By Prakash BhattB. Com, CS & LLB

Delve Consultancy Services R-109, Sector-21, Noida

Email: pbhatt.acs@gmail.comMob. 9873877684

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Definition Registration Classification Exempted from registration requirement Compliances requirements Returns to be submitted Auditors responsibility Problem areas

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Reserve Bank of India is regulator of the Non-Banking Financial Companies under the provisions of Chapter III B of the Reserve Bank of India Act, 1934.

With the amendment of the Reserve Bank of India Act, 1934 in January 1997, in terms of Section 45 IA of the Act, all Non-Banking Financial Companies have to be mandatorily registered with the Reserve Bank of India.

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DEFINITIONDEFINITION

Clause (3) of section 45-IA RBI Act 1934:

A Non Banking Financial Company (NBFC) is a Company registered under the Companies Act, 1956 and which is engaged in the business of :

Loans & advancesAcquisition of shares and securities LeasingHire purchaseInsuranceChit fundNidhi Companies (Mutual Benefit Companies)

List of registered NBFC is available at the website of RBI & MCA

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DEFINITION OF PRINCIPAL BUSINESSDEFINITION OF PRINCIPAL BUSINESS

RBI Press Release Dt. April 8, 1999

If 50% or more of a company’s total assets (netted off by intangible assets) are financial assets

and If 50% or more of a company’s gross income is

from financial assets

then the Principal Business of the Company is of a NBFC

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With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as:

(i) Asset Finance Company (AFC)(ii) Investment Company (IC) (iii) Loan Company (LC)(iv) Core Investment Company (CIC)

(v) Residuary Non Banking Finance Company, a class of NBFC not being Investment, Asset Financing, Loan Company (R-NBFC).

(vi) Nhidis Company (Mutual Benefit Finance Co)(vii) Chit Fund (Misc NBFC)

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Insurance Companies registered under Insurance Act, 1938;

Nidhi Companies notified under Section 620A of the Companies Act, 1956;

Chit fund companies regulated by State Govt. Stock Broking Companies / Merchant Banking Companies

registered with Securities & Exchange Board of India Act; Housing Finance Companies being regulated by the

National Housing Bank (NHB)

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CIC’s are exempted from registration with RBI subject to the compliance with the following criteria as on date of last audited balance sheet:It holds not less than 90% of its net assets in the form of investment in

Group Companies (subsidiaries, Associates and JVs).It holds investment in equity shares in group companies not less than

60% of its net assets.It is not trading in those shares (except for block sale)It does not carry any other NBFI activities except investment in Bank

Deposits, Govt. Securities, Bonds, debentures or loans in group companies.

Its total assets are less than 100 Crores.

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PRE-REQUSITE FOR CARREYING ON NBFC ACTIVITIES

Require registration with RBI under section 45 IA of RBI Act, 1934 to commence / carry on business of NBFC.

Minimum NOF Rs 200 Lacs( earlier Rs. 25 Lacs)

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NOF:

PAID UP SHARE CAPITAL + FREE RESERVE (created through an allocation of profits)

DEDUCT: a) Accumulated balance of losses b) Deferred revenue expenditure

c) Other intangible assets

DEDUCT : If the following are in excess of 10% of the abovea). Investment in shares in shares ofb). subsidiaries, cos., in the same group and other NBFCsc). Book value of debentures, bonds, loans & advances to subsidiaries and

cos. in the same group Deposits with subsidiaries and cos. in the same group

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For the purpose on monitoring / compliances NBFC are further classified:

Deposit taking NBFC (NBFC-D) - Category –A

Non-Deposit taking NBFC (NBFC-ND)- Category- B

CIC-ND-SI – Category –CSeparate guidelines / regulation has been formulated by RBI for each above class

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I. NBFC Acceptance Of Public Deposit Directions, 1998.

II.NBF (Deposit Accepting or Holding) Companies Prudential Norms

Directions, 2007.

III.NBFC Advertisement Rules,1977.

IV.Circulars issued form time to time.

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Regulated deposits and exempt deposits Quantum of deposit Credit rating Advertisement/ Statement in lieu of Advertisement Period of deposit Rate of interest Rate of brokerage Repayment of deposit Regularization of excess deposit Premature payment of deposits

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Loan against deposit Default in payment of deposit or interest thereon Interest on overdue deposits Deposit Register & Deposit Receipts Percentage of Liquid assets Nature of liquid assets Mode of liquid assets Safe custody of approved securities Floating charge on liquid assets in favour of depositors KYC Norms

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I. NBFC (Non-Deposit Accepting or Holding ) Companies

Prudential Norms Directions, 2007.

II. Additional requirements for NBFCs-ND-SI (having total

assets of Rs.100 Crores and above as shown in the

last audited Balance Sheet).

III. Circulars issued form time to time.

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Accounting policies Accounting standards Income recognition Accounting of Investment Policy on investment and disclosure Assets Classification Provisioning norms Capital adequacy requirement (Tier i &Tier ii) Disclosure in balance sheet

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Policy for demand / call loans Accounting year Concentration of Loans / investment with reference to single

borrower / group. 15% (single borrower) / 25% (group) (lend + invest 25 % single/ 40% group)

NBFC Schedule is to be appended to Balance sheet. Constitution of Audit committee. Submission of auditors certificate Intimation of change of directors, address, principal

officer, auditors etc.

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Special Report to the Board of Directors of the co. in terms of Para 2 of NBFC Auditors Report ( RB) Directions, 2008.

Exceptional Report to the RBI in specific circumstances in terms of Para 5 of NBFC Auditors Report( RB) Directions, 2008.

Schedule to the Balance sheet in terms of Prudential Norms Directions,2007.

Periodical Certified Returns to RBI.

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All NBFC are prohibited from granting loans against their own shares.

NBFC Not to be partner in partnership firm.

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OFF-SITE SURVEILLANCEReturnsAuditors’ ReportsMarket intelligence

ON-SITE SURVEILLANCEInspectionsSpecial audits

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A large number of NBFCs are working without registration:

Companies working without registration and Companies rejected by RBI still operating.

Penalties: Imprisonment of 1 to 5 Years and Fine of Rs. 1 Lakh to 5 Lakhs.

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Thank You

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Delve Consultancy Services provides consultancy for Non-Banking Finance Companies (NBFC) / Core Investment Companies (CICs) registration, compliances, returns to be submitted & inspections etc.

Contact:

Mob: 9873877684Email: pbhatt.acs@gmail.com

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