NBFC Compliance

NBFC Compliances Checklist for F.Y. 2023

Non-banking financial companies (NBFCs) in India have struggled to properly manage compliance duties due to the Reserve Bank of India’s (RBI) special regulations for the industry. Non-Banking Financial Companies are incorporated under the Companies Act of 2013^[1] and engage in the business of accepting deposits, loans, and advances, as well as the purchase of stocks, bonds, and shares, as well as debentures and other government instruments.  
NBFCs are registered with the Reserve Bank of India and actively engaged in financial activity. The Reserve Bank of India’s license is required for the operation of any NBFC. NBFCs must comply with specific rules and filing requirements, much like banks, and must do so on a regular basis. Failing to do so may result in serious penalties or even the cancellation of the NBFC Registration Certificate.

Indian NBFC Compliance Requirements

The RBI has shifted from the COSMOS platform to the XBRL system for the current supervisory return filing process on online. NBFCs must therefore possess the following in order to submit returns on the brand-new XBRL portal:

• Get the password and user I.D. from the Reserve Bank of India
•  XBRL RBI file installation is necessary;
• Update your profile regularly on the XBRL portal.

NBFC Compliances & Returns in India

The NBFC Compliances & Returns for each month, quarter, and year are listed below:

Monthly NBFC Compliance:

Form	Type of NBFCs	Description	Due Date
DNBS-04B (Return Structural Liquidity and Interest Rate Sensitivity)	NBFCs-NDSI and NBFCs-D	To document:  The specifics of any discrepancies in NBFCs-anticipated NDSI’s future cash inflows and outflows are based on the maturity pattern of their assets and liabilities at the end of the reporting period. Information about interest rate risk in specifics.	Within ten days from the end of every month.
CIC Reporting	All NBFCs	Each NBFC (Non-Banking Financial Company) is required to report its loans to all 4 CICs.	On or before the 10th day of the succeeding month
NESL	All NBFCs	All NBFCs must notify NESL of their financial debt.	Not later than one week after the start of the following month.

Quarterly NBFC Compliances:

Form	Type of NBFCs	Description	Due date
DNBS-01 Return	NBFCs-NDSI and NBFCs-D	The return includes financial information for NBFC-D and NBFC-NDSI, including components of Assets and Liabilities, P&L accounts, Exposure to Sensitive Sectors, etc.	April 15th, July 15th, October 15th, and January 15th
DNBS-03 Return	NBFCs-D, NBFCs-NDSI, and NBFCs-Non-NDSI have more than 100 crore assets.	The return reflects adherence to prudential standards, including those for NBFC-Deposit-taking and NBFC-NDSI, such as Capital Adequacy Asset (CAA), Asset Classification and Provisioning, NOF, etc.	April 15th, July 15th, October 15th, and January 15th
DNBS-04A Reply STDL (Short-Term Dynamic Liquidity)	NBFCs-D and NBFCs-NDSI and Non-NDSI, as well as NBFCs with assets of more than 100 crores.	To record specifics regarding any discrepancies between anticipated future cash inflows and outflows based on business projections	April 15th, July 15th, October 15th, and January 15th
DNBS-06	RNBCs	The return includes financial information about assets and liabilities as well as compliance with key prudential standards for RNBCs.	April 15th, July 15th, October 15th, and January 15th
DNBS-07	ARCs	Record financial metrics and various operational information for ARCs, including assets (NPA), acquired, acquisition cost, recovery progress, etc.	April 15th, July 15th, October 15th, and January 15th
DNBS-08 CRILC Key Return	NBFC Factors, NBFCs-D, and NBFCs-NDSI,	Must record credit information on exposure of more than 5 crores to a single borrower	April 21, July 21, October 21, and January 21
DNBS-11	NBFC-CICs	The return includes financial information for CIC-ND-Sis, such as elements of assets and liabilities, a P&L account, exposure to sensitive industries, etc.	April 15, July 15, October 15, and January 15,
DNBS-12	NBFC-CICs	For CIC-ND-Sis, the return documents adhere to prudential standards such as Capital Adequacy, Asset Classification, Provisioning, NOF, etc.	15th April, 15th July, 15th October, and 15th January
DNBS-13	All NBFCs	To collect data on foreign investments for all NBFCs that have them.	April 15th, July 15th, October 15th, and January 15th
DNBS-14	NBFC-P2Ps	The return includes details about assets and liabilities, as well as whether NBFCs- P2P have complied with key prudential standards.	April 15, July 15, October 15, and January 15

Annual NBFC Compliances:

Form	Type of NBFC	Description	Due Date
DNBS-02 Return	Non-NDSI NBFCs	The return includes financial information for non-deposit taking non-NDSI NBFCs, such as components of assets and liabilities and compliance with certain prudential standards.	Before May 30th (either on an audited basis or a provisional basis), if a provisional filing is made, an audited version must be submitted within 30 days of the financial statements’ completion.
DNBS-010	Every NBFC and ARC	For all Non-Banking Financial Firms to maintain ongoing regulatory compliance (NBFCs).	Fifteen days after the day, the balance of the statement was finalised, but no later than 31st October.

Additional NBFC Compliances:

Form	Type of NBFC	Description	Due Date
DNBS-05 Return	Rejected NBFC	To record information about NBFCs that accepted public deposits, but whose COR is denied.	As when the Reserve Bank of India rejected the COR.
DNBS-09 CRILC details	NBFCs-NDSI NBFCs-D NBFC- Factors	In SMA-2 for the day, all NBFCs-D, NBFCs-NDSI, and NBFC-Factors with aggregate exposure> 5 crores to a single borrower were reported.	As soon as the account is classified (de-classified) as SMA-2
CKYCR	REs,	Every regulated institution, including NBFCs, is required to do KYC when disbursing loans or establishing an account relationship.	Within ten days of the account relationship’s start date.
CERSAI	All financial Institutions	During disbursing secured loans	To obtain the first change of the secured property as soon as possible.
FIU-IND	All regulated entities	All regulated organisations are required to report certain transactions to the FIU-IND agency as specified in Rule 3 of the 2005 PMLA Regulations.	Within 15 days of the subsequent month and within 7 working days of being convinced that the transaction is suspicious.

RBI Master Direction Regulations

In addition to the NBFC Compliances mentioned above, non-banking firms are required to adhere to the following rules:

• Accounting for Investments: An NBFC’s Board of Directors (BOD) is in charge of creating and carrying out the organisation’s investment policy. 
• Numerous NBFCs: To confirm the asset size limit of Rs. 500 crores, all NBFCs would be combined collectively.
• Since it is illegal to make loans based on a company’s share, no relevant NBFC can make or accept loans based on its stock.
• Demand or Call Loans Policy: An acceptable NBFC’s BODs should create a policy that the firm would abide by when offering Demand or Call Loans.
• Asset Classification: Relevant NBFCs must categorise their assets in accordance with the following groups: they are Standard, Sub-Standard, Loss, and Doubtful assets.
• Each applicable non-banking financial company will have a separate disclosure provision for doubtful or bad loans and depreciation in investments in the balance sheet.
• Standard assets shall be provided for by each applicable Non-Banking Financial Company at 0.25 per cent of the outstanding balance.

Compliance challenges for NBFCs

The Prevention of Money Laundering Act of 2002 and the Integrated Ombudsman Programme of 2021 require NBFCs to comply with thousands of rules and hundreds of acts, depending on the scale of their operation. The adherence to the regulations set forth by the NHB and RBI creates additional pressure.

The following are some of the main compliance difficulties that the NBFC sector has to deal with:

• The new prompt corrective action (PCA) framework for NBFCs has increased the burden of compliance.
• The increased compliance burden brought on by the NBFCS’s amended regulatory framework.
• A changing regulatory landscape.
• Ineffective management and tracking of relevant licences,
• Complicated NBFC regulations in India.
• The absence of an accurate list of required compliances.
• Ineffective event-based compliance tracking.
• Ineffective ongoing compliance tracking.
• Lack of management-level awareness.
• Compliance that is manual, paper-based, and dependent on humans.

Expected solutions

Considering the difficulties in maintaining compliance in order to operate NBFCs, a few methods were suggested in their research that might help them.

• Establish a culture of compliance by performing a baseline applicability assessment.
• Signing up for personalised, real-time, national regulatory updates.
• Digitising compliance management.

Following these solutions will help with the difficulty in maintaining compliance. One of the major forces behind the Indian economy’s expansion is the NBFC industry. It provides for a segment of society that commercial banks typically do not service.

Conclusion

The operations of non-banking financial enterprises are governed and monitored by the Reserve Bank of India. As a result, the RBI has established a list of requirements that all registered NBFCs must adhere to. The management of an NBFC must be well aware of these compliances and keep up with any changes to them. Following the RBI compliance requirements for NBFC is crucial if you want to remain competitive in the industry. If an NBFC doesn’t follow the RBI checklist, they’ll be penalised with stiff fines or even the cancellation of NBFC registration.

Also Read: All about NBFC Annual Compliance in India