Compliance List of NBFC

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Conduct risk assessment
2.1.17 It should be noted that there are two types of risks in banking business in the
context of risk- based internal audit. One that is inherent in the business operations of the
bank itself, such as the credit, market and operational risk and the other one is the risk that
the controls designed to mitigate these risks may not be effective, typically termed as
control risk. Thus, inherent business risks indicate the intrinsic risk in a particular
area/activity of the bank. Control risks arise out of inadequate control systems,
deficiencies/gaps and/or likely failures in the existing control processes.

2.1.18 Hence, while undertaking a risk identification exercise under the riskbased audit
programme, one should keep in mind that the risk assessment of an auditable unit is
largely based on both the inherent and the control risks and should be judged in
combination thereof.
• NBFC face credit risk, • The extant NPA
liquidity risk, and classification norm stands
market risk requiring changed to the overdue
effective risk period of more than 90
days for all categories of
management stra NBFCs in phase manner:-
• NBFCs must comply
with numerous RBI Read more at:
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adherence to capital
adequacy norms. Copyright © Taxguru.in
• MORE THAN 120 DAYS
NPA NORMS TIMELINE
MORE THAN 150 DAYS By March 31, 2024
MORE THAN 120 DAYS By March 31, 2025
MORE THAN 90 DAYS By March 31, 2026

Base Layer –non-deposit taking NBFCs below the asset size of Rs 1000 crore.

Non Deposit Taking NBFC’s- systemically important (NBFC-ND)

It is a Non Deposit Taking NBFC’s which whose asset size is below ₹ 500 cr. or more as
per last audited balance sheet are considered as systemically important NBFCs.

Net Owned Fund- Rs 10 crores

Risk Management Committee – In order that the Board is able to focus on risk
management, NBFCs shall constitute a Risk Management Committee (RMC) either at
the Board or executive level. The RMC shall be responsible for evaluating the overall
risks faced by the NBFC including liquidity risk and will report to the Board.

Leverage Ratio- The leverage ratio of NBFCs (except NBFC-MFIs, NBFCs-ML and above)
shall not be more than seven at any point of time.
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6.Standard asset provisioning (except NBFC-ML and above)
NBFC-BL shall make provision for standard assets at 0.25 percent of the outstanding, which shall
not be reckoned for arriving at net NPAs. The provision towards standard assets need not be
netted from gross advances but shall be shown separately as ‘Contingent Provisions against
Standard Assets’ in the balance sheet

7.Disclosures – Disclosure requirements shall be expanded, inter alia, to include types of

exposure, related party transactions, loans to Directors/ Senior Officers and customer
complaints and others.
8. Loans to directors, senior officers and relatives of directors – NBFC-BL shall have a Board
approved policy on grant of loans to directors, senior officers and relatives of directors and to
entities where directors or their relatives have major shareholding.
9. Experience of the Board – Considering the need for professional experience in managing the
affairs of NBFCs, at least one of the directors shall have relevant experience of having worked in
a bank/ NBFC.
NBFC new return applicability and filing. NBFC new return applicability and filing RBI has
recently introduced XBRL returns for filing all NBFC returns CIMS portal for filing all
applicable return of NBFC’s.
NBFC’s having asset size between Rs. 2 Crore and below Rs. 100 crores.
RETURN PERIODICITY
DNBS 02–Important Financial Parameters Quarterly
DNBS 10-Statutory Auditor Certificate (SAC) Annual
DNBS13 – Overseas Investment Details Quarterly
Form A certificate Annual

NON-DEPOSIT ACCEPTING NBFCS:

(For NBFCs with assets size below Rs. 100 Crore):
Branch Info Return - Quarterly 15 days Branch Details.
NBFC has an asset size of Rs. 50 cr and above.
Overseas Investment Return Quarterly 15 days Return to be submitted by NBFCs having
overseas investment.
Return on FDI Half Yearly 30 days To capture compliance with the stipulated minimum
capitalization norms.
NBS-9 Annually 60 days Annual Return
SAC Annually 1 month Statutory Auditor Certificate within 1 month from the date of
finalization of Balance Sheet. Not later than 31st December.
RBI Compliance for Base Layer NBFC
Disclosure requirement
– the scope of NBFC compliance has been expanded to include related party transactions
and loans to directors/senior officers. NBFC must set up approved policies in case loans to
the related parties
ICAAP Requirement
- Base layer NBFC has been exempted from ICAAP requirements.
Concentration of credit/investment
- Current norms are applicable- no change in limits
SSE Compliance
- RBI compliance for Sensitive Sector Exposure (SSE) is not applicable on Base-layer base-
layer NBFC
Regulatory restrictions on loans
Not applicable on Base Lawyer NBFC
KMP Restriction is not applicable
– This Means the director in the base layer NBFC can hold a similar position in the other
NBFC.
Independent directors can hold any no of positions as permitted by the Companies Act
2013.
Enhanced capital requirement for Base layer NBFC – Every NBFC operating with less than
10 crores in the base layer will be required to update their capital to Rs. 10 crores by 2027.
The below deadline has been set for the NBFC under the Base layer.
Mandatory policies to be adopted by the NBFC along with implementation of all RBI Master
direction
Important Prudential Norms Applicable on NBFC
Leverage Ratio:
NBFCs (except NBFC-IFCs and NBFC-MFIs) are required to maintain a leverage ratio of not
exceeding seven at any course of action.
Accounting of investments:
The Board of Directors of NBFC are required to frame the company's investment policy and
implement it. For instance, the criteria for categorizing investments into current and long-
term investments.
Policy for demand/call loans:
The Board of Directors of an applicable NBFC that wishes to demand/call loans should frame a
policy that the company would implement.
Provisioning for NPA by NBFC –
the Assets of the NBFC are required to be classified into Standard and substandard assets,
Doubtful and total loss: the prudential norms for recognizing the Non-performing assets
(NPA). Each applicable NBFC should make provision for the standard assets at 0.25% of the
standard outstanding loan book and further provision based on NPA classification; all types of
NBFC are required to follow the prudential norms applicable to NBFC for classification of the
assets.
Multiple NBFCs:
All applicable NBFCs would be aggregated jointly to check the limit of 1000 Crore rupees
of asset size.
Disclosure in the Balance Sheet:
Every NBFC will have separate disclosure provisions for doubtful/bad debts &
depreciation in investments.
Change in Regulation in recognizing NPA (Non-performing assets)
The RBI introduced the NPA norms relying on the Narsimham Committee recommendations
& prudential norms for Income Recognition, Asset Classification and provisioning for the
advance portfolio of the banks with the intention for proper disclosure of profit & loss and
reflect the bank's financial health. As per the regulations issued by RBI, the provisioning of
assets is critical for all entities in the financial services sector. Currently, the SI-NBFC Master
Directions1, NSI-NBFC Master Directions and HFC Master Directions (collectively termed as
Master Directions) provide norms for asset classification and provisioning for NBFCs. As per
the Master Directions, every NBFC shall, after considering the degree of well-defined credit
weaknesses and extent of dependence on collateral security for realization, classify its
lease/hire purchase assets, loans and advances and any other forms of credit into the
following classes, namely:
Standard assets;
Sub-standard assets;
Doubtful assets; and
Loss assets.
Provisioning is required for each of these assets at the rates prescribed by RBI. Additionally,
NBFCs must disclose provisions made per the RBI regulations in their financial statements.
NPA classification
Currently, the NBFCs-ND with an asset size of less than INR500 crore (i.e., non-
systemically important, non-deposit-taking NBFCs) classify assets with an overdue
period of more than 180 days as NPA (NPA norm). All other NBFCs have an NPA norm
of 90 days. The RBI has now harmonized the NPA norms for all NBFCs to 90 days. This
amendment will impact the NBFCs in the base layer, which includes the NBFC- ND (i.e.,
the non-systemically important, non-deposit-taking NBFCs). Accordingly, a glide path
has been provided to NBFCs in the base layer to adhere to the 90-day NPA norm, as
given below
By 31st March 2024, NPA shall be recognized at 150 Days overdue
By 31st March 2025, NPA shall be recognized at 120 Days overdue
By 31st March 2026, NPA shall be recognized as 90 Days overdue
NPA provisioning norms for NBFC
For Standard assets
, NPA Provisioning - 0.25% for NBFC assets size less than 500 crores and 0.4% of the
Outstanding Principal Amount in another case.
For Sub-standard assets
- Beyond the prescribed time period as per RBI Master direction. NBFC Companies are
required to assess Expected credit losses (ECL) and form a policy regarding the
impartment of assets as per Ind-AS-109, which means that a loss event doesn't need to
occur before an impairment loss is recognized. Categorizing assets as sub-standard or
doubtful assets or total assets is only an estimate based on the business history or
industry trend in the case of NBFC, and the Board of Directors of the NBFC will be required
to form a policy in this regard. ECLs represent a calculated probability-weighted projection
of credit losses. In simpler terms, they reflect the current value of anticipated cash deficits
throughout the anticipated lifespan of a financial instrument. These deficits arise from the
variance between the cash inflows owed to an entity as specified in the contract and the
cash inflows the entity anticipates receiving from the recovery proceedings. If the loan is
NPA up to 12 months, the same is called Sub Standard Assets Point to be noted that – a
provision of 10% Provision can be made on the outstanding amount, and any loan
Outstanding
is overdue by 12 months.
Secured Exposure - 15 %
Unsecured Exposure – 25%
Unsecured exposure in respect of Infrastructure loan - 20%
Doubtful assets NPA –
any loan amount overdue between 1 year to 3 years shall be considered doubtful assets.
Unsecured portion 100 per cent provision, and for the Secured portion, 20% to 50%
provision on the basis of the period for which the asset is considered doubtful.
Overdue up to one year
- 100% on unsecured portion & 25% on realizable value of Assets.
Overdue 1 to 3 years -
100% on unsecured portion & 40% on NPA – Asset Classification & Income Recognition
Asset Classification
Over 3 years –
100% write off
Loss Assets NPA
– as When after 3 years or before in case of unsecured loan and after 3 years in case of
Secured loan. The entire asset is to be written off or 100 per cent provision on the
outstanding amount.
RBI's important event-based Compliance Requirement
Management Change Compliance
- Any change in the management of the NBFC that would lead to a shift of over 30
per cent of the directors, excluding independent directors.
Shareholding Change Compliance
- Any change in the ownership of an NBFC, progressive increases over time that
would result in the acquisition or transfer of 26 per cent or more of the paid-up
equity capital of the NBFC in such case prior approval from RBI is mandatorily
required.
Shifting of Registered office
– NOC from RBI shall be obtained, and Then NBFC will be required to complete
the necessary formalities as laid down by the Companies Act.
Change in Name and Change in Object Clause
– Prior Approval from regional RBI is required.
NBFCs are required to have robust KYC procedures in place to verify the identity of
their customers and ensure they comply with Anti-Money Laundering (AML) and
Counter Financing of Terrorism (CFT) regulations.