same information shall be reported within 15 days of such change.

Checklist for Proper NBFCs compliance

  • The Return to be file by NBFCs before its due date that is within 60 days from the end of the financial year.
  • The financial Assets and income from them should be more than 50%.
  • The Auditor certificate needs to be uploaded on RBI Official Website

 

NBFC MONTHLY COMPLIANCES SUBMITTED BY ALL NON­-DEPOSIT TAKING NBFCS
NAME PURPOSE OF THE FORM DEPARTMENT
Monthly Return Monthly Return on NBFC­-ND­SI with asset size of Rs.100 CR. & above RBI
NBS_ALM­1 Statement of Short term dynamic liquidity to be filed within 10 days of the closer month RBI
To be submitted by all deposit-taking NBFC’s having asset size above Rs. 100 crores or public deposits of Rs. 20 crores and above
NBS­6 Monthly Return stating Exposure to Capital Market RBI

 

NBFC QUARTERLY COMPLIANCES
FORM NAME PURPOSE OF THE FORM DEPARTMENT
To be submitted by all deposit-taking NBFC’s except residuary NBFC
NBS 1 Quarterly Return on Material Financial Parameters of Deposit Taking NBFCs RBI
NBS ­2 Quarterly Statement of Capital Funds, Risk Assets/Exposures and risk assets Ratio. RBI
NBS­ 2: CA & CEO Cert. Certifying NBS ­2 RBI
NBS 3 Quarterly Return on Statutory Liquid Assets RBI
To be submitted by all residuary non­-banking companies
NBS 3A Quarterly Return on Statutory Liquid Assets RBI
Quarterly Return I Return of investments RBI
SUBMITTED BY ALL NON-DEPOSIT TAKING NBFCS
NBS -7 Quarterly Statement of Capital Funds, Risk-Weighted Assets and risk assets Ratio etc. RBI
NBS­-7: SA & CEO Cert. Certifying NBS -7 RBI
Submitted by NBFCS having an asset size between 50  to 100 cr.
Quarterly Return Quarterly Return by NBFC-­ND with asset size of Rs.50 ­ 100 Cr. RBI
Submitted by all securitization and reconstruction company
SCRC Quarterly statement of assets acquired/ securitized/ reconstructed RBI

 

NBFC HALF YEARLY COMPLIANCES
FORM NAME PURPOSE OF THE FORM DEPARTMENT
To be submitted by all deposit-taking NBFC’s having asset size Rs. 100 crores or more or public deposits of Rs. 20 crores and above
NBS_ALM­2 Details of any mismatches in Assets, liabilities and interest rate exposure (Within 20 days of the closure of half year) The regional office of the Department in whose jurisdiction NBFC is registered
Submitted by all non-deposit taking NBFCS
NBS_ALM­3 Interest rate sensitivity Statement shall be filed with the Bank

 

NBFC YEARLY COMPLIANCES
FORM NAME PURPOSE OF THE FORM DEPARTMENT
Submitted by all non-deposit taking NBFCS
ALM Return Asset liability mismatches and interest rate exposure RBI
Submitted by all residuary non­banking companies
Form  ­NBS 1A Annual Return on Deposits (Filed annually after March 31 and latest by September 30) Regional Office of Department of Non­-Banking Supervision, RBI where registered office of the company is situated
Submitted by NBFCS having the asset of Rs 100 to Rs 500 Cr
NBS­8 Annual Return on Non-Deposit taking NBFC With Asset Size from Rs.100 Cr. To 500 Cr RBI
Submitted by NBFCS having asset size below Rs 100 Cr
NBS­9 Annual Return on NBFC­ND­SI With Asset Size Below Rs.100 Cr RBI
Submitted by all non­banking financial companies accepting/holding public deposits, and MNBCS except residuary non­banking companies
NBS­4 Repayment of Deposits only in respect of rejected/canceled companies Department of Non­-Banking Supervision, RBI
CA certificate form NBS - 4 Certifying NBS­4 RBI

 

NBFC UNDER COMPANIES ACT, 2013
FORM NAME PURPOSE OF THE FORM DEPARTMENT
E-­Form MGT-­7 Annual Return (Within 60 days of conclusion AGM) ROC
E-­Form AOC­-4 Filing of annual financials i.e. Balance Sheet & Profit & Loss statement (Within 30 days of conclusion of AGM) ROC
E­-Form DIR-­12 If there is any change in Directors (Within 30 days of the date of that change) ROC

 

LIST OF COMPLIANCE ON BASIS OF TYPE OF NBFC

NON-­DEPOSIT TAKING NBFCS
FORM NAME PURPOSE OF THE FORM DEPARTMENT
Monthly Return Monthly Return with asset size of Rs.100 CR. & above RBI
NBS_ALM­1 Statement of Short term dynamic liquidity (Within 10 days of the end of every month) RBI
NBS-­7 Quarterly Statement of Capital Funds, Risk-Weighted Assets and risk assets Ratio etc. RBI
SA & CEO certificate for NBS­7 Certifying NBS­7 RBI
NBS_ALM­3 Interest rate sensitivity statement shall be filed with the Bank
ALM Return Asset liability mismatches and interest rate exposure RBI

 

COMPLIANCE BY DEPOSIT TAKING NBFC’s WITH ASSET SIZE OF MORE THAN RS. 100 CRORES OR HAVING PUBLIC DEPOSITS OF RS. 20 CRORES OR MORE
FORM NAME PURPOSE OF THE FORM DEPARTMENT
NBS­6 Monthly Return on Exposure Towards Capital Market RBI
NBS_ALM­2 Asset liability mismatches and interest rate exposure (Within 20 days of the closure of half year) Regional office of the Department in whose jurisdiction NBFC is registered

 

COMPLIANCE BY DEPOSIT TAKING NBFC’s EXCEPT RESIDUARY NBFC’s:
FORM NAME PURPOSE OF THE FORM DEPARTMENT
NBS 1 Quarterly Return on Important Financial Parameters of Deposit Taking NBFCs RBI
NBS ­2 Quarterly Statement of Capital Funds, Risk Assets/Exposures and risk assets Ratio. RBI
CA & CEO certificate for NBS­2 Certifying NBS­2 RBI
NBS 3 Quarterly Return stating Statutory Liquid Assets RBI
NBS­4 Repayment of Deposits Department of Non­Banking Supervision, RBI
(To be filed only in respect of rejected/cancelled companies)
CA certificate form NBS 4 Certifying NBS­4 RBI

 

SUBMITTED BY ALL RESIDUARY NBFC
FORM NAME PURPOSE OF THE FORM DEPARTMENT
NBS 3A Quarterly Return on Statutory Liquid Assets RBI
Quarterly Return I Return of investments RBI
Form ­ NBS 1A Annual Return on Deposits (Filed annually after closure of financial year and latest by September 30) Regional Office of Department of Non-­ Banking Supervision, RBI where registered office of the company is situated
Form Schedule "A" General Information of the Company (filed annually as early as possible latest by the 30th September) Regional Office of the Department of Supervision, Financial Companies Wing

 

SUBMITTED BY NON-DEPOSIT TAKING NBFC’S HAVING ASSET SIZE BETWEEN RS. 50 CRORES TO RS. ­100 CRORES
FORM NAME PURPOSE OF THE FORM DEPARTMENT
Quarterly Return Quarterly Return by Non-Deposit taking NBFC’s with asset size of Rs.50 ­- 100 Cr. RBI

 

SUBMITTED BY ALL SECURITISATION AND RECONSTRUCTION COMPANY
FORM NAME PURPOSE OF THE FORM DEPARTMENT
SCRC Quarterly statement of assets acquired/ securitized/ reconstructed RBI

 

SUBMITTED BY NON-DEPOSIT TAKING NBFCS HAVING ASSETS OF RS. 100 TO RS 500 CRORES
FORM NAME PURPOSE OF THE FORM DEPARTMENT
NBS­8 Annual Return on Non-Deposit taking NBFC’s With Asset Size from Rs.100 Cr. To 500 Cr RBI

 

SUBMITTED BY NBFC-ND-SI HAVING ASSET SIZE BELOW RS 100CR
FORM NAME PURPOSE OF THE FORM DEPARTMENT
NBS­9 Annual Return on NBFC­-ND­-SI with Asset Size Below Rs.100 Cr RBI

 

SUBMITTED BY ALL NBFCS WHETHER HOLDING PUBLIC DEPOSITS OR NOT
FORM NAME PURPOSE OF THE FORM DEPARTMENT
Special Return General information and Net Owned Funds RBI
Branch Info Branch Details RBI

 

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Sanya Arora
Highly motivated and innovative Environment MS graduate, highly effective at developing creative content and writing persuasive legal briefs. Expertise in writing E-waste, recycling, EPR, legal compliances articles, blogs, press releases and whitepapers etc. Excellent command over English Language with natural flair for writing. Excellent analytical skills and structured thinking capability.