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NBFC Compliance Company in India

NBFC ANNUAL COMPLIANCE CHECKLIST

NBFC is one of the common types of financial institutions in India. Every NBFC needs to file its compliances and returns each year. Due date of the NBFC compliances and returns are mentioned in NBFC annual compliance checklist. This is created according to the master directions and guidelines of RBI.

Important NBFC Compliance Checklist for non-deposit & deposit-taking company

Annual Compliance

Statutory Auditors Certificate on Income and Assets by 30th June

NBS-7 or unaudited March Monthly return by 30th June

NBS-7 or audited March Monthly return by its completion

Information about Companies with Foreign Funds or FDI by 30th June

Resolution of Non-Acceptance of Public Deposit before starting of the new financial year

File audited annual balance sheet and P&L Account since one month from the date of sign off

Auditors' declaration to act as Company's Auditors on annual basis

Monthly Compliance

Monthly return by 7th of each month

Periodical Compliances

Resignation of Director (DIR-12 + Challan report within 30 days since when appointment is done)

Appointment of Director within 30 days since when appointment is done

Approval of any notification in the subsequent Board Meeting and filling certified copy with RBI

NBFC's Compliances and Returns registered with RBI

According to the Master Direction NBFC –SI and NBFC-NDs-SI need to file the following returns according to the following :

Following returns are required to be submitted by Deposit-taking NBFCs :

NBS-1 return –
Each NBFC that holding or accepting public deposits needs to submit NBS-1 return quarterly. This return is filed due to capture financial details like Assets and Liabilities, Profit and Loss Account, exposure to sensitive sectors and others.

NBS-2 –
NBFC accepts public deposits which are needed to be submitted a quarterly return on Prudential Norms. The objective to file this return is to track compliances linked to different prudential norms like Capital Adequacy, Asset Classification, Provisioning, NOF and others.

NBS-3 –
It is quarterly return which is required to be filed by each deposit-taking NBFC quarterly. Moreover, the purpose behind introducing this return is for tracking information on Liquid States' Statutory Investments. Besides, statutory investments incorporate Fixed Deposits in State Government Securities or Schedules Commercial Bank and others.

NBS-4 –
This is a type of annual return of important parameters. A rejected company that holds public deposits must file the return. NBS-5 was filed before. As NBS-1 is filed quarterly, NBS-5 is not valid currently. The purpose to file NBS-4 is to check the repayment status of the rejected NBFC which is taking public deposits.

NBS-6 –
It is a monthly return on exposure to capital market by NBFC that are accepting deposits with total assets equal or exceeding Rs 100 crores.

Half-yearly ALM returns
by NBFC that is taking public deposits exceeding 20 crores or asset size exceeding Rs 100 crores.

Branch Information Return –
This is a quarterly return which is required to be submitted by each NBFC that is accepting public deposits.

NBFCs-ND-SI needs to submit the following returns :

NBS-7 – This is a quarterly statement for NBFC-ND-SI regarding risk asset ratio, capital funds, risk-weighted assets and others. So you require filing it quarterly.

Monthly returns on essential financial parameters of NBFCs-ND-SI should be submitted monthly.

ALM returns – Asset-Liability Management (ALM) returns is known as multiple returns which are to be submitted by NBFCs-ND-SI during different intervals. Let us have a look at them :

Statement regarding short term dynamic liquidity ALM [NBS-ALM1] – Quarterly

Statement of Interest Rate Sensitivity in ALM – [NBS-ALM3] format – Half Yearly

Statement of Structural Liquidity in ALM – [NBS-ALM2] format – Half Yearly

Statement regarding Assets Liability Mismatch in the format [ALM-YRLY] – Annually

Return on Branch Information – Branch information return of each NBFCs-ND-SI is required to be submitted quarterly

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A non-banking organization which is known as a company and has principal business of getting deposits in any system or arrangement of a lump sum money or in instalments by contributions or in any other means, is also called a non-banking financial company (Residuary non-banking company).

Here it shows that all the Company that is registered under Companies Act, 1956/2013 and who deals in following :

Acquiring stocks or shares or debentures or bonds or securities prescribed by Government or local authority or other securities that is marketable

Business of advances and loans

Hire-purchase

Lease

Chit business

Insurance business

Principle business as financial activity

If a company's financial assets exceeds 50% of the total assets and

Income from financial assets becomes more than 50% of the gross income.

A company that satisfied both these criteria will be incorporated as NBFC by RBI.

The term 'Principal Business' is not described by the Reserve Bank of India Act. The Reserve Bank of India has defined it to guarantee that only companies mainly involved in financial activity will be registered with it and are controlled and supervised by it. Therefore, if there are companies involved in industrial activities, agricultural operations, purchase and sale of products, sale or construction of immovable property and offering services or purchase as their principal business. They may do certain financial business in a small way will not be controlled by the Reserve Bank of India. This test is commonly known as 50-50 test and is applied to verify whether or not a company is into financial business.

Difference between NBFC and Bank

NBFCs lend and create investments and therefore their activities are similar to that of banks. Though some differences are there between them :

NBFCs do not create part of the payment and settlement system and cannot issue cheques drawn on itself

NBFC cannot take demand deposits

Offers banking services to People without possessing a Bank license

Deposit insurance provision of Deposit Insurance and Credit Guarantee Corporation is not accessible to depositors of NBFCs not like banks

An NBFC does to need to maintain Reserve Ratios (CRR, SLR and others)

Foreign Investment approved up to 100%

An NBFC cannot take part mostly in industrial, agricultural activity, sale, purchase, construction of immovable property

Why NBFC should take approval of RBI?

According to Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can begin business of a non-banking financial institution without :

Getting a certificate of registration from the Bank

Without possessing a Net Owned Funds of Rs 2 crore

Though, regarding authority given to the Bank, to prevent dual regulation, certain types of NBFCs that are regulated by other regulators can get exemption from registration with RBI. These are known as Merchant Banking companies or Venture Capital Fund or Stock broking companies incorporated with SEBI, Insurance Company having a valid Certificate of Registration given by IRDA, Nidhi companies under Section 620A of the Companies Act, 1956, Chit companies as notified in clause (b) of Section 2 of the Chit Funds Act, 1982, Housing Finance Companies controlled by Stock Exchange, National Housing Bank or a Mutual Benefit company.

Types of NBFC

On the basis of deposit :

Deposit taking

Non-deposit

NBFCs whose asset size equal to Rs 500 crore or more according to last audited balance sheet are referred to important NBFCs. The basis for the classification includes the activities of such NBFCs will have an effect on the financial stability of the overall economy.

According to activity :

Investment Company

Assets Finance Company

Loan Company

Core Investment Company

Infrastructure Finance Company

Housing Finance Company

Micro Finance Company

Infrastructure Debt Fund

Non-Banking financial company like NBFC-Factors

Non-Banking financial company like NBFC - Micro Finance Institution

Needs for incorporation of NBFC

A company registered under the Companies Act, 1956 and wants to start business of non-banking financial institution as stated under Section 45- IA of the RBI Act, 1934 must follow :

It must registered under the companies Act, 1956/2013

It should possess a minimum net owned fund of Rs 200 lakh. Minimum net owned fund (NOF) needed for specific NBFCs like NBFC-MFIs, NBFC-Factors, CICs as prescribed by RBI)



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