Aug 18,2021 | 5 min read

"Legal Compliance Audit Checklist by NBFC for Granting Loans"

A money foundation is referred to as a Non-Banking Financial Company (NBFC). Under the Companies Act 2013, it is a type of organisation that accepts loans and advances, obtains stocks or offers, rents, and does chit business. NBFCs are classified as Investment Companies, Loan Companies, and Finance Companies.

The Reserve Bank of India supervises the enrolling of NBFCs in India. NBFC guidelines offer a variety of banking and non-banking services to those who qualify. They do not have banking licences, but they must follow the RBI's principles and rules.

About NBFC:

Before you may operate as an NBFC, you must first get a certificate of registration from the RBI and meet the following requirements:  

  1. Section 3 of the Companies Act of 1956 should be used to register your business. 

  2. Your business should have a net owned fund of at least two crore rupees.

The Regulatory Framework :

  • NBFCs can begin operations by obtaining a Certificate of Registration” from the RBI.

  • Requirements for NBFC Registration

  • In India, the organisation must be classified as either public or private.

  • The organisation must have a Rs.2 crore revenue fund.

  • NBFCs are authorised to accept/reestablish public deposits for a minimum of a year and a maximum of 60 months.

  • Deposits repayable on demand are not accepted by NBFCs.

  • NBFCs are not permitted to offer financing costs that are greater than the RBI's periodic ceiling rate.

  • It is not authorised to provide depositors gifts or any additional benefits.

  • The RBI does not guarantee the reimbursement of deposits by NBFCs.

  • Providing physical copies of the list of documents to the RBI's local office.

Guidelines for NBFC Returns

  • Financial Indicator Returns - Assets and liabilities, profit and loss account, exposure to sensitive industries, and so on would be included in the financial information.

  • Prudential Norms Returns - Capital Adequacy, Asset Classification, Provisioning, NOF, and other information are included.

  • The Returns on Liquid Assets - It contains information on Statutory Investments in Liquid Assets such as Government Securities and Fixed Deposits in Scheduled Commercial Banks, among other things. The status of public deposits whose CoR was rejected by the RBI is returned. The repayment statuses of public deposits are among the details that must be filed. To be filed once a year.

  • Asset-Liability Management (ALM) is the management of assets and liabilities. Returns if it has an asset base of Rs. 100 crore or more, or holds public deposits of Rs. 20 crore or more, as of the 31st March of the previous fiscal year, as shown in its most recent audited balance statement. ALM must be filed every six months, within 30 days. This return allows the RBI to analyse asset-liability mismatches and interest rate risk exposures, which aids in risk management.

The purpose of these statements is to effectively manage interest rate risk and Asset Liability mismatches

While applying for a loan from NBFC an individual has to give certain documents that will help measure your credit guarantee and let the loaning party assess whether that individual is eligible for a loan or not.

Documentation required by NBFC for granting Loans:

  • Voters ID card

  • Aadhaar card  

  • Driver’s license

  • PAN card

  • Passport

  • Financial records- which include the salary of the individual who is applying for a loan. If the applicant is self-employed, then he or she must submit a breakdown of their income.

  • Proof of income- this includes the play slip and the bank statement of the past three months of the applicant

  • Filled out the loan application form

  • A letter stating proof of job continuity. The employer can write this letter from the applicant. If the applicant is a self-employed individual, then he or she must present the revenue income of their business for the last three months.

List  of  compliance on basis of type of NBFC

  • NBFC ANNUAL REPORT 2013 - THE COMPANIES ACT (Within 60 days of conclusion AGM)

  • Annual financials (balance sheet and profit and loss statement) must be filed (Within 30 days of the conclusion of AGM)

  • Annual financials (balance sheet and profit and loss statement) must be filed (Within 30 days of the conclusion of AGM)

In conclusion, it can be said that;
NBFCs should be able to provide the Reserve Bank of India's Certificate of Registration of CoR. This would be posted on their website as well as at their office. The RBI should expressly authorise the NBFC that is registered to receive deposits.

References:-

https://enterslice.com/learning/regulatory-requirements-nbfc-india/
https://taxguru.in/rbi/nbfc-types-documents-required-compliance.html
https://www.corpseed.com/knowledge-centre/nbfc-annual-compliance

 


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