NON-BANKING
FINANCIAL COMPANIES
NEED FOR REGISTRATION
Ø Section 45-IA of the Reserve Bank of India Act, 1934
provides that No non-banking financial company shall commence or carry on
business of a non-banking financial institution without –
(a)
obtaining
a certificate of registration issued under Chapter IIIB; and
(b)
having
the net owned fund of twenty-five lakh rupees or such other amount, not
exceeding two hundred lakh rupees, as the Bank may, by notification in the
Official Gazette, specify.
Ø Reserve Bank of
India vide its PRESS RELEASE dated 8th
April 1999 has announced that “in
order to identify a particular company as a non-baking financial company
(NBFC), it will consider both, the assets and the income pattern as evidenced
from the last audited balance sheet of the company to decide its principal business. The company will be treated as an
NBFC if its financial assets are more than 50 per cent of its total assets
(netted off by intangible assets) and income from financial assets should be
more than 50 per cent of the gross income. Both these tests are required to be
satisfied as the determinant factor for principal business of a company.”
Ø Reserve Bank of India vide its Notification No. DNBS 132 / CGM (VSNM) – 99, dated 20/04/1999 has increased the requirement of
“net owned fund” from Rs.25 lakh to Rs.200 Lakh for the NBFC which commences
business of a non-banking financial institution on or after April 21, 1999 .
Ø Meaning of
Business of a non-banking financial institution
Section 45-I(a)
of the Reserve Bank of India
“business of a
non-banking financial institution” means carrying on of the business of a
financial institution referred to in clause (c) and includes business of a
non-banking financial company referred to in clause (f);
Ø Meaning of Financial
Institution
Section 45-I(c)
of the Reserve Bank of India
“financial
institution” means any non-banking institution which carries on as its business
or part of its business any of the following activities, namely:-
(i)
the
financing, whether by way of making loans or advances or otherwise, of any
activity other than its own;
(ii)
the
acquisition of shares, stock, bonds, debentures or securities issued by a
Government or local authority or other marketable securities of a like nature;
(iii)
letting
or delivering of any goods to a hirer under a hire‑ purchase agreement as
defined in clause (c) of section 2 of the Hire Purchase Act, 1972 (26 of 1972);
(iv)
the
carrying on of any class of insurance business;
(v)
managing,
conducting or supervising, as foreman, agent or in any other capacity, of chits
or kuries as defined in any law which is for the time being in force in any
State, or any business, which is similar thereto;
(vi)
collecting,
for any purpose or under any scheme or arrangement by whatever name called,
monies in lump sum or otherwise, by way of subscriptions or by sale of units,
or other instruments or in any other manner and awarding prizes or gifts,
whether in cash or kind, or disbursing monies in any other way, to persons from
whom monies are collected or to any other person,
but does not
include any institution, which carries on as its principal business
(a) agricultural operations; or
(aa) industrial activity; or
(b) the purchase or sale of any goods (other
than securities) or the providing of any services; or
(c) the purchase, construction or sale of
immovable property, so, however, that no portion of the income of the
institution is derived from the financing of purchases, constructions or sales
of immovable property by other persons;
Explanation‑ For the purposes of this clause,
"industrial activity" means any activity specified in sub‑clauses (i)
to (xviii) of clause (c) of section 2 of the Industrial Development Bank of
India Act, 1964 (18 of 1964).
Ø Meaning of NBFC
Section 45-I(f) of
Reserve Bank of India
“non-banking
financial company” means –
(i)
a
financial institution which is a company;
(ii)
a
non-banking institution which is a company and which has as its principal
business the receiving of deposits, under any scheme or arrangement or in any
other manner, or leading in any manner;
(iii)
such
other non-banking institution or class of such institutions, as the Bank may,
with the previous approval of the Central Government and by notification in the
Official Gazette, specify.
EFFECT OF NON-REGISTRATION
Ø Sub-section (4A)
of Section 58B of the Reserve Bank of India Act, 1934 provides
“If any person
contravenes the provisions of sub-section (1) of section 45-IA, he shall be
punishable with imprisonment for a term which shall not be less than one year but
which may extend to five years and with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees.”
Ø Section 58C
provides as follows
(1) “Where a person committing a
contravention or default referred to in section 58B is a company, every person
who at the time the contravention or default was committed, was incharge of,
and was responsible to, the company for the conduct of the business of the
company, as well as the company, shall be deemed to be guilty of the contravention
or default and shall be liable to be proceeded against and punished
accordingly:
Provided that nothing contained in this
sub-section shall render any such person liable to punishment if he proves that
the contravention or default was committed without his knowledge or that he had
exercised all due diligence to prevent the contravention or default.”
(2) Notwithstanding anything contained in
sub-section (1), where an offence under this Act has been committed by a
company and it is proved that the same was committed with the consent or
connivance of, or is attributable to any neglect on the part of, any director,
manager, secretary, or other officer or employee of the company, such director,
manager, secretary, other officer or employee shall also be deemed to be guilty
of the offence and shall be liable to be proceeded against and punished
accordingly."
COMPLIANCES FOR NBFC
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Under
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Particular
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Frequency
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Applicability
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Under Reserve Bank of
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Section
45-IA
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NBFC have to make application for
registration with RBI and shall not commence or carry on business of a
non-banking financial institution without obtaining registration from RBI and
maintaining NOF.
NOF requirement for NBFC registered
Before
On or after
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One time
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All NBFC
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Section
45-IB
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Maintenance of percentage of assets
Invest and continue to invest 5% to
25% (specified by RBI) of deposits outstanding on the last working day of the
second preceding quarter in unencumbered approved securities.
Notification No. DFC.121/ED(G)-98
dated 31.01.1998 and No. DFC(COC) NO.108-ED(JRP)-97 dated 30.04.1997
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Ongoing
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NBFC accepting
/ holding Public Deposit
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Section
45-IC
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Reserve Fund
Every NBFC shall create a reserve fund
and transfer therein a sum not less than 20% of its net profit every year as
disclosed in the profit and loss account and before any dividend is declared.
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Yearly
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All NBFC
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Section
45-M
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Duty of NBFC to furnish statements etc., required by Bank |
When asked for
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All NBFC
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Under Non-Banking Financial Companies
Acceptance of Public Deposit (Reserve Bank) Directions, 1998
Notification No.DFC.118/DG(SPT)-98 dated
31.01.1998
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Minimum Credit Rating, Prohibition on
acceptance of Deposit, repayable on demand, Period of Deposit (12 to 60
Months only), Ceiling on quantum of deposits (depends on status, rating,
etc.), Status in case of Downgrading of credit rating, Regularisation of
Public Deposit accepted earlier, Ceiling on the rate of interest (max 11%),
Payment of Brokerage, etc.
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ongoing
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All NBFC
Not
applicable subject to
1) not accepting Public Deposit
2)
passed a
resolution under para 9
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Branches, agents, closures of branches
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Information to be included in the
Board’s report
e.g. total no. of accounts of public
deposit, total amount due or unpaid, etc.
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Safe custody of approved securities
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Employee Security Deposit
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Copies of balance sheet and accounts
together with the Directors’ report, auditors’ report, notes on accounts,
returns in Form – NBS 1 and intimation of any change in address, directors,
principal officers, specimen signatures etc should be furnished to the
Reserve Bank within 30 days of the occurrence of event.
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Non-applicability of Direction to certain
types of NBFC
a)
Insurance company
b)
Loan company, an investment company, a hire
purchase company or equipment leasing company not holding or accepting public
deposits and pass a resolution to the effect within 30 days of the
commencement of the financial year
c)
An investment company (investing only in group
companies not less than 90% of its assets) and pass a resolution that has not
accepted and would not accept Public Deposit and would not trade in such
shares/ securities within 30 days of the commencement of the financial year.
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Every year
within 30 days from the commencement of financial year
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All NBFC,
which wants to claim exemptions
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Under Non-Banking Financial Companies
Prudential Norms (Reserve Bank) Directions, 1998
Notification No.DFC.119/DG(SPT)-98 dated
31.01.1998
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Income recognition
Income from NPA shall be recognized
only when actually realised. All unrealised income on NPA shall be reversed.
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Ongoing
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All NBFC
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Income from investment
Dividend income on shares and units of
Mutual Funds shall be taken on cash basis.
Income from Bonds and Debentures from
Govt. Securities may be taken on accrual basis.
Income from securities (guaranteed by
Central Govt. or State Govt.) may be taken on accrual basis.
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Accounting Standards
Accounting standards shall be followed
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Accounting of investment
Board of Directors shall frame
investment policy
Other requirement regarding accounting
of investment
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Need for Policy on Demand / Call Loans
Policy for demand / call loan shall be
framed
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Ongoing
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All NBFC
giving loan etc.
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Asset classification
Assets shall be classified as
Standard, Sub-standard, Doubtful and Loss assets.
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Ongoing
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All NBFC
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Provisioning requirements
Provision for assets (i.e. loans,
advances or other credit facilities including bills purchased &
discounted, Leased and hire purchased assets) shall be made
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Ongoing
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Disclosure in the Balance Sheet
Provision as in para 8 should be
disclosed without netting off
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Yearly
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Constitution of Audit Committee
Company having assets of Rs.50 crore
and above shall constitute an Audit Committee.
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Ongoing
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NBFC having
assets of Rs.50 crore and above
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Accounting Year
Every NBFC shall prepare its B/S and
P/L as on 31st March
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Yearly
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All NBFC
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Schedule to the Balance Sheet
Every
NBFC shall append to its B/S particulars in the format as set in schedule
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Transaction in Government Securities
NBFC
shall hold investment in approved securities in a dematerialised form only.
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Ongoing
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All NBFC
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Requirement as to Capital adequacy
NBFC
shall maintain minimum capital ratio
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Ongoing
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NBFC accepting
/ holding Public Deposit
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Loan against NBFC’s own shares prohibited
No
loan against own shares shall be given
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Ongoing
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All NBFC
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NBFC failing to repay public deposit prohibited from making loans and investments |
As long as
default exists
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NBFC accepting
/ holding public deposit
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Restrictions on investment in land and building and unquoted shares
Restriction
has been specified (10% of NOF)
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Ongoing
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NBFC accepting
/ holding public deposit
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Concentration of credit / investment
Restriction
has been specified (Lend or invest to single person 15% and group 25%) (Both
lend and invest 25% and 40% respectively)
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Ongoing
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NBFC accepting
/ holding Public Deposits
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Submission of half-yearly return
Half
yearly return in Form – NBS-2 to be submitted
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Half Yealy
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NBFC accepting
/ holding Public Deposit and RNBFC
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Information in regard to change of address, directors, auditors, Principal officer, etc. to be submitted by NBFC’s not accepting/holding public deposit
Within
30 days from the date of occurrence of any change
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Whenever
change occur
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All NBFC
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Exposure to Capital Market
Quarterly
return in Form NBS-6
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Quarterly
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NBFC holding
public deposit of Rs.50 crore or more and RNBFC having liabilities of Rs.50
crores or more
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Norms relating to Infrastructure Loan
Restructuring of Infrastructure Loan.
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All NBFC
giving Infrastructure Loan
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Under various Notification / Press release
issued by Reserve Bank
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Circular No.
DNBS (DD) CC.No. 15/02.01/2000-01 dated
Asset –
Liability Management (ALM) System
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Ongoing
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All NBFC
having assets more than Rs.100 crores
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Notification No. RBI/2005-06/157 dated
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Monthly
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All NBFC
having assets more than Rs.100 crores
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AND ALSO NEEDS TO SUBMIT NET WORTH CERTIFICATE ISSEUED BY A C.A. BEFORE 30TH
JUNE EVERY YR.
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