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Shailza Sharma
| Updated: 30 Jan, 2020 | Category: Compliances, NBFC

Are you running an NBFC? Get updated about the list of Annual Compliances Prescribed by the RBI

NBFC Annual Compliance-Corpbiz

NBFCs are registered under the companies act, 2013 and are engaged in the business of loans and advances, acquisition of shares/stock/bonds, debentures and securities issued by government. NBFCs are the financial institutions which function according to set of rules and regulations prescribed by the Reserve Bank of India (RBI). Further, these rules and regulation keep on changing time to time as per the situation. So for the smooth functioning of NBFC, management should know about all the mandatory compliances. In addition to this, management should know the functioning and working of NBFC, what to do, and how to do. So for all the NBFCs, it’s important to keep themselves updated with every new rule.

Here in this blog before going on NBFC compliances, we will read about the NBFC, what they do? How many kinds of NBFC are operating in India?

What is NBFC?

Non – Banking Financial Companies are the financial institutions that offer banking services, but do not hold any banking license. A  Non-Banking Institution has principal business of receiving deposits under any scheme or arrangement or in any other manner. Such deposits and can be received in one lump – sum or in instalments by way of contribution. 

What does ‘Principal Business’ means in NBFC?

The financial activity of any registered company becomes ‘principal business’ when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. The company fulfilling both these criteria than that company is eligible for registering as NBFC by RBI. Reserve Bank of India Act, does not define the term ‘principal business’, however, RBI has defined that only companies which are mainly engaged in financial activity get registered with RBI  and are regulated and supervised by it. Hence, therefore if the companies engaged in agricultural operations, purchase and sale of goods, sale or construction of the immovable property, industrial activity, as their principal business and are doing some financial business in a small way, these do not fall under the category which can be regulated by the Reserve Bank[1].

Different Categories of NBFCs Registered with RBI

Categories of NBFCs can be differentiated in terms of types of liability, such as Deposit and Non – Deposit accepting.

Different type of NBFCs within the board categorization:

  • Investment and Credit Company (ICC)
  • Mortgage Guarantee Companies (MGC)
  • Non-Banking Financial Company – Factors (NBFC-Factors)
  • Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)
  • Infrastructure Finance Company (IFC)
  • Systemically Important Core Investment Company (CIC-ND-SI)
  • NBFC- Non-Operative Financial Holding Company (NOFHC)

What is the Difference Between Bank and NBFC?

  • NBFC cannot accept demand Deposit;
  • NBFCs are not a  part of the payment and settlement system and cannot issue cheques drawn on itself;
  • Unlike in case of banks, the deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.

The non-banking companies, duly registered with the Reserve Bank of India are allowed to accept the public deposits, and they are required to comply with the following regulations as stated under the Non-Banking Financial Companies Acceptance of Public Deposits Directions, issued by RBI.

These are as follows;

  • All NBFCs are allowed to take the public deposits for the minimum period of 12 months which goes up to maximum period of 60 months.
  • NBFCs are not allowed to accept deposits, which have to be refund on demand.
  • These companies cannot offer the interest rate higher than the ceiling rate fixed by RBI on time to time
  • The companies are not allowed to offer any gifts, incentives, or any other benefit to the depositors.
  • The deposits are not secured.
  • The NBFCs must have minimum investment-grade credit rating.
  • The RBI gives no guarantee of the repayment of deposits by the NBFCs.

What is the meaning of NBFC Annual Compliances?

If a company has successfully obtained its NBFC license, for them, it’s mandatory to comply with all the NBFC annual compliances. In a case where NBFC is failing to comply with the compliances, NBFC becomes liable for the hefty penalties. The penalties could be even cancellation of NBFC License.

NBFC annual compliance, which an NBFC has to follow within six months after obtaining the License.

There are mainly two types NBFCs

  • Deposit-taking NBFC(NBFCs – D)
  • Non – Deposit NBFCs (NBFCs- ND)
  1. Systematic Important NBFCs- ND
  2. Other NBFCs- ND

Following are the types of returns that are required by both the types of NBFCs

Returns by Deposit Taking NBFC

  • NBS-1

 These are the Quarterly returns on deposit in the first schedule. Such return is required to be furnished for the purpose of capturing financial details such as Profit and Loss Account, Components of assets and Liability.

  • NBS-2

The Quarterly Return on prudential norms. The requirement to file this return is to get the details related to several norms like asset Classification, Capital Adequacy, NOF, Provisioning, etc. 

  • NBS-3

The Quarterly Return on liquid assets. The intent behind filing such norms is to capture information about statutory investment in Liquid states.

  • NBS-4

The annual return of critical parameters which are by rejected companies those are holding public deposits. The objective behind filing this return is to find the repayment status of the rejected NBFCs accepting public deposits.

  • NBS-6

Needs to be filed as Monthly return on exposure to capital market by deposit-taking NBFC with the total assets of Rs. 100 crore or more.

  • ALM return

These returns are file as Half-yearly by NBFC holding Public Deposit which is more than the amount of Rs. 20 Crore or asset size of more than Rs. 100 Crore.

  • Requires Audited Balance Sheet and Auditor’s Report by NBFC accepting public deposits, to be furnished;
  • Return related to branch Information

Read our article:How Following NBFC Compliances Can Save You From Imprisonment

Returns required Non-Deposit NBFC

  • NBS-7

It is a quarterly statement providing information related to, risk assets ratio,  capital funds, risk-weighted asset.

  • NBS-2

Such return is the Monthly return on a critical financial parameter of NBFCs-ND-SI.

  • ALM Returns
  • Monthly- statement of short-term dynamic liquidity in format NBS-ALM-1.
  • Half Yearly- Statement of structural liquidity in format NBS-ALM2
  • Half Yearly- Statement of interest rate sensitivity in format NBS-ALM-3
  • Branch info return

Quarterly return on important financial parameters of non-deposit taking NBFC having assets of more than ₹ 50 crores and above but less than ₹ 100 crores. The requirement like name of the company, address, Net Owned Fund, profit/loss during the last three years needs to be furnished quarterly by non-deposit taking NBFCs with asset size between ₹ 50 crores and ₹ 100 crores.

Compliances for NBFC-ND with RBI

Annual Compliances

Sr. No. Article Term
a Unaudited March Monthly return/NBS7 on or before 30th June
b Audited March Monthly return/NBS7 Upon completion
c Statutory Auditors certificate on Income & Assets on or before 30th June
d Information about Cos having FDI/Foreign Funds on or before 30th June
e Board Resolution of Non-acceptance of Public Deposit Much before  starting of the new Financial year
f Annual Balance Sheet with profit and loss account details One month from the date of signoff
g Declaration by Auditors, who are acting as auditors of the company annual basis

Monthly Compliances

S No. Article Term
a Monthly Return by 7th of every month
b Upload monthly by 7th of every month

 Periodical Compliances

S No. Article Term
a Appointment of Director(Annexure-III) within 30 days of appointment
b Upload monthly return within 30 days of the resignation

Other related forms: 

BRANCH INFORMATION (Half-yearly return)

Form – Schedule ‘A’ Special Return, required to be submitted by all NBFCs whether deposit-taking or non-deposit-taking

NBS-8: NBS-8 (Annual return to be furnished by NBFCs which are having asset size between Rs. 100 to Rs. 500cr)

NBS-9: NBS-9 (Annual return be furnished by NBFCs which are having asset size below Rs. 100cr)

Conclusion

Annuals compliances are strictly mandatory for those NBFCs which have obtained License from RBI. Furthermore, according to ‘Section 45-IA of the RBI Act, 1934, the applicant must have a net owned fund of Rs. 2 crores and it must obtain a certificate of registration from the bank.’ Therefore, for the smooth functioning and to secure your NBFC from any hefty penalties, it’s mandatory to comply with all the NBFC annual compliances.

Read our article:Internal and Statutory Audits in Non-Banking Financial Companies: All You Need To Know

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Shailza Sharma

Miss Shailza Sharma, BA. LLB graduate from Himachal Pradesh University. She holds an experience of 2.5 years in various Legal companies and organizations.

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