Introduction
After the year of 2020, RBI has issued various guidelines and circulars on different subject matters for the NBFCs operating their business in India. Some of them are Appointment of internal Ombudsman, Scale based Regulations, Risk based internal Audit, Provisioning on standard assets, Role of COO, Review on Peer-to-Peer Lending Platform, detailed guidelines on digital lending and many more. Due to large no of regulatory provisions and changing scenario small NBFCs are facing compliance issues and challenges for complying of the various guidelines of RBI on different subject matter Here I am sharing major provisions, which should be kept in the mind by the legal head or compliance office of the small NBFCs.
I. Membership with CICs:
Every NBFC should have membership of CICs (Credit Information Companies). There are four CICs are registered in India.
1. Credit Information Bureau (India) Limited (CIBIL)
2. Equifax Credit Information Services Private Limited:
3. Experian Credit Information Company of India Private Limited
4. CRIF High Mark Credit Information Services Private Limited
After getting membership NBFC shall submit a report on monthly basis in the format prescribed by the CICs with every CICs for the loans provide by the Company. It should be noted that report will be submit for that month also in which loan is not provided by the NBFC but previous loans are outstanding.
II. Registration in FIU-IND
Every NBFCs should have registration in the FIU-IND. The reporting requirements should be followed by the NBFC
III. CKYC (CERSAI) Registration
Every NBFC should have CKYC (CERSAI) Registration. Reporting requirements will be complied by the company have Asset Reconstruction business.
IV. Comply with Fair Practice Code
As per RBI Circular dated September 28, 2006, all NBFCs shall comply with guidelines on Fair Practice Code with the approval of their Boards within one month from the date of issue of the circular. Fair Practice Code provide the guidelines for below mentioned pointers.
1. Applications for loans and their processing
2. Loan appraisal and terms/conditions
3. Disbursement of loans including changes in terms and conditions
4. General
V. Training on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)
Anti-money laundering and countering the financing of terrorism (AML/CFT) is a global effort to fight money laundering and terrorist financing. The goal of AML/CFT is to protect the financial system and the economy, and to strengthen the integrity of the financial sector. Every NBFC should conduct a training on Anti-Money laundering/combating the Financing of Terrorism for their employees on quarterly basis and submit a return with RBI.
VI. Board approved policy for the risk management
A board approved risk management policy for an NBFC should outline a comprehensive framework to identify, assess, mitigate, and monitor all potential risks across the organization, including credit risk, liquidity risk, market risk, operational risk, and reputational risk, with clear responsibility assigned to different departments and regular reporting to the board, ensuring compliance with RBI regulations and aligning with the company’s overall risk appetite; this policy should be reviewed and updated periodically to reflect changing market conditions and business strategies.
VII. Timely filing of various returns:
1. DNBS01- Important Financial Parameters
2. DNBS 02: A return on financial details, including assets and liabilities, and prudential norms
3. DNBS03-Important Prudential Parameter
4. DNBS04A- Short Term Dynamic Liquidity (STDL)
5. DNBS04B-Structural Liquidity & Interest Rate
6. DNBS06 – Important Financial & Prudential Parameters
7. DNBS10-Statutory Auditor Certificate (SAC
8. DNBS13-Overseas Investment Details
9. Form A Certificate
Apart from these many returns are required to be filed by the NBFCs according to their size. These are the common returns which must be filed by every NBFCs.
VIII. Fulfilment of mandatory ratios
1. Capital to Risk-weighted Assets Ratio (CRAR)
2. Leverage
3. Liquidity Coverage Ratio (LCR)
RBI may cancel the license of the NBFCs for the maintain the above-mentioned mandatory Ratios.
- Conclusion
We have discussed here basic and common compliances which must be followed by every NBFCs registered in India. There may be some additional compliances depend upon the size of the NBFCs. RBI has categorised the size of the NBFCs in Base-Layer, Middle-Layer and Upper-Layers. If Management of the NBFCs comply with above mentioned provisions prescribed under the RBI guidelines and Circulars may avoid regulatory actions taken by the Reserve Bank of India. Due to non-compliance of the above-mentioned provisions, RBI has cancelled the licence of the various NBFCs.
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