NBFC

Compliance by Non Banking Financial Companies under RBI Regulations – Different Returns and Intimations

A robust financial system is a pivotal factor in channelizing economic growth, and NBFCs has proven their mettle in developing the Indian economy. Non-Banking Financial Sector has been a prime contributor to the advancement of infrastructure, transportation, and generated an ample number of employment opportunities. NBFCs have gained a remarkable position in the financial arena. It renders credit facilities to the weaker and remote sections, thereby support those people who are often overlooked by the banks. The purpose of NBFCs is to bring equilibrium into society. RBI has set a list of NBFCs Compliances to ensure smooth functioning. This blog underlines different returns and intimations that NBFCs need to submit to RBI.  Also, it covers the penalties for non-compliances for NBFC of RBI regulations.

What is RBI Master Direction for NBFCs?

In September 2016, RBI issued Master Direction- Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016. There is a separate Master Direction for NBFCs with an asset size of more than INR 500 Crore and NBFCs, which accept a public deposit. Hence, this direction does not apply to such NBFCs.

As per the Master Direction – NBFC–Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016, NBFCs are required to deposit several returns to the Reserve Bank of India with regards to their deposit acceptance, ALM, prudential norms compliance, etc.

Applicability and Exemptions of RBI Master Direction

• NBFC having an asset size of less than INR 500 Crores and that do not accept public deposits, is subject to abide by the compliances under RBI regulations.
• Directions prescribed under Chapter IV (Prudential Regulations), paragraph 68 (KYC Directions) and Chapter V (FPC guidelines) do not apply to those NBFCs who neither have any retrieved public funds nor have customer interface.
• Applicable NBFCs that access public funds but have no customer interface are exempted from the applicability of paragraph 68 (KYC Directions) and Chapter V (FPC procedure) of the directions.
• NBFCs having customer interface but not accessing public funds are exempted from the applicability of Chapter IV (Prudential Regulations) of the directions.
• RBI Master Direction applies to NBFC-Factor, Micro Finance Institution, Infrastructure Finance Company having an asset size of less than INR 500 Crores, and registered under the provisions of RBI Act, 1934.
• The provisions of Master Direction paragraph 23 shall not apply to an NBFC being a Government company, as stated under the clause (45), Section 2 of the Companies Act, 2013 (Act 18 of 2013), and not holding or accepting public deposit.

Public funds- Implies to the funds elevated through the public deposits, bank finance, inter-corporate deposits, and the funds collected from the outside sources like funds raised through the issue of debentures, Commercial Papers, etc. However, the public funds do not include the funds which are raised by the issue of instruments that mandatorily converts into equity shares enclosed in a period of not more than five years from the date of issue.

Types of NBFCs based on the Activities

NBFCs are divided into the following categories:

• NBFCs-D– Deposit-taking NBFCs;
• NBFCs-ND-Non-deposit taking NBFCs;
• NBFC-ND-SI-NBFC-ND-Systematically Important or NBFCs not holding/accepting public deposits and have asset sizes of INR 500 Crore and above;
• RNBCs– Residuary Non-Banking Companies;
• NBFC-ARC-Non-Banking Financial Companies-Asset Reconstruction Companies.

Checklist of RBI Compliances for NBFCs

The Non-Banking Financial Companies, duly registered with the Reserve Bank of India, can accept the public deposits. Besides, such NBFCs are required to abide by the RBI regulations, as mentioned under the Non-Banking Financial Companies Acceptance of Public Deposits Directions. Below table denotes the annual, monthly, and periodical compliances for NBFCs:

Serial No.	Particulars	Timeframe
	Annual Compliance
1	Unaudited March Monthly return/NBS7	On or before 30th June
2	Audited March Monthly return/NBS7	On completion
3	Statutory Auditors Certificate on Income & Assets	On or before 30th June
4	Information about Companies having FDI/Foreign Funds	On or before 30th June
5	Audited March Monthly return/NBS-7	On completion
6	File audited annual balance sheet and P&L Account	One month from the date of signoff
7	Resolution of Non-acceptance of Public Deposit	Before the commencement of the new Financial Year
8	Declaration of Auditors to Act as Auditors of the Company	Annual basis
	Monthly Compliance
9	Monthly Return	By 7th of every month
	Periodical Compliance
10	Appointment of Director	Within 30 days of Appointment
11	Resignation of Director(DIR-12 + Challan Receipt)	Within 30 days of Appointment
12	Adoption of any notification in the ensuing Board Meeting and filing the certified copy with RBI	–

Returns to be submitted by Non-Banking Financial Companies

Compliance by Non Banking Financial Companies under RBI Regulations – Different returns and intimations

RBI Returns for Deposit-taking NBFCs

•  NBS-1 Return: Each NBFC that holds or accepts public deposits needs to submit NBS-1 return every quarter. The central purpose of filing NBS-1 return is to capture the financial details of the company, such as Components of Assets and Liabilities, Profit and Loss account, exposure to sensitive sectors, etc.
• NBS-2 Return: NBFC which accept/hold public deposits is required to submit a return on the Prudential Norms quarterly. The purpose of filing this NBS-2 return is to capture compliances for NBFC about several prudential norms like NOF, Capital Adequacy, Asset Classification, Provisioning, etc.
• NBS-3 Return: It is also a quarterly return which every deposit-taking NBFC must file. The intent to introduce the NBS-3 return is to capture information on Statutory Investments in the Liquid Assets. Further, the statutory investments comprise of Fixed Deposits in Scheduled Commercial Banks, State or Central Government Securities, etc.
• NBS-4 Return: It is a form of annual return with stringent parameters. NBS-4 return must be filed by a company that holds public deposits but whose CoR was rejected. The objective of filing this return is to check the repayment status of the rejected NBFCs-D accepting public deposits.
• NBS-6 Return: NBFCs that take deposits should file this return monthly on exposure to the capital market with total assets equal to or more than INR100 Crores.
• Half-yearly ALM Returns– NBFC, which holds or accepts public deposits of more than INR 20 Crores or asset size of above INR100 Crores. The purpose of filing this return is to address the mismatches between Assets and Liabilities.
• Filing Audited Balance Sheet and Auditor’s Report by Non-Banking Financial Companies accepting/holding public deposits.
• Branch Information Return: This is a quarterly return that every NBFC accepting public deposits should submit. The objective is to capture the reach and geographical spread of Non-Banking Financial Companies.

NBFCs-ND-SI must submit the following returns:

• NBS-7 Return: Every NBFC-ND-SI must file NBS-7 return on a quarterly basis. It is a statement of capital funds, risk-weighted assets, risk asset ratio, etc.
• NBFCs-ND-SI needs to file monthly returns on essential Financial Parameters.
• Asset Liability Management Returns: ALM returns means multiple returns which should be submitted by NBFCs-ND-SI at various intervals as described below:
  • Statement of short term dynamic liquidity ALM [NBS-ALM1] – Monthly;
  • Statement of  Structural liquidity in format ALM [NBS-ALM2] – Half Yearly;
  • Statement of Interest Rate Sensitivity in format ALM – [NBS-ALM3]- Half Yearly;
  • Assets Liability Mismatch [ALM-YRLY] Statement – Annual basis.
• Branch Information Return: All NBFCs-ND-SI are obligated to submit this return each quarter.

Returns to be submitted by NBFCs (Asset Size below INR 500 crore)

RBI regulations have been revised and all non-deposit taking NBFCs (NBFCs-ND), with assets less than INR 500 Crore are required to submit an Annual Return. Two fresh Return Formats have been added to capture substantial financial parameters of the NBFCs-ND, which include:

• NBS-8 Return- Every NBFCs (non-deposit taking) or NBFCs-ND with assets size between INR100 Crores to INR 500 Crores must file return in this format.
• NBS-9 Return– All NBFCs (non-deposit taking), NBFCs-ND with assets size belowINR100 Crore must file NBS-9 return.

The due date for filing both returns is 30^th May, i.e. within 60 days from the end of the year. Also, the purpose of filing NBS-8 and NBS-9 is to capture financial details and profile information such as Profit and Loss account, Components of Assets and Liabilities, Exposure to sensitive sectors, Branch Information etc.

RBI returns for NBFC-ARC and RNBCs

• ARC Return- NBFC-ARC must file ARC return to capture various operational details, and financial parameters such as acquisition cost, recovery status, assets (NPA) acquired, etc.

• NBS-1A and NBS-3A- All the Residuary Non-Banking Companies or RNBCs are complied to submit financial these returns (NBS-1A and NBS-3A). These refer to return on Financial Indicators by the RNBCs in order to capture financial details, like Statutory Investments in Liquid Assets, Profit and Loss account, Exposure to sensitive sectors, Components of Assets and Liabilities, etc.

List of RBI intimations applicable for all NBFCs

Following RBI compliances apply to every NBFC regardless of the activities performed by it:

• Filing of Annual Report to RBI- Every Non-Banking Financial Company must submit the Annual Report within 15 days of holding the Annual General Meeting. The company should provide an Audited Balance Sheet along with an Audited Profit and Loss Account as passed by the company in the meeting and affix a copy of the Board of Director’s report to the Reserve Bank of India.
• Statutory Auditors Certificate or SAC- All NBFCs needs to provide an Annual Certificate from Statutory Auditors to the effect that it was engaged in the non-banking financial business so it must hold a Certificate of Registration issued under Section 45-IA of the RBI Act. The due date is one month from the date of finalization of the Balance Sheet to not exceeding 31st December.

• Annual Returns– Each miscellaneous NBFC holding or accepting deposits must submit an annual return furnishing the information specified in a prescribed format to the Reserve Bank of India.

• Changes in Directors or Principal Officers- In case, an NBFC change any Director or Principal Officer, then it needs to intimate RBI within a month from the date of such an event. Every NBFC within one month from the commencement of its business delivers a written statement containing the following information:
  • Names and the official designations of its principal officers;
  • Names and residential addresses of the Company’s Directors; and
  • Specimen signature of the Principal Officers authorised to sign on behalf of the company.

Any changes or amendments in the above-provided information shall be intimated to the RBI within one month from the occurrence of such change.

Prudential Regulation under (Chapter IV) of RBI Master Direction

Apart from the above RBI compliances for NBFCs, there are other regulations that non-banking institutes should adhere to:

• Leverage Ratio: All NBFCs (except NBFC-IFCs and NBFC-MFIs) should maintain a leverage ratio of not more than 7 at any course of action.
• Accounting of investments: The Board of Directors of NBFC must frame an investment policy for the company and implement the same. For instance, the criteria to categorize investments into current and long term investments.
• Frame a policy for demand/call loans: Board of Directors of an applicable NBFC that intends to demand/call loans must frame a policy that shall be implemented by the company.
• Classification of Assets: Applicable NBFCs must classify their assets in the prescribed classes of:
  • Standard Assets;
  • Sub-standard Assets;
  • Doubtful Assets; and
  •  Loss Assets.

• Provisioning of Standard asset:-Every applicable NBFCs must make provision for the standard assets at 0.25% of the outstanding.
• Multiple NBFCs: All applicable NBFCs shall be jointly aggregated for the objective of checking the limit of INR 500 Crores asset size.
• Disclosure in the Balance Sheet:- Each NBFC shall have a separate disclosure provisions for doubtful/bad debts and depreciation in investments.
• Loans against the company’s shares are prohibited: No applicable NBFC can lend or take a credit against its own shares.

Conclusion

The Reserve Bank of India regulates and monitors the functions of Non-Banking Financial Companies. Therefore, RBI has laid a list of provisions that all registered NBFCs have to follow. If you need to sustain in the market, it is essential to adhere to the RBI compliances for NBFC.