This document discusses the regulations for Non-Banking Financial Companies (NBFCs) in India. It defines NBFCs, outlines the registration requirements with the Reserve Bank of India, and classifies NBFCs into different categories based on their activities. It also describes the various compliance requirements for NBFCs, including capital adequacy, credit concentration limits, returns to be filed, and the responsibilities of auditors. Finally, it notes some problem areas like unregistered NBFCs operating without approval.

1. By Prakash Bhatt
B. Com, CS & LLB
Delve Consultancy Services
R-109, Sector-21, Noida
Email: pbhatt.acs@gmail.com
Mob. 9873877684
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2.  Definition
 Registration
 Classification
 Exempted from registration requirement
 Compliances requirements
 Returns to be submitted
 Auditors responsibility
 Problem areas
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3.  Reserve Bank of India is regulator of the Non-Banking
Financial Companies under the provisions of Chapter III B
of the Reserve Bank of India Act, 1934.
 With the amendment of the Reserve Bank of India Act,
1934 in January 1997, in terms of Section 45 IA of the Act,
all Non-Banking Financial Companies have to be
mandatorily registered with the Reserve Bank of India.
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4. DEFINITIONDEFINITION
Clause (3) of section 45-IA RBI Act 1934:
A Non Banking Financial Company (NBFC) is a Company registered
under the Companies Act, 1956 and which is engaged in the business
of :
Loans & advances
Acquisition of shares and securities
Leasing
Hire purchase
Insurance
Chit fund
Nidhi Companies (Mutual Benefit Companies)
List of registered NBFC is available at the website of RBI & MCA
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5. DEFINITION OF PRINCIPAL BUSINESSDEFINITION OF PRINCIPAL BUSINESS
RBI Press Release Dt. April 8, 1999
 If 50% or more of a company’s total assets (netted
off by intangible assets) are financial assets
and
 If 50% or more of a company’s gross income is
from financial assets
then the Principal Business of the Company is of a NBFC
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6. With effect from December 6, 2006 the above NBFCs
registered with RBI have been reclassified as:
(i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)
(iv) Core Investment Company (CIC)
(v) Residuary Non Banking Finance Company, a class of
NBFC not being Investment, Asset Financing, Loan
Company (R-NBFC).
(vi) Nhidis Company (Mutual Benefit Finance Co)
(vii) Chit Fund (Misc NBFC)
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7.  Insurance Companies registered under Insurance Act,
1938;
 Nidhi Companies notified under Section 620A of the
Companies Act, 1956;
 Chit fund companies regulated by State Govt.
 Stock Broking Companies / Merchant Banking Companies
registered with Securities & Exchange Board of India Act;
 Housing Finance Companies being regulated by the
National Housing Bank (NHB)
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8. CIC’s are exempted from registration with RBI subject to the
compliance with the following criteria as on date of last audited
balance sheet:
It holds not less than 90% of its net assets in the form of investment in
Group Companies (subsidiaries, Associates and JVs).
It holds investment in equity shares in group companies not less than
60% of its net assets.
It is not trading in those shares (except for block sale)
It does not carry any other NBFI activities except investment in Bank
Deposits, Govt. Securities, Bonds, debentures or loans in group
companies.
Its total assets are less than 100 Crores.
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9. PRE-REQUSITE FOR CARREYING ON NBFC ACTIVITIES
 Require registration with RBI under section 45 IA of RBI
Act, 1934 to commence / carry on business of NBFC.
 Minimum NOF Rs 200 Lacs( earlier Rs. 25 Lacs)
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10. NOF:
PAID UP SHARE CAPITAL + FREE RESERVE (created through an allocation of profits)
DEDUCT: a) Accumulated balance of losses
b) Deferred revenue expenditure
c) Other intangible assets
DEDUCT : If the following are in excess of 10% of the above
a). Investment in shares in shares of
b). subsidiaries, cos., in the same group and other NBFCs
c). Book value of debentures, bonds, loans & advances to subsidiaries and cos. in
the same group Deposits with subsidiaries and cos. in the same group
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11. For the purpose on monitoring / compliances NBFC are
further classified:
 Deposit taking NBFC (NBFC-D) - Category –A
 Non-Deposit taking NBFC (NBFC-ND)- Category- B
 CIC-ND-SI – Category –C
Separate guidelines / regulation has been formulated by RBI for each above class
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12. I. NBFC Acceptance Of Public Deposit Directions, 1998.
II.NBF (Deposit Accepting or Holding) Companies Prudential Norms
Directions, 2007.
III.NBFC Advertisement Rules,1977.
IV.Circulars issued form time to time.
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13.  Regulated deposits and exempt deposits
 Quantum of deposit
 Credit rating
 Advertisement/ Statement in lieu of Advertisement
 Period of deposit
 Rate of interest
 Rate of brokerage
 Repayment of deposit
 Regularization of excess deposit
 Premature payment of deposits
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14.  Loan against deposit
 Default in payment of deposit or interest thereon
 Interest on overdue deposits
 Deposit Register & Deposit Receipts
 Percentage of Liquid assets
 Nature of liquid assets
 Mode of liquid assets
 Safe custody of approved securities
 Floating charge on liquid assets in favour of depositors
 KYC Norms
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15. I. NBFC (Non-Deposit Accepting or Holding ) Companies
Prudential Norms Directions, 2007.
II. Additional requirements for NBFCs-ND-SI (having total
assets of Rs.100 Crores and above as shown in the
last audited Balance Sheet).
III. Circulars issued form time to time.
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16.  Accounting policies
 Accounting standards
 Income recognition
 Accounting of Investment
 Policy on investment and disclosure
 Assets Classification
 Provisioning norms
 Capital adequacy requirement (Tier i &Tier ii)
 Disclosure in balance sheet
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17.  Policy for demand / call loans
 Accounting year
 Concentration of Loans / investment with reference to single
borrower / group. 15% (single borrower) / 25% (group)
(lend + invest 25 % single/ 40% group)
 NBFC Schedule is to be appended to Balance sheet.
 Constitution of Audit committee.
 Submission of auditors certificate
 Intimation of change of directors, address, principal
officer, auditors etc.
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19.  Special Report to the Board of Directors of the co. in terms of Para 2
of NBFC Auditors Report ( RB) Directions, 2008.
 Exceptional Report to the RBI in specific circumstances in terms of
Para 5 of NBFC Auditors Report( RB) Directions, 2008.
 Schedule to the Balance sheet in terms of Prudential Norms
Directions,2007.
 Periodical Certified Returns to RBI.
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20.  All NBFC are prohibited from granting loans against
their own shares.
 NBFC Not to be partner in partnership firm.
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21.  OFF-SITE SURVEILLANCE
Returns
Auditors’ Reports
Market intelligence
 ON-SITE SURVEILLANCE
Inspections
Special audits
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22. A large number of NBFCs are working without
registration:
Companies working without registration and Companies
rejected by RBI still operating.
Penalties:
 Imprisonment of 1 to 5 Years and
 Fine of Rs. 1 Lakh to 5 Lakhs.
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23. Thank You
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24. Delve Consultancy Services provides consultancy for Non-
Banking Finance Companies (NBFC) / Core Investment
Companies (CICs) registration, compliances, returns to be
submitted & inspections etc.
Contact:
Mob: 9873877684
Email: pbhatt.acs@gmail.com
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