NBFC Compliances
Non-banking financial companies (NBFCs) play a vital role in India's financial sector, offering various services like loans and investment management. However, they face numerous compliance challenges due to complex and evolving regulatory frameworks. These regulations encompass a wide range of activities, including maintaining statutory registers, submitting financial statements, and adhering to prudential norms. To ensure compliance, NBFCs must meet various requirements, such as obtaining RBI accounts, setting up XBRL files, and submitting regular returns. Failure to comply can lead to severe penalties, including license revocation and closure. NBFCs must navigate these challenges diligently to maintain their operations and integrity within the financial landscape.
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Overview of NBFC Compliances
Non-banking financial companies (NBFCs) are crucial players in India's financial sector. They offer a variety of financial services like loans, insurance, and investment management to people and businesses. However, NBFCs need to follow many rules and regulations to operate properly and legally. Unlike banks, NBFCs don't have a banking license and can't take deposits from the public. But they're important for giving credit to individuals and businesses who are unable to access regular banking services. NBFCs have to follow various rules prescribed by different authorities. These include guidelines from the Reserve Bank of India (RBI), rules under the Companies Act, 2013, and regulations from the Securities and Exchange Board of India (SEBI).
- Types of NBFCs
- Essential Requirements for NBFC Compliances
- Post-Incorporation NBFC Compliances
- List of Essential NBFC Compliances
- RBI Master Direction - Prudential Regulation
- Challenges in Managing Compliance for NBFCs
- Consequences of Non-Compliance with NBFC Regulations
- How can RegisterKaro help?
- Why RegisterKaro?
NBFC Compliances
Types of NBFCs
1. On the basis of activities:
a. Infrastructure Finance Company (IFC)
b. Investment and Credit Company (ICC)
c. Systemically Important Core Investment Company (CIC)
d. NBFC- Non-Operative Financial Holding Company (NOFHC)
e. Mortgage Guarantee Companies
f. NBFC-Factors
g. NBFC- Microfinance Companies (MFIs)
h. Infrastructure; Debt Fund Non-Banking Financial Company (IDF-NBFC)
2. On the basis of liabilities:
a. Deposit Accepting NBFCs
b. Non-Deposit Accepting NBFCs
c. Non-Deposit Accepting Systematically Important NBFCs
d. Other Non-Deposit Holding Companies.
Essential Requirements for NBFC Compliances
Earlier the online return filing was done through the COSMOS platform. However, RBI has now shifted the return filling platform into the XBRL system. The essential requirements for NBFC annual compliance are as follows:
1. Reserve Bank of India Account :NBFCs need to get a User ID and Password from the Reserve Bank of India. These credentials are necessary for accessing and submitting supervisory returns using the XBRL system.
2. XBRL RBI File Setup :NBFCs must set up an XBRL RBI file. This software helps in preparing and submitting returns in the XBRL format. It's crucial for converting financial data into XBRL-compliant documents.
3. Regular Profile Updates :NBFCs should regularly update their profiles on the XBRL portal. Keeping profile information current ensures accurate communication and compliance via the XBRL system.
Post-Incorporation NBFC Compliances
Upon receiving the Certificate of Registration from the RBI, Non-Banking Financial Companies (NBFCs) are obligated to adhere to various compliance regulations, which are as follows:
1. Membership with Credit Information Companies (CIC) :NBFCs are required to become members of all Credit Information Companies (CICs) operating in India. These entities furnish credit scores and pertinent information concerning individuals and entities. Prominent CICs are— CIBIL, Equifax Credit Information Services, Experian Credit Information Company, and CRIF High Mark Credit Information Services.
2. Adoption of Fair Practice Code :NBFCs are mandated to embrace and abide by the Fair Practices Code as per RBI directives. This code delineates benchmarks for equitable lending practices, loan terms, and non-coercive methodologies for loan recovery.
3. FIU-IND Registration :After establishment, every NBFC must undertake registration with the Financial Intelligence Unit-India (FIU-IND) to ensure annual compliance. This registration entails the submission of client particulars according to the Prevention of Money Laundering Act (PMLA). FIU-IND registration serves as a deterrent against financial crimes such as money laundering and terrorism financing.
4. Central KYC Registration :Many NBFCs opt to register with Central Know Your Customer (KYC) as an integral component of their annual compliance. Central KYC facilitates the maintenance of customer records for financial services.
5. CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) :CERSAI functions to preempt fraud in lending, particularly pertaining to equitable mortgages. Its function is to prevent multiple loans against the same asset from different financial institutions. Additionally, it oversees CKYC registration within India.
6. Submission of Financial Information to Information Utilities :Creditors are obligated to furnish financial particulars and asset information to Information Utilities as per Section 215 of the Insolvency and Bankruptcy Code, 2016. This practice is imperative for upholding precise financial records and supporting insolvency proceedings.
List of Essential NBFC Compliances
| Annual Compliances | |||
|---|---|---|---|
| Form | Type of NBFC | Description | Due Date |
| DNBS-02 | Non-NDSI | For capturing financial information such as assets & liabilities statements and compliance with various prudential norms. | On or before 30th May (either audited or provisional), if provisional filled, then file audited within 30 days of finalization of financials. |
| DNBS-010 | All NBFCs & ARC | To ensure continuous regulatory compliance for all NBFCs. | Within 15 days from the finalising of the balance sheet date but not later than 31 Oct. |
| Quarterly Compliances | |||
| DNBS-01 | NBFCs-D & NBFC-NDSI | This return is to capture financial statements such as Assets and Liabilities, P&L accounts etc | 15th of every quarter’s last month i.e 15th April, 15th July, 15th October, 15th January |
| DNBS-03 | NBFCs-D & NBFCs-NDSI and Non-NDSI and NBFCs having assets worth more than 100 cr. | This return checks the compliance with prudential norms set by RBI such as Capital Adequacy Asset (CAA), Asset Classification, and Provisioning etc. | 15th of every quarter’s last month |
| DNBS-04A | NBFCs-D & NBFCs-NDSI and Non-NDSI and NBFCs having assets worth more than 100 cr. | To return is to foresee if there would be any mismatch in future cash inflows and outflows. | 15th of every quarter’s last month |
| DNBS-06 | RNBCs | This return is to catch the financial information such as assets & liabilities statement and also checks the compliance with prudential norms of RBI | 15th of every quarter’s last month |
| DNBS-07 | ARCs | This return is to check the financial parameters and different operational details such as assets acquired, their acquisition cost and their recovery status etc | 15th of every quarter’s last month |
| DNBS-08 | NBFCs-D & NBFCs-NDSI and NBFC Factors | The purpose of this return is to report credits, having an aggregate exposure greater than 5 crores to a single borrower. | 21st of every quarter’s last month |
| DNBS-11 | NBFC-CICs | This return captures financial information such as Assets and Liabilities, P&L accounts, exposure to sensitive sectors etc. | 15th of every quarter’s last month |
| DNBS-12 | NBFC-CICs | This return checks the compliance with prudential norms set by RBI. | 15th of every quarter’s last month |
| DNBS-13 | All NBFCs | This return is for capturing information on Foreign Investment | 15th of every quarter’s last month |
| DNBS-14 | NBFC-P2Ps | This return captures financial information such as Assets and Liabilities, P&L accounts, compliance with prudential norms etc. | 15th of every quarter’s last month |
| Monthly Compliances | |||
| DNBS-04B | NBFCs-NDSI and NBFCs-D | The details of the expected future cash inflows & outflows are captured through this return to check the possibility of a mismatch. | Within 10 days from the end of every month. |
| NESL Reporting | All NBFCs | All NBFCs are required to mandatorily report their Financial Debts to NESL | Within 1 week from the date of the succeeding month. |
| CTC Reporting | All NBFCs | All NBFCs are required to mandatorily report their loans to all 4 CICs | On & before the 10th day of the succeeding month. |
| Event-Based Compliances | |||
| DIR-12 & MGT-14 | All NBFCs | Change/Appointment of Director | Within 30 days from the change of director and passing of resolution respectively. |
| INC-22 | All NBFCs | Change of Registered Office | Within 30 days |
| SH-7 & MGT-14 | All NBFCs | Change in Capital Structure | Within 30 days |
| Report to RBI and other authorities or Approval as the case may be | All NBFCs | Foreign Direct Investment | Depending on the Foreign Trade Policy, some sectors are allowed to have 100% FDI and some sectors are not even allowed to have FDI, so accordingly NBFCs need to comply. |
RBI Master Direction - Prudential Regulation
In addition to the aforementioned NBFC compliances, non-banking institutions must also adhere to RBI Master Direction’s Prudential Norms which are as follows:
1. Management of Investments :The Board of Directors (BOD) of NBFCs is mandated to establish and implement the investment policy for the company. This includes criteria for classifying investments into current and long-term categories.
2. Aggregation of Multiple NBFCs :All NBFCs will be collectively assessed to determine compliance with the asset size limit of Rs. 500 crores.
3. Prohibition of Loans against Company Shares :NBFCs are prohibited from extending or receiving credit against their own shares.
4. Policy for Demand or Call Loans :NBFCs seeking to offer Demand or Call Loans must formulate a policy for such transactions. Which should be implemented by the company during such tractions.
5. Asset Classification: : Applicable NBFCs are required to classify their assets into the following categories:
a. Standard Assets
b. Sub-Standard Assets
c. Loss Assets
d. Doubtful Assets
6. Balance Sheet Disclosure :Each Non-Banking Financial Company must include separate provisions in their balance sheet for doubtful or bad debts and depreciation in investments. Additionally, applicable NBFCs must set aside provisions for standard assets at a rate of 0.25% of the outstanding amount.
Challenges in Managing Compliance for NBFCs
Handling compliance for NBFCs in India can be tough due to several reasons. Here are some main challenges:
1. Complicated Rules :The rules for NBFCs in India are complicated and keep changing, which makes it hard for companies to keep track. These rules come from various government bodies like the RBI, SEBI, MCA, IRDA etc.
2. Lack of Clear Guidelines :Sometimes, the guidelines set by regulators aren't very clear. This can make it confusing for NBFCs to know exactly what they need to do to follow the rules properly
3. Limited Resources :NBFCs, especially smaller ones, might not have enough money or people to handle compliance properly. It takes a lot of time and money to manage compliance, and not all NBFCs can afford it.
4. Human Mistakes :Even with good systems in place, people can still make mistakes. This can lead to not following the rules, even by accident. The compliance team needs to be well-trained to avoid these errors.
5. Lack of Knowledge :Some NBFCs might not know all the rules they need to follow, especially if they're new to the industry. This lack of knowledge can lead to not following the rules properly and getting fined.
6. Different Rules for Different Sectors :Compliance rules for NBFCs are different from those for other industries. This difference can make it hard for NBFCs to manage compliance effectively. They need to understand the rules specific to their industry well.
Consequences of Non-Compliance with NBFC Regulations
Failure to adhere to regulatory compliances in a timely manner as an NBFC can result in severe penalties imposed by the RBI. These penalties vary depending on the type of NBFC. Among the most significant repercussions is the potential revocation of the NBFC license, which could ultimately lead to the closure of the company. Additionally, monetary fines may be levied, impacting the financial stability and reputation of the institution. Moreover, repeated instances of non-compliance may attract even harsher penalties and increased regulatory scrutiny, further jeopardizing the business operations and sustainability of the NBFC. Therefore, it is imperative for NBFCs to diligently comply with regulatory requirements to avoid such detrimental consequences and uphold the integrity of their operations within the financial ecosystem.
How can RegisterKaro help?
RegisterKaro, India’s leading compliance platform, integrates many advanced technologies to offer a cutting-edge compliance framework for businesses, helping them minimize their risks. At RegisterKaro, we understand how important it is to ensure NBFC compliance for your business growth and success. Our team of experts has extensive experience and knowledge in handling NBFC compliances and procedures. With our expertise, you can trust that your compliance will be handled effectively and professionally so that you can focus on your business. If you're seeking a reliable and experienced team to manage your NBFC compliance, look no further than RegisterKaro.
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