All About NBFC Prudential Norms & NBFC Compliances

Narendra Kumar

04 Jan, 2021

NBFC is a company registered under the Companies Act 2013, and any other previous act. It is an important source of Indian Financial System. NBFC is a company which has principal business of receiving deposits. The companies predominantly engaged in the financial activity and get registered with the Reserve Bank of India. It provides credit facilities and preferred more than banks. The company raises fund from the public (Directly or indirectly) and lend them to the ultimate spenders. NBFC cannot run their business without getting a license from the Reserve Bank of India.

RBI verifies the application and if RBI is satisfied that the conditions stipulated are complied with, RBI issues a Certificate of registration to the company. In this article we will discuss about the NBFC prudential norms & NBFC Compliance’s in detail;

Criteria of NBFC Registration

• Minimum net owned fund of Rs.2 crore.
• CIBIL records must be clean.
• A senior banker as full-time director in a company

Systematically Important NBFCs

NBFCs, as per the latest audited balance sheet whose asset size is 500 crores, or more are considered as systematically important NBFCs. NBFC focus on the financial stability of the overall economy.

What are the Regulations applicable on non-deposit accepting NBFCs whose asset size is less than ₹ 500 Crore?

If the NBFCs have not accessed any public funds and do not have any customer interface shall not be subjected to any regulation either prudential or conduct of business regulations.

NBFCs having customer interface will be subjected only to conduct of business regulations including FYC, KYC, provided they are not accessing the public funds. As if they are accessing the public funds, they will be subjected to limited prudential regulations.

NBFCs which are involved in both public funds and customer interface exist are subjected to both limited prudential and business regulations.

What are the Post Incorporation NBFC Compliances?

After receiving a COR from the Reserve Bank of India, it is required for all the Non banking financial companies to become a member of all Credit Information Companies i.e.

Registration to become a member of CIC

On the basis of data provided by the member banks of CIC and other financial institution credit information companies prepare a Credit information report and on that basis is Company credit Report prepared for credit rating. In India, these 4 below mentioned companies are treated as credit information companies.

• CIBIL-Credit Information Bureau India Limited

CIBIL was launched as India’s first Credit Bureau, an individual can log onto the CIBIL website^[1] and fill in the required details in the online form can then get his/her credit score and report on his/her registered email id.

• Equifax Credit Information Services Private Limited

Equifax has listed its services in India in the year 2010 and has recorded a magnificent growth by assembling and assimilating the record of an individual’s financial data and also helps in managing the financial profiles of individual consumers.

• Experian Credit Information Company of India Private Limited

Experian is helpful to do a credit check on the consumers and reflects the probability of a consumer paying back capacity of his loan and credit.

• CRIF High Mark Credit Information Services Private Limited

CRIF High Mark earlier known as High Mark ensures that there are no defaults in the future and the customer is creditworthy, mostly banks and lenders prefer to go to credit rating companies.

FIU-IND Registration

Financial Intelligence registration is required for every NBFCs post incorporation and has to report their client details as per the prescribed requirement under the Prevention of Money Laundering Act. FIU-IND registration provides quality financial intelligence for safeguarding the financial system from terrorism-financing and other offenses including money laundering.

The main objective of FIU-IND is to receive suspicious transaction reports and disseminate valuable financial information by collecting and analyzing the information. It acts as a Central Repository and maintains the national data on cash and suspicious transaction on the basis of the reports received from the entities who are reporting.

Central KYC Registration

Central KYC registration is one of the most important NBFC compliances to be done by the NBFCs and rapidly getting adopted by the companies in India. CKYC is termed as a centralized repository which collects the records for the customers in financial services. CERSAI (Central Registry of Securitization and Asset Reconstruction and Security Interest in India) is the registry for the Central KYC.

All the entities required to be registered and regulated from Reserve Bank of India i.e. NBFCs are required to take registration of Central KYC to reduce the burden of the entity by producing and assembling the documents of the consumers creating a new relationship with the financial entity.

NBS-9-Filling of Return with RBI

NBS-9 is required to be filed by the NBFCs -ND whose asset size is less than Rs 100 crore.

Annual Compliance to be done by the NBFC

NBFCs have to comply with the following requirements as Annual NBFC compliances

• Reporting of Financial Statements and change in management.
• Maintenance of Statutory Registers
• Auditing of financial accounts.

NBFC Compliances followed by the company annually

• NBS-7 Unaudited March monthly return- On or before 30^th June
• NBS-7 Audited March monthly return-Upon Completion.
• NBS-4 filled on an annual basis to find the repayment status of the rejected NBFCs accepting public deposits
• Detail Information about the companies having FDI/Foreign Funds-On or Before 30^th June.
• Filing of audited Balance sheet and P&L-1 Month from the date of signing.
• Declaration of Auditors to Act as Auditors of the Company.
• Before the commencement of the new Financial year, Resolution of Non-Acceptance of Public Deposit.

Monthly NBFC Compliances

Monthly return NBS-6 has to filed by the NBFCs on exposure to capital market by 7^TH of every month.

Quarterly NBFC Compliances

What is Asset-Liability Management Returns?

NBFCS-ND-SI on regular interval has to file multiple returns as ALM returns-

NBFC shall also submit the branch information return on a quarterly basis.

Conclusion

NBFC registered with RBI have to comply with all the NBFC compliances on Annual, quarterly and monthly basis and must have a net owned fund of Rs 200 lakh. As NBFC is contributing a large percentage of GDP rise in the company economy.

Non-compliance by NBFC will lead to failure of the business of NBFC and as a consequence result in company’s closure or cancellation of NBFC license.

Read our article: Revised Regulatory Norms for NBFCs as Notified by the Reserve Bank of India!