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The RBI has issued Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016. An authorised representative of the NBFC, who will be officially authorised in this regard by the Board of Directors, is necessary to fill out the returns online. The NBFCs are having deadlines for submitting various returns. RBI would take stern legal action against anyone who files returns late.
To guarantee compliance with regulatory standards, NBFCs in India with overseas investments must file a number of necessary returns and reports as laid down in the regulations. The specific returns and reports may differ depending on the nature and the size of international investments and the regulation set forth by the regulatory authorities. Let us examine the returns by NBFC having overseas investments.
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The NBFCs provide a range of financial services, including advances or loans, equity, the purchase of shares, stocks, and debt, as well as businesses in insurance and chit funds. But excludes any organisation whose main activity is the sale, purchase, or building of fixed property or any activity related to the industry, agriculture, or both.
The business requires an NBFC Registration Certificate from the Reserve Bank of India in order to execute these financial services. Non-Banking Financial Companies are companies registered under the Companies Act of 2013.
Investments made into a domestic economy by people or businesses from other countries are referred to as Overseas investments. These investments, which can be made in a variety of ways, have the potential to be extremely beneficial for both the investors and the recipient nation.
For many nations, including India, overseas investment has grown to be a substantial source of capital. It has grown to be a crucial component of the world economy as nations all over the world get a significant amount of money from foreign investors.
Financial companies that are non-banking are permitted to invest abroad. Regarding their overseas investment, the NBFCs are governed by the RBI’s policies and regulations and the Foreign Exchange Management (Overseas Investment) Regulation, 2022. These guidelines lay out the terms and circumstances for such investments.
NBFCs may employ either the automatic method or the approved route, depending on the sum and purpose of the transaction. When an investment meets certain criteria or exceeds the cap established under the automated route, it must first receive RBI approval. NBFCS must abide by the guidelines and reporting requirements set forth by the RBI for overseas investments.
Unlike any other corporation, a Non-Banking Financial Company (NBFC) prefers to take loans or advances from foreign countries because their lending rates are far lower than those of Indian lenders. Due to decreased interest rates, they are also able to invest larger sums of money. Instead, because India has a client base that is expanding unlike any other nation and offers more prospects for growth, overseas investors are likewise drawn to the Indian market.
There have been instances where NBFCs have made investments abroad without first receiving regulatory approval from the Reserve Bank of India’s Department of Non-Banking Supervision (DNBS). Any investments undertaken by NBFCs without regulatory approval are against FEMA and are subject to penalties.
In this regard, it is emphasised that all NBFCs who are interested in investing in foreign companies must first obtain a “No Objection” (NoC) from the Department of Non-Banking Supervision of the RBI from the regional office under whose jurisdiction the company’s registered head office is located.
Applications in this area must specify in detail the actions the foreign entity intends to conduct. The Regulations clearly state that NBFCs are not allowed to invest directly in a foreign firm carrying out FEMA-unapproved activities. NBFCs should be aware of this before investing.
The NBFCs (both deposit-taking and non-deposit taking) that have overseas investments are required to submit the returns on a quarterly basis to the Department of Statistics and Information Management (DSIM), Central Office, Mumbai, as well as the Regional Office in whose jurisdiction the company’s registered office is located.
In addition to the aforementioned, NBFCs must submit an annual certificate from statutory auditors to the relevant Regional Office of the Bank, certifying that they have fully complied with all requirements set forth in the Master Direction for Systemically Important Non-Deposit-Taking and Deposit-Taking Companies (Reserve Bank) Direction.
Every NBFC is required to produce a Statutory Auditor’s Certificate (SAC) stating that it is conducting business as a non-banking financial institution, necessitating the possession of a Certificate of Registration issued under section 45-IA of the RBI Act.
With the normal mandatory returns that are required to be submitted by NBFCs, in addition to that, the following additional returns should be submitted for Overseas Investment.
The following list includes some typical obligatory returns that NBFCs with foreign interests may have to submit:
NBFCs must get an Annual Activity Certificate (AAC) from a chartered accountant. This certificate attests to the NBFC’s financial activity and compliance with the established regulatory standards.
Foreign Liabilities and Assets (FLA): NBFCs with outstanding overseas investments, loans, or guarantees beyond the specified threshold need to file the FLA. NBFCs receiving foreign direct investment must annually submit the Annual Return on Foreign Liabilities and Assets (ALF) report. Details on the NBFC’s foreign equity and loan capital, including the identities of foreign investors, capital inflows, and use of funds, are provided in this return.
Other Regulatory Filing: The Reserve Bank of India or other relevant authorities may need additional necessary returns or reports, depending on the specific activities and regulatory requirements that apply to the NBFC and its overseas assets. Periodic reports, information disclosures, or compliance-related filings are a few examples.
To maintain compliance with the required returns for overseas investments, NBFCs need to stay updated with the latest rules, circulars, and directives released by the RBI and other regulatory organisations. To get the precise and latest information on the particular returns that must be submitted in their cases, NBFCs should consult experts or legal counsel with knowledge of NBFC legislation.
Read Our Article: Returns by NBFC having Foreign Direct Investment (FDI)
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