We all have heard names of popular NBFCs like Muthoot Finance, Bajaj Finance, Tata Capital Financial Services Ltd., etc. But, what is an NBFC? Are they the same as a Bank? As the name suggests, a Non-banking Financial Company (NBFC) is a financial institution that undertakes a financial activity as its principal activity in the business. Such financial institution is incorporated as a company under the provisions of Companies Act 2013 (or a previous one registered under Act 1956), but also needs to obtain a ‘Certificate of Registration’ from the Reserve bank of India under section 45-1A of the RBI Act 1934, to commence its business.
They are primarily engaged in the business of offering loans & advances, acquisition of securities issued by a government or local authority, or other marketable securities to their customers as their principal business activity which are quite similar to services provided by banks in India. With time, NBFCs have become one of the most popular financial institutions due to their flexible approach toward their customers as compared to traditional banks.
Like banks that are administered by the Reserve Bank of India and function under the rules and regulations prescribed by RBI for their functioning, NBFCs are also subjected to the various set of regulations and compliances to be followed by NBFCs periodically. They must file & submit various returns and fulfill other compliances prescribed by RBI concerning various activities such as acceptance of deposits, prudential norms compliance, ALM, etc. in compliance with the RBI master directions under Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016. These master directions have been created to provide a foundation for ensuring RBI compliant and efficient operational practices are followed and must be read carefully to avoid penalty and prosecution. Further, under Section 45-IA of the RBI Act, 1934, the applicant must have a net owned fund of Rs. Two crores and it must obtain a certificate of registration from the bank and the net owned funds should be maintained at all times. Therefore, for the smooth functioning of any NBFC and for avoiding any penalty or prosecution for non-compliance even leading to the cancellation of the Certificate of registration of NBFC, it is important to have a thorough understanding of the annual NBFC Compliances.
Types of NBFCs- Applicable Compliances & Returns
In recent years, NBFCs have been grown exponentially and widened the area of their business activities which has led to their categorization into various categories of NBFCs. Consequently, while some of the compliances are equally applicable to all NBFCs, others apply to a certain category of NBFC as prescribed by RBI. NBFCs could be categorized into the following two broad categories-
I. On the basis of their activity;
II. On the basis of liabilities.
NBFC on the basis of their activities include –
i. Investment & Credit Company – An Investment & Credit Company is an NBFC which is a consolidated form of three types of NBFCs namely-Asset Finance Company, Loan Company (LC) & an Investment Company, which engages in business activities such as offering loans and lending funds to businesses to acquire business assets such as automobiles and machines, to acquire securities.
ii. Infrastructure Debt Fund– An Infrastructure Debt Fund is an NBFC that is primarily engaged in the activity of lending funds to create infrastructure which is generally for the long term.
iii. Systemically Important Core Investment Company (CIC-ND-SI) – Systemically Important Core Investment Company is an NBFC involved in the acquisition of shares and securities and primarily in equity.
iv. Non-Banking Financial Company-Micro Finance Institution (MFI)– A Micro Finance Institution (MFI) is an NBFC under which at least 85% of the assets of the company do exist like microfinance loans and cater to the needs of smaller businesses that are underqualified for similarly receiving loans as banks. It is a sub-type of non-deposit accepting NBFC.
v. Non-Banking Financial Company (Factors) – Non-Banking Financial Company (Factors) is an NBFC who are engaged in the business of selling bills receivable to receivables to third parties as a factor on discount. Further, it shall be necessary for the NBFC (Factors) must have at least 50% of its total assets from factors.
vi. Mortgage Guarantee Companies (MGC)– A Mortgage Guarantee Companies (MGC) is an NBFC for those who
- At least 90% of business turnover derives from mortgage guarantees; or
- At least 90% of the total business income derives from mortgage guarantees; and
- Total Net-owned funds are at least Rs. 100 crores or more;
vii. Non-Operative Financial Holding Company (NO-FHC) – A Non-Operative Financial Holding Company is an NBFC that is allowed to set up a bank to the satisfaction of RBI eligibility criteria and controlled by RBI and other financial sector regulators to the extent permissible under applicable law.
viii. NBFC Account Aggregator
NBFC account Aggregator is an NBFC that has been licensed by the RBI to offer services such as retrieval or collection of financial information relating to the financial assets of the customers.
ix. NBFC Peer to Peer Lending platform(P2P)
NBFC P2P lending platform offers a digital platform to bring lenders ad borrowers together. It eliminates the tedious process of loan approval & loan processing to a certain extent.
x. Housing Finance Companies (HFCs)
HFCs are the NBFCs whose principal business activity involves financing/acquisition or construction of housing properties.
NBFCs based on their Liabilities include-
i. Deposits Accepting NBFCs
ii. Non-Deposit Accepting NBFCs.
Key Prerequisites for fulfilling NBFC Compliances
Recently, the RBI has migrated the prevailing online return filing system process from the COSMOS platform to the XBRL system, for which all the NBFCs now need to file returns on the new XBRL online reporting portal. For which, the respective NBFC shall be required to get a user id and password, install the required XBRL file so required and update the company profile regularly.
Different NBFC Compliances and Returns (Annual, Monthly, and Quarterly)
Provided below is the annual compliance checklist for both Non-Deposit and Deposit-accepting NBFCs.
MONTHLY COMPLIANCES
| S.No | Form & Purpose | Type of NBFC | Description | Due date |
| i. | DNBS-04B
Return for reporting details of the Structural Liquidity & Interest Rate Sensitivity of the NBFC
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NBFCs-Deposit accepting and NBFCs-Non Deposit Accepting (NDSI)
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To provide details related to-
i. Details of any mismatch in the projected future cash inflows & outflows based on the maturity pattern of assets & liabilities at the end of reporting period for NBFCs-NDSI; and
ii. Details related to any risks of interest rate.
|
Within 10 days from the end of every month
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| ii. | Core Investment Companies (CIC) Reporting
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Every NBFC
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For the purpose of reporting loans to all four CICs.
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On and before the 10th day of the subsequent month;
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| iii. | National E-Governance Services Ltd (NESL)
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Every NBFC
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To report the financial debt of each NBFC to NESL
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Within a week from the date of the subsequent month
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ANNUAL COMPLIANCES
| S.No | Form | Type of NBFC | Description | Due Dates |
| i. | DNBS-02 Return
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Non-Deposit Accepting (Non-NDSI) NBFCs
|
The return provides details related to financial details of the NBFC such as assets and liabilities components and compliance under various prudential norms for non-deposit taking NBFCs.
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Either on or before 30th May (either on an interim or audited basis).
If the NBFC files return on an interim basis, file the audited one within a period of thirty days from the finalization of financials.
|
| ii. | DNBS-010 | All NBFCs and Asset Reconstruction Companies (ARCs)
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For warranting continuous regulatory compliance for all NBFCs.
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Within a period of fifteen days from the date of the finalization of the balance sheet but not later than 31st Oct of the F.Y.
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QUARTERLY COMPLIANCES
| S.No | Form | Type of NBFC | Description | Due Dates |
| i. | DNBS-01 Return
|
NBFCs-Deposit accepting and NBFCs-Non Deposit Accepting (NDSI) | The return offers details such as financial details of the company such as the assets and liabilities components, Profit & Loss account (P&L), Exposure to sensitive segments, etc. | 15th
of the month succeeding the previous quarter i.e. 15th April/
15th July/15th October and 15th January;
|
| ii. | DNBS-03 Return
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Deposit-taking and Non-Deposit-taking NBFCs with asset size above 100 cr.
|
The return
Provides details related to the prudential compliance norms related to details like Capital Adequacy, Asset Classification, Creating Provisions, etc.
|
15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October and 15th January;
|
| iii. | DNBS-4A return to be filed for the Short Term Dynamic Liquidity (STDL)
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Deposit-taking and Non-Deposit-taking NBFCs with asset size above 100 cr. | To provide details related to the discrepancies in projected future cash inflows & outflows founded on the basis of business projections
|
15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October and 15th January; |
| iv. | DNBS-06
|
Residuary Non-Banking Companies (RNBCs)
|
To provide details related to the financials of the company such as assets and liability components of business and compliance with various prudential norms for RNBCs
|
15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October/ 15th January;
|
| v. | DNBS-07
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Asset Reconstruction Companies (ARCs)
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To provide details related to the parameters and several other operational details such as acquired NPAs, their acquisition cost, recovery status, etc.
|
15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October and 15th January; |
| vi. | DNBS08-CRILC (Central Repository of Information on Large Credits) | Deposit-taking and Non-Deposit taking NBFCs and
NBFC-Factors
|
It is the chief return for providing details related to the credit info on combined exposure up to five Crore to a single borrower.
|
21th of the month succeeding the previous quarter i.e. 21st April/
21st July/21th October/ 21th January; |
| vii. | DNBS-11
|
Core Investment Companies (NBFC-CICs)
|
The return provides financial details of the business such as assets & liabilities of the company, Profit & Loss accounts, Exposure to sensitive sectors, etc. | 15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October/ 15th January; |
| viii. | DNBS-12
|
Core Investment Companies (NBFC-CICs)NBFC-CICs
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The return provides details such as compliance with prudential norms such as Capital Adequacy, Asset Classification, Creating Provisions, NOF, etc. for CIC-ND-Sis.
|
15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October/ 15th January;
|
| ix. | DNBS-13
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Every NBFCs
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To provide details related capture details related to foreign investment for every NBFC possessing overseas investments.
|
15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October/ 15th January; |
| x. | DNBS-14
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NBFC Peer-to-Peer Platforms
|
The return provides details related to the finances of the company, i.e. assets and liabilities as well as compliance with various RBI prudential norms.
|
15th
of the month succeeding the previous quarter i.e. 15th April/ 15th July/15th October/ 15th January; |
Additional Compliances of NBFC
| S.no | Form | Type of NBFC | Description | Due Dates |
| i. | DNBS-05 Return
|
NBFC’s whose
Certificate of Registration (COR) was disallowed
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To provide details concerning NBFCs who accepted public deposits & consequently whose Certificate of Registration was disallowed
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Whenever COR is rejected by RBI
|
| ii. | DNBS-09 Central Repository of Information on Large Credits Special Mention Account(CRILC-SMA) | All Deposit-taking and Non-Deposit taking NBFCs and
NBFC-Factors |
Deposit-taking and Non-Deposit taking NBFCs and
NBFC-Factors having a total exposure up to Rs. Five crores to the single borrower reported in SMA-2 for the day;
|
Whenever the account is classified or (de-classified) as SMA-2;
|
| iii. | Central KYC Records Registry (CKYCR) | Regulated Entities(REs)
|
Each regulated entity (comprising NBFCs) shall be required to follow KYC procedures while making loan disbursals or creating account relationships.
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At least 10 days within the date of creation of an account relationship
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| iv. | Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) | Each Financials Institution includes NBFCs.
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During secured Loan disbursals. | As soon as possible for the purpose of securing the first charge over assets or property so secured.
|
| v. | Financial Intelligence Units India | All regulated Entities
|
To provide details of certain transactions to Report certain transactions to FIU-IND authorities as provided under rule 3 of PMLA rules 2005.
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Within the 15th day of the following month and within seven working days after being satisfied with the suspiciousness of the transaction.
|
Prudential NBFC Regulations
Apart from the above-mentioned RBI compliances for NBFCs having registration on a PAN India basis, there are some other compliances prescribed under Chapter IV of the Master Directions issued by RBI namely, the Prudential Regulations. It shall be mandatory for every NBFC to abide by these regulations which are provided below-
i. Leverage Ratio- NBFCs other than NBFC-IFC (Infrastructure Finance Company) and NBFC-MFI (Micro Finance Institution) shall be required to maintain a leverage ratio up to 7 at any course of action at all times.
ii. Investments Policies for the company- It shall be mandatory for the Board of directors of an NBFC to frame policies related to investments for the company and ensure their implementation. For instance, the criteria to classify investments into short-term and long-term investments.
iii. Policies for invite or Demand Loans – Further, the Board of Directors of the company shall be required to draft policies for the company to be applied in cases where the NBFC intends to call or demand loans that will be implemented by the company.
iv. Assets Classification – There must be a policy in place to classify assets of the business as required under chapter IV of the RBI Master Direction under the following classes-
- Regular Assets;
- Sub-Standard Assets;
- Uncertain Assets;
- Loss Assets
v.Creating provisions for Standard Assets- Each NBFC shall be required to create provisions regarding the standard assets at 0.25% of the total outstanding assets.
vi. Balance Sheet Disclosures- Each NBFC relevant under chapter IV of the RBI Master Direction will be required to make separate disclosures for bad or doubtful debts and depreciation in Investments.
vii. Prohibition for taking a loan against Shares of the Company- No pertinent NBFC as provided under chapter IV of the RBI Master Direction shall be allowed to either lend loans or receive loans against the shares of the company.
Therefore, any financial company that wishes to engage in a business as a Non-Banking Financial Institution (NBFC) shall be required to obtain a license from NBFC with RBI. Post obtaining registration from RBI, such NBFC shall be required to adhere to the compliances applicable to NBFCs under RBI regulations as provided above. Failure to comply with the NBFC annual compliances shall lead to a hefty penalty and even confiscation of NBFC licenses. Where any contravention of quantifiable nature shall be either exceed ₹ 5 lakh or double the amount of contravention, whichever is higher. However, if there is any contravention of non-quantifiable nature, the maximum amount of penalty shall not exceed ₹ Five lakh per contravention.
