NBFC Loan Portfolio Audit

It is a process that helps non-banking financial institutions to identify and rectify financial irregularities and inaccuracies. The key aspects include the following:

1. Proper verification of loan agreements and legal documents.
2. Credit risk assessment.
3. Review of non-performing assets.
4. Examination of the loan operational process.
5. Compliance with the Reserve Bank of India (RBI).
6. Reevaluation of the loan management and restructuring of the IT system.

The different types of risks associated with NBFC loan portfolio audit include credit, liquidity, operational, market, compliance, and interest rate. Without proper internal governance, these risks could lead to serious financial instability in the company.

The requirement for RBI-compliant NBFC audit evaluation is as follows:

1. The capital adequacy ratio (CRAR) is between 9 and 15 percent.
2. Ensure compliance with income recognition, asset classification, and bad debts.
3. Verification of credit and loan limit.
4. Reverification of customer KYC and credit appraisal system.
5. Risk assessment of market and credit policies.
6. Classification of non-performing assets (NPAs).
7. Legal documentation review, including loan and collateral documents.

The Reserve Bank of India is the main authority that regulates all the NBFCs in India. It sets the rules and guidelines for all types of non-banking financial companies.

The procedure of conducting audit of NBFC loan company includes planning, verification of regulatory compliance, assessment of asset quality, and report drafting.

1. Identification of areas, such as business model & plans, risk departments, and internal systems.
2. Review of compliance with applicable laws and regulations.
3. Examination of non-performing assets and loan portfolio testing.
4. Risk assessment of credit, market, operational, liquidity, and interest rate.
5. Preparation of the report to incorporate findings and suggestions.

The main components of an NBFC loan portfolio audit report are as follows:

1. Quality assessment of assets, including non-performing (NPAs).
2. Overhaul of the entity’s policy adherence system to ensure compliance with the RBI.
3. Verification of loan data and cross-examination of legal documents, including collateral agreements.
4. Review of the company’s internal policies and governance structure.
5. Final findings consisting of inconsistencies and recommendations for corrective measures.

A NBFC loan portfolio audit report is a document that is submitted by an independent auditor to the board of directors of the non-banking financial company. The report indicates the entity’s loan profiles, asset quality, performance of NPAs, risks, and regulatory compliance. The main objective of this report is to check if the NBFC is following all the rules and regulations of the RBI and its own regulations as set by its MOA and internal policies

Yes, you can outsource audit of NBFC loan company through a third-party firm that helps you find an independent auditor with experience with RBI compliance.

The frequency of conducting NBFC loan portfolio audit depends on the risk profile of the entity. Most companies conduct quarterly and half-yearly audits for their compliance, loans, and IT systems.

The board of directors and promoters of a non-banking financial company are responsible for appointing an auditor to conduct an NBFC loan portfolio audit. Take Enterslice's assistance and hire an auditor through our outsourcing services.