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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;
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.
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.
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.
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 was launched as India’s first Credit Bureau, an individual can log onto the CIBIL website 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 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 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 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.
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 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 is required to be filed by the NBFCs -ND whose asset size is less than Rs 100 crore.
NBFCs have to comply with the following requirements as Annual NBFC compliances
NBFC Compliances followed by the company annually
Monthly return NBS-6 has to filed by the NBFCs on exposure to capital market by 7TH of every month.
|NBS-1||NBS-1 Return is filed by the NBFCs-NDs-SI and NBFCs-SI to capture financial details such as Profit and Loss account, Components of Assets and Liabilities, Exposure to sensitive sectors|
|NBS-2||NBS-2 return is filed quarterly to capture NBFC compliances related to several prudential norms such as Asset Classification, Capital Adequacy, Net owned Fund.|
|NBS-3||NBS-3 return is filed to capture information about Statutory Investments in the Liquid States which include Fixed Deposits in Schedules Commercial Bank, Central or State Government Securities, etc.|
NBFCS-ND-SI on regular interval has to file multiple returns as ALM returns-
|NBS-ALM1||Short term dynamic liquidity|
|NBS-ALM3||Interest Rate Sensitivity|
|ALM-YRLY||Statement of Assets Liability Mismatch|
NBFC shall also submit the branch information return on a quarterly basis.
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.