NBFC Compliance is becoming more complex. Previously, banks benefited from using non-banking financial institutions.
NFCs must do these steps to file their returns on the newly-launched XBRL platforms:
- Get the Reserve Bank of India User ID and password.
- An XBRL RBI installation is necessary.
- You should update your profile frequently through the XBRL Portal.
What are the Functions of NBFC?
NBFCs serve several purposes. Here are a few examples:
- Hire Purchases and Leases
- Financing retail
- Venture Capital Services for Rural Financing
- MSME Financed by Trade Financing
NBFC Registration Process
An NBFC refers to any company registered under the Companies Act, 2013, that engages in providing loans and advances, purchasing government or local authority-issued shares, stocks, bonds, debentures, or securities, leasing, hire-purchase arrangements, insurance business activities, or chit operations, among its services.
However, non-bank financial companies (NBFCs) do not include organizations whose primary business involves agriculture or industrial activity, the acquisition, sale, or provision of services other than commodities, or the sale, purchase, or construction of real property.
A Non-banking Financial Company also refers to any company that receives payments in one lump sum through contributions or other methods (like a Residuary Non-Banking Company). Therefore, any non-banking financial corporation (NBFC) that wishes to undertake such activities must apply for NBFC registration.
NBFC Registration Process Cancellation
The firm’s owner must understand the reasons for the revocation of the NBFC Registration Process. In addition to NBFC P2P, NBFCs lending within the P2P marketplace are known as Non-Banking Financial Companies (NBFCs) P2P.
- A Non-Bank Financial Company may not accept deposits or provide loans alone due to operational inefficiencies.
- If the NBFC fails to adhere to the Act standards or restrictions, or the RBI capital requirements.
- When an NBFC fails to abide by RBI directives, it could occur, for instance, when they fail to keep or provide necessary documents as per RBI Act 1934 for inspection by inspectors as mandated – in such a scenario, penalties would likely ensue for such infringersNBFCs can also collect deposits, loans, and advance, acquire shares, stocks, and any other securities which a state or local government issues. The Companies Act of 2013 is the law that governs businesses of this kind. They do not operate as banks. NBFCs do not serve as banks but can conduct all lending activities simultaneously.
What is NBFC return and compliance?
NBFC return and compliance are the various returns and other KYC and KYR due diligence processes that non-banking financial companies (NBFCs) in India need to comply with. The RBI, the central bank of India, has these requirements.
NBFC returns and compliance are primarily aimed at safeguarding NBFCs and preventing violations of investors’ and borrowers’ rights.The returns and other requirements cover a wide range of areas, including:
- Deposits: NBFCs that accept public deposits must file regular returns on their promises, including the amount of deposits outstanding, the interest rates offered, and the terms and conditions of the deposits.
- Prudential norms: NBFCs must comply with a set of prudential norms, such as capital adequacy, asset classification, and provisioning. These norms ensure that NBFCs have adequate financial strength to meet their obligations to their depositors and borrowers.
- Risk management: NBFCs must have a sound risk management framework in place. This includes having policies and procedures to identify, measure, monitor, and control risks.
- Corporate governance: NBFCs must have a strong corporate governance framework in place. This includes having an independent and qualified board of directors that exercises effective oversight of the company’s management.
The RBI monitors NBFCs’ compliance with the return and compliance requirements through various means, including audits, inspections, and off-site surveillance. NBFCs that fail to comply with the requirements may be subject to penalties, such as fines or restrictions on their operations.
Here are some of the specific returns that are required to be filed by NBFCs:
- DNBS-01: Quarterly return on financial performance
- DNBS-02: Quarterly return on prudential norms
- DNBS-03: Quarterly return on statutory liquid assets
- DNBS-06: Monthly return on deposits
- DNBS-10: Annual return on financial statements
- DNBS-13: Annual return on foreign investment
NBFCs are also required to comply with several other regulatory requirements, such as:
- Maintaining a least capital adequacy ratio of 15%
- Classifying assets into diverse risk categories and making adequate provisions for bad debts
- Having a sound risk management framework in place
- Having a durable corporate governance agenda in place
The reporting requirements for NBFCs are constantly evolving, so it is important for NBFCs to stay up-to-date on the latest requirements. The RBI publishes a comprehensive list of the reporting requirements for NBFCs on its website.
| Types NBFC | Description | Due date | |
| DNBS-04B | NDSI and NBFCs | The Capture :
For NBFCs NBFCs NDSI, The specifics resulting from a mismatch in future cash flows and the inflows are based on the maturity pattern of assets and liabilities at their expiration. Facts and information on interest rates |
You can pay monthly up to 10 days before the due date. |
| NESL | All Non-Banking Finance Companies | You must report your debts to NESL. | Within a week of next month’s start, |
| CIC Reporting | All Non-Banking Finance Companies | The four CICs must be aware of the loan provided by each NBFC. | Before Tuesday, the 10th day of the following month. |
Annual Compliances
| Types of NBFC | Description | Due dates | |
| DNBS-2 Return | Non-NDSI NBFCs | They also contain asset and debt components. Additionally, they demonstrate the compliance of non-deposit-accepting non-NDSI NBFCs with various standards. | On or before the 30th of May (either an audited or a provisional base), if provisional, the audit must be filed within 30 days after finalization. |
| DNBS-010 | All NBFCs & ARCs | NBFCs must be constantly regulated to ensure compliance. | The balance sheet must be done within 15 days. |
Additional NBFC compliances:
| Types NBFC | Description | Due Day | |
| DNBS09-CRILC SMA Details | NBFCs-NDSI & NBFCs-D & NBFC-Factors | The form SMA-2 was used for reporting the NBFCs D, NBFCs NDSI and NBFCs-Factors with more significant exposure than $5 million per day. | SMA-2 Accounts are currently classed as SMA-2. |
| CKYCR | REs | Every regulated company, including NBFCs, is legally required to undergo a KYC process before disbursing monies or establishing accounts. | After ten business days, the account will be closed. |
| CERSAI | All Financial Institutions | Making secured loan payments | As quickly as possible, shift the protected property to a new location for safety. |
| FIU-IND | The entire regulated industry | These transactions must be reported in accordance with Rule 3 of the PMLA Rules, 2005. | After seven days of the date you first became aware that the transaction may be unusual, the 15th of next month. |
Prudential regulation of the RBI Master Direction
Apart from the NBFC Compliances listed overhead, non-banking entities must obey the following regulations:
- Accounting for investment: An NBFC’s Board of Directors is responsible for implementing its Investment Policy. The criteria used to categorize assets include both current and long-term assets, for example.
- Multiple NBFCs – The total assets for all NBFCs are to be verified. 500 crores.
- Loans secured against company shares are prohibited, meaning that NBFCs cannot offer or accept loans against their shares.
- Policy on Demand and Call Loans. The Board of Directors (BOD) should establish a firm-wide policy.
- Asset Classification: Appropriate NBFCs should categorize their assets under the following categories:
- Standard Resources;
- Sub-Standard Assets;
- Loss Assets;
- Doubtful assets
- Disclosure on the balance sheet: Non-Banking Financial Companies will be required to disclose separately for bad or doubtful debts and depreciation of investments.
- Non-banking Financial companies should allocate standard assets equivalent to 0.25% of their outstanding assets.
Penalties for Non-Compliance
RBI would impose huge penalties if you neglect the rules and regulations. Penalties for non-compliance vary according to the type of NBFC. One of the most severe outcomes would be the cancellation of the NBFC License or the dissolution of the company.
Frequently Asked Questions
1. What exactly is an NBFC?
Popular financial firms, such as NBFCs, offer loans and advances, and purchase stocks, debts, equity, and other marketable assets from local authorities or governments.
2. Which NBFCs are subject to compliance with the NBFC Act?
Once established, NBFCs must adhere to the numerous compliance criteria set forth by their regulatory authority. To evade incurring fines, these compliances must be met on the agenda.
3. What is the DNBS-01 Return?
Returns include financial data such as asset and liability components, profit-and-loss accounts, and exposure to sectors of concern, among others.
4. What exactly is the DNBS-05 return?
This information relates to NBFCs, which took public deposits but had their CoR refused.
5. What does DNBS-06 mean?
The RNBCs’ return will include information on financial components, such as asset and liability elements, as well as compliance with specific standards.
6. Which NBFCs are excluded from the RBI’s registration requirement?
While not all NBFCs are required to register with the RBI, those that are governed by it must do so. Besides Insurance Businesses, the Nidhi Chit National Housing Bank is a completely NBFC. However, each is governed under different regulations.
7. What are the steps to appeal the RBI’s deregistration of NBFCs?
RBI can revoke an NBFC’s registration certificate if it violates the terms of the RBI Act. If the NBFC disagrees with the RBI’s order, it can appeal. You can appeal within thirty (30 days of when the RBI order was issued, cancelling the registration certificate.
8. Which authority does the RBI hold over NBFCs?
RBI Act of 1935 grants the RBI authority to inspect, monitor, supervise, and regulate NBFCs that meet the primary business’s 50-50 criteria. The Reserve Bank also has the right to fine NBFCs if they do not comply with the RBI Act and its regulations.
9. What is the new NBFC regulation?
NBFCs’ new regulatory requirements include the revised NOF, IPO finance cap, ICAAP (Industry-wide Capital Advisory Program) for NBFCs, RMC structure, board-approved policies, and disclosure requirements.
10. Which regulations must an NBFC follow?
An NBFC must comply with several NBFC standards, including submitting returns such as DNBS-01. DNBS-01. DNBS-04. DNBS-06. They essentially meet reporting standards, for example, filing an audited annual balance sheet, a profit and loss statement, a Declaration of Auditors to Act as Auditors of the Company, and maintaining a leverage ratio of no more than 7.
