1 Non Banking Finance Company ICAI-DELHI 04-05-2013 CA Bhavesh Vora

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Non Banking Non Banking Finance Finance

CompanyCompanyICAI-DELHIICAI-DELHI

04-05-2013 CA 04-05-2013 CA Bhavesh VoraBhavesh Vora

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Topics CoveredTopics Covered Meaning of NBFCMeaning of NBFC Classification of NBFCsClassification of NBFCs Types of NBFCsTypes of NBFCs Net Owned Funds requirementNet Owned Funds requirement Capital Adequacy RequirementCapital Adequacy Requirement Concentration of Concentration of

Credits/InvestmentsCredits/Investments Prudential Norms – NPA Prudential Norms – NPA

Provisioning RequirementsProvisioning Requirements04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA

Bhavesh VoraBhavesh Vora

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Topics CoveredTopics Covered Other Important NormsOther Important Norms Auditor’s Report Directions, 2008Auditor’s Report Directions, 2008 Returns RequirementsReturns Requirements Core Investment Companies (CICs)Core Investment Companies (CICs) Formation ProcedureFormation Procedure Recent AmendmentsRecent Amendments

04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA Bhavesh VoraBhavesh Vora

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Banks Vs. Non-BanksBanks Vs. Non-Banks

Both are Financial IntermediariesBoth are Financial Intermediaries Banks Can:Banks Can:

Maintain Demand Deposits (savings/current Maintain Demand Deposits (savings/current Accounts)Accounts)

Form a Part of Payment and Settlement Form a Part of Payment and Settlement MechanismMechanism

Non-banks CanNon-banks Can Accept only term DepositsAccept only term Deposits Does not form Part of Payment and Does not form Part of Payment and

Settlement MechanismSettlement Mechanism04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA


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Meaning of NBFCMeaning of NBFC

Section 45ISection 45I (f) (f) of RBI act, 1934of RBI act, 1934

““Non-banking financial company” means –Non-banking financial company” means – a a ““Financial InstitutionFinancial Institution”” which is a company; which is a company; a Na Non-Banking Institution on-Banking Institution which is a which is a

company and which has as its company and which has as its Principal Principal BusinessBusiness the receiving of deposits, under any the receiving of deposits, under any scheme or arrangement or in any other scheme or arrangement or in any other manner, or lending in any manner;manner, or lending in any manner;

such such other other Non-Banking InstitutionNon-Banking Institution or class or class of such institutions, as RBI of such institutions, as RBI specifiesspecifies

““Non-Banking Institution” - means a Non-Banking Institution” - means a company , corporation or co-operative societycompany , corporation or co-operative society


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Classification of NBFCsClassification of NBFCsMainly there are following types of NBFCsMainly there are following types of NBFCsAsset Finance CompanyAsset Finance Company

Equipment LeasingEquipment Leasing Hire Purchase Finance Hire Purchase Finance

Investment Company Investment Company Loan CompanyLoan CompanyCore Investment CompaniesCore Investment CompaniesInfrastructure Finance CompaniesInfrastructure Finance CompaniesFactorFactorMicro Finance InstitutionsMicro Finance InstitutionsInfrastructure Debt FundsInfrastructure Debt Funds


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Classification of NBFCsClassification of NBFCs Asset Finance Company (AFC) would be Asset Finance Company (AFC) would be

defined as any company which is a financial defined as any company which is a financial institution carrying on as its principal institution carrying on as its principal business the financing of physical assets business the financing of physical assets supporting productive / economic activity. supporting productive / economic activity.

The onus of including only eligible assets The onus of including only eligible assets for the purpose of classification as AFC for the purpose of classification as AFC shall be that of the company concerned.shall be that of the company concerned.

Principal business - aggregate of financing real/physical assets supporting Principal business - aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of economic activity and income arising therefrom is not less than 60% of

its total assets and total income respectivelyits total assets and total income respectively


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Classification of Classification of NBFCs……NBFCs……

Loan Companies (LC) means any company which is a Loan Companies (LC) means any company which is a financial institution carrying on as its principal business the financial institution carrying on as its principal business the providing of finance whether by making loans or advances providing of finance whether by making loans or advances

or otherwise for any activity other than its own but does or otherwise for any activity other than its own but does not include an Asset Finance Companynot include an Asset Finance Company

Investment Companies (IC) means any company which is Investment Companies (IC) means any company which is a financial institution carrying on as its principal business a financial institution carrying on as its principal business

of acquisition of securitiesof acquisition of securities


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Types of NBFCsTypes of NBFCs

Deposit accepting NBFCs.Deposit accepting NBFCs. Non deposit Accepting NBFCsNon deposit Accepting NBFCs

Systemically important (SI)Systemically important (SI) Not systemically important NBFCsNot systemically important NBFCs

‘‘NBFC-ND-SI', means an NBFC not accepting / not holding NBFC-ND-SI', means an NBFC not accepting / not holding Public Deposits and having total assets of Rs 100 crore Public Deposits and having total assets of Rs 100 crore and above as shown in the last audited balance sheet.and above as shown in the last audited balance sheet.

NOF to be maintained at Rs. 200 lacs at all the timeNOF to be maintained at Rs. 200 lacs at all the time


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Capital Adequacy Capital Adequacy

Capital to risk assets ratio (CRAR) in case of Capital to risk assets ratio (CRAR) in case of NBFC-ND-SINBFC-ND-SI shall not be less than 15% shall not be less than 15%


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Steps for calculation of Steps for calculation of CRARCRAR

Step I – Find out owned funds Step II – From Owned fund, derive Net

owned fund (Tier I Capital) Step III – Find Tier II capital Step IV – Derive Total Risk Weighted

Assets (TRWA)

TRWA = Total Risk weighted assets of B/S and Off balance sheet items

CRAR = (Tier I+Tier II)/TRWA


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Maintenance of CRARMaintenance of CRAR CRAR (Capital to Risk Asset Ratio)CRAR (Capital to Risk Asset Ratio)

Capital in the form of Tier I and Tier II capital to be Capital in the form of Tier I and Tier II capital to be maintained against total risk weighted assets.maintained against total risk weighted assets.

Calculation of Tier I Capital (i.e. Net owned funds)Calculation of Tier I Capital (i.e. Net owned funds)Sum of Sum of

Share Capital (Paid up capital + Preference shares Share Capital (Paid up capital + Preference shares which are compulsorily convertible into equity)which are compulsorily convertible into equity)

Free Reserves (Including General Reserves, Free Reserves (Including General Reserves, Debenture redemption reserves, Capital Redemption Debenture redemption reserves, Capital Redemption Reserves, Credit balance in P&L Account, Other Free Reserves, Credit balance in P&L Account, Other Free reserves (to be specified))reserves (to be specified))

Capital reserves representing surplus arising out of Capital reserves representing surplus arising out of sale proceeds of asset + Balance in share premium sale proceeds of asset + Balance in share premium accountaccount


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Calculation of CRAR…Calculation of CRAR…

Deduct from aboveDeduct from above Deferred Revenue ExpenditureDeferred Revenue Expenditure Reserves created by revaluation of assetsReserves created by revaluation of assets Accumulated loss balanceAccumulated loss balance Losses in the current period and those Losses in the current period and those

brought forward from previous periodsbrought forward from previous periods Book value of Intangible assetsBook value of Intangible assets Deferred Tax AssetDeferred Tax Asset

The Resultant Figure will be “Owned Funds”The Resultant Figure will be “Owned Funds”


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Calculation of CRAR…Calculation of CRAR…Further deduct from the “Owned Further deduct from the “Owned

Funds”…Funds”… Investments in shares of other NBFCs, Investments in Investments in shares of other NBFCs, Investments in

shares, debentures, bonds, outstanding loans and shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance advances including hire purchase and lease finance made to and deposits with subsidiaries and companies made to and deposits with subsidiaries and companies from the same group exceeding, in aggregate, 10% of from the same group exceeding, in aggregate, 10% of the owned fundthe owned fund

Perpetual debt instruments issued by a NBFC-ND-SI Perpetual debt instruments issued by a NBFC-ND-SI to the extent not exceeding 15% of the aggregate Tier to the extent not exceeding 15% of the aggregate Tier I capital - as on 31st March of Previous Accounting I capital - as on 31st March of Previous Accounting YearYearThe result is Tier I capital (Net Owned Fund)The result is Tier I capital (Net Owned Fund)


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Calculation of CRAR…Calculation of CRAR…Calculation of Tier II capital (Aggregate of Calculation of Tier II capital (Aggregate of

Below items)Below items) Preference shares other than those which are Preference shares other than those which are

compulsorily convertible into equitycompulsorily convertible into equity Revaluation Reserves (RR) - 45% is only taken Revaluation Reserves (RR) - 45% is only taken

in calculation of tier II capital in calculation of tier II capital General Provisions and Loss Reserves to the General Provisions and Loss Reserves to the

extent these are not attributable to actual extent these are not attributable to actual diminution in value or identifiable potential diminution in value or identifiable potential loss in any specific asset and are available to loss in any specific asset and are available to meet unexpected losses, to the extent of one meet unexpected losses, to the extent of one and one fourth (1.25) percent of risk weighted and one fourth (1.25) percent of risk weighted assets. (Include provisions on standard assets)assets. (Include provisions on standard assets)


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Calculation of CRAR…Calculation of CRAR…

Cont…Cont… Hybrid Debt Capital InstrumentsHybrid Debt Capital Instruments Perpetual debt instruments issued by a Perpetual debt instruments issued by a

SI-ND NBFC which is in excess of what SI-ND NBFC which is in excess of what qualifies for Tier I Capitalqualifies for Tier I Capital

Subordinated DebtsSubordinated Debts

Result is Tier II capitalResult is Tier II capital

Tier II cannot be greater than Tier II cannot be greater than Tier I capital for calculation of capital adequacyTier I capital for calculation of capital adequacy


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Calculation of Risk Calculation of Risk AssetsAssets Weights assigned as belowWeights assigned as below

AssetAsset WeighWeightt

AmountAmount WeighteWeighted Amtd Amt

Fixed AssetsFixed Assets 100100 500500 500500Bonds of Public Bonds of Public Sector BanksSector Banks

2020 500500 100100

Investment in Investment in PDI of NBFCsPDI of NBFCs

100/0100/0 500500 500500

Shares/Shares/Debenture/CPs/Debenture/CPs/BondsBonds

100100 500500 500500

Cash and BankCash and Bank 00 2020 0004-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA Bhavesh VoraBhavesh Vora

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Calculation of Risk Calculation of Risk AssetsAssets

AssetAsset WeighWeightt

AmountAmount WeightWeighted Amted Amt

Stock on Stock on HireHire

100100 500500 500500

Inter Inter Corporate Corporate Loans/DeposLoans/Depositsits

100100 500500 500500

Loans to Loans to staffstaff

00 5050 00

Other Other Secured Secured loans and loans and AdvAdv

100100 200200 200200

TotalTotal 28002800


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Risk Weights for Off Risk Weights for Off Balance sheet itemsBalance sheet items

Conversion Factor (Weights) are assigned for off Conversion Factor (Weights) are assigned for off balance sheet items as followsbalance sheet items as follows

Cash margins/deposits shall be deducted before applying the conversion factor.

Financial and other guarantees, partly paid Financial and other guarantees, partly paid shares /debentures, bills discounted shares /debentures, bills discounted /rediscounted /Lease contracts entered into but /rediscounted /Lease contracts entered into but yet to be executedyet to be executed

100%

Shares/Debentures underwriting obligations & Shares/Debentures underwriting obligations & Other Contingent Liabilities (To be specified in Other Contingent Liabilities (To be specified in the calculation)the calculation)

50%


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Important Notes for CRAR Important Notes for CRAR CalculationCalculation

(1) Netting may be done only in respect of assets (1) Netting may be done only in respect of assets where provisions for depreciation or for bad and where provisions for depreciation or for bad and doubtful debts have been made.doubtful debts have been made.

(2) Can net off the amount of cash margin/caution (2) Can net off the amount of cash margin/caution money/security deposits (against which right to money/security deposits (against which right to set-off is available) held as collateral against the set-off is available) held as collateral against the advances out of the total outstanding exposure of advances out of the total outstanding exposure of the borrower.the borrower.Assets which have been deducted from owned Assets which have been deducted from owned fund to arrive at net owned fund shall have fund to arrive at net owned fund shall have

a weightage of ‘zero’a weightage of ‘zero’


Important Notes for Important Notes for CRAR Calculation…..CRAR Calculation…..

Revised Capital Adequacy Framework Revised Capital Adequacy Framework for Off-Balance Sheet Items for NBFCs has for Off-Balance Sheet Items for NBFCs has been announced by RBI which needs to be been announced by RBI which needs to be adhered to while calculating off balance adhered to while calculating off balance sheet exposuresheet exposure

NBFCs primarily engaged in lending against NBFCs primarily engaged in lending against gold jewellery (such loans comprising 50 gold jewellery (such loans comprising 50 percent or more of their financial assets) percent or more of their financial assets) shall maintain a minimum Tier l capital of 12 shall maintain a minimum Tier l capital of 12 percent by April 01, 2014percent by April 01, 2014

2104-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA


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Concentration of Concentration of Credit/InvestmentCredit/Investment

(NBFC-D and NBFC-ND-SI)(NBFC-D and NBFC-ND-SI) To formulate a policy in respect of exposure To formulate a policy in respect of exposure

to a single party/a single group of partiesto a single party/a single group of parties

Not to lend –Not to lend –(a) to any single borrower exceeding 15% (a) to any single borrower exceeding 15% of its owned funds and (b) to any single of its owned funds and (b) to any single group of borrowers exceeding 25% of its group of borrowers exceeding 25% of its owned fundsowned funds

Not to Invest in -Not to Invest in -(a) the shares of another company (a) the shares of another company exceeding 15% of its owned funds (b) the exceeding 15% of its owned funds (b) the shares of single group of companies shares of single group of companies exceeding 25% of its owned fundexceeding 25% of its owned fund


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Concentration of Concentration of Credit/InvestmentCredit/Investment

(NBFC-D and NBFC-ND-SI)(NBFC-D and NBFC-ND-SI) Not to lend and Invest (loans and Not to lend and Invest (loans and

investments taken together) exceedinginvestments taken together) exceeding (a) 25% of its owned fund to a single party and(a) 25% of its owned fund to a single party and

(b) 40% of its owned fund to a single group of (b) 40% of its owned fund to a single group of partiesparties

Note: Any systemically important non-deposit taking non-Note: Any systemically important non-deposit taking non-banking financial company not accessing public banking financial company not accessing public funds, either directly or indirectly, or not issuing funds, either directly or indirectly, or not issuing guarantees may make an application to the Bank for guarantees may make an application to the Bank for an appropriate dispensation consistent with the spirit an appropriate dispensation consistent with the spirit of the exposure limits. of the exposure limits.


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Provisioning NormsProvisioning Norms

Classification of Assets Classification of Assets Standard Assets Standard Assets

Interest and Principal Repayment Interest and Principal Repayment

are regular are regular Sub-standard assetsSub-standard assets Doubtful AssetsDoubtful Assets Loss AssetsLoss Assets

Non perform

ing assets

(NPA) –

Interest

Non perform

ing assets

(NPA) –

Interest

/Pripcipal o

utstanding fo

r more th

an six m

onths

/Pripcipal o

utstanding fo

r more th

an six m

onths


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Provisioning Norms…Provisioning Norms… Standard AssetsStandard Assets

0.25% of standard assets (Notification dated 170.25% of standard assets (Notification dated 17thth January, January, 2011)2011)

Sub standard assets Sub standard assets Non performing assets for a period of 18 months. Non performing assets for a period of 18 months.

Renegotiated loans upto one year of satisfactory Renegotiated loans upto one year of satisfactory performance of new terms. performance of new terms.

Provide 10% on the outstanding amount Provide 10% on the outstanding amount No specific provisions regarding Security No specific provisions regarding Security

Doubtful AssetsDoubtful Assets Remains sub standard asset for period of 18 months and Remains sub standard asset for period of 18 months and

aboveabove Provide 100% of uncovered outstanding amountProvide 100% of uncovered outstanding amount To the extent of unsecured loan which is covered by value of To the extent of unsecured loan which is covered by value of

realizable securities, the provisioning required based on the realizable securities, the provisioning required based on the period the asset has remained doubtful period the asset has remained doubtful i. upto one year - 20%, ii. one to three year - 30%, iii. more i. upto one year - 20%, ii. one to three year - 30%, iii. more than three years - 50%than three years - 50% 04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA


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Provisioning Norms…Provisioning Norms…

Loss Assets Loss Assets Identified by the Company, its Auditors Identified by the Company, its Auditors

or RBI (Period is not specified) oror RBI (Period is not specified) or Potential threat of Non Recoverability Potential threat of Non Recoverability

due to erosion in the value of securities due to erosion in the value of securities or non availability of security or any or non availability of security or any fraudulent act or omission on the part of fraudulent act or omission on the part of the borrowerthe borrower

100% Write off in the books100% Write off in the books

(Same treatment for the Interest) (Same treatment for the Interest) 04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA


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Other Important Norms..Other Important Norms.. (All NBFCs) (All NBFCs)

Certain disclosures should be made in the Certain disclosures should be made in the Balance sheet as per format prescribedBalance sheet as per format prescribed Provisions for bad and doubtful debtsProvisions for bad and doubtful debts Provisions for depreciation in investmentsProvisions for depreciation in investments

Disclosure in balance sheet only for NBFC-ND-SIDisclosure in balance sheet only for NBFC-ND-SI Capital to Risk asset ratio (CRAR)Capital to Risk asset ratio (CRAR) Exposure to real estate sector, both direct and indirect Exposure to real estate sector, both direct and indirect

andand Maturity pattern of assets and liabilitiesMaturity pattern of assets and liabilities

For all NBFCs - Transfer of 20% profit to Special For all NBFCs - Transfer of 20% profit to Special Reserves (RBI Act)Reserves (RBI Act)

Schedule to be appended to the balance sheet in Schedule to be appended to the balance sheet in notes to accounts (Format is prescribed)notes to accounts (Format is prescribed)


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Other Important Norms..Other Important Norms.. (All NBFCs) (All NBFCs)

Submission of certificate from statutory Submission of certificate from statutory auditorsauditors

Certificate at the end of FY certifying the Certificate at the end of FY certifying the eligibility of the company to hold eligibility of the company to hold Certificate of Registration as NBFCCertificate of Registration as NBFC

Certificate to indicate asset and income Certificate to indicate asset and income pattern pattern

To be given within one month from the To be given within one month from the finalisation of the balance sheet not later finalisation of the balance sheet not later than 30than 30thth Dec. in any case Dec. in any case

"Every non-banking financial company shall finalise its balance sheet within a period of

3 months from the date to which it pertains"04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA


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Asset Income PatternAsset Income Pattern In order to identify a particular company as an In order to identify a particular company as an

NBFC, consider NBFC, consider bothboth, , the assets the assets and the and the income pattern income pattern - - from the from the last audited last audited balance sheetbalance sheet to decide to decide principal business.principal business.

Fixed Deposits with Banks are not considered as Fixed Deposits with Banks are not considered as Financial Assets (RBI Notification no. 259)Financial Assets (RBI Notification no. 259)

Financial AssetsFinancial Assets are are more than more than 50 per cent50 per cent of its Tof its Total Assets (netted off by Intangible Assets)otal Assets (netted off by Intangible Assets)

Income from financial assetsIncome from financial assets should be should be more than 50 per cent of the gross incomemore than 50 per cent of the gross income

AND

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For Attention of For Attention of Auditors:Auditors:

Auditor’s ReportAuditor’s Report : :

Auditors to submit additional Auditors to submit additional Report to the Board of Directors Report to the Board of Directors

The auditor shall also make a The auditor shall also make a separate report to the Board of separate report to the Board of Directors of the CompanyDirectors of the Company


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Auditor’s Report…Auditor’s Report…

Matters to be included in the auditor’s Matters to be included in the auditor’s reportreportThe auditor’s report (Issued to Directors) on The auditor’s report (Issued to Directors) on the accounts of a NBFC shall include a the accounts of a NBFC shall include a statement on the following matters, namely: statement on the following matters, namely:

In the case of In the case of allall non-banking financial non-banking financial companies companies I.I. Whether the company is engaged in the Whether the company is engaged in the business of NBFI and whether it has obtained a business of NBFI and whether it has obtained a Certificate of Registration (CoR) from the BankCertificate of Registration (CoR) from the Bank


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II.II. In the case of a company holding CoR In the case of a company holding CoR issued by the Bank, whether that company is issued by the Bank, whether that company is entitled to continue to hold such CoR in terms entitled to continue to hold such CoR in terms of its asset/income pattern as on March 31of its asset/income pattern as on March 31stst of of the applicable year.the applicable year.

III. If the company is classified as AFC, III. If the company is classified as AFC, Whether the NBFC has been correctly Whether the NBFC has been correctly classified as AFC as defined in RBI Directions classified as AFC as defined in RBI Directions with reference to the business carried on by it with reference to the business carried on by it during the applicable financial year. during the applicable financial year.


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In the case of an In the case of an NBFC-NDNBFC-ND

The auditor shall include a statement The auditor shall include a statement on: -on: -i.i. Whether the Board of Directors has Whether the Board of Directors has

passed a resolution for non- acceptance of passed a resolution for non- acceptance of any public deposits.any public deposits.

ii.ii. Whether the company has accepted any Whether the company has accepted any public deposits during the relevant public deposits during the relevant period/year; period/year;

iii.iii. Compliance with the prudential normsCompliance with the prudential norms04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA


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Additional Reporting in respect of Additional Reporting in respect of NBFC-ND-SI NBFC-ND-SI

(a) Calculation and compliance with (a) Calculation and compliance with Capital adequacy requirementsCapital adequacy requirements

(b) Whether annual statement of (b) Whether annual statement of capital funds, risk assets/exposures and capital funds, risk assets/exposures and risk asset ratio (NBS-7) was furnished risk asset ratio (NBS-7) was furnished to the bank within the stipulated periodto the bank within the stipulated period


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Other Requirements:Other Requirements:

1.1. Reasons to be stated for Reasons to be stated for unfavourable or qualified unfavourable or qualified statementsstatements

2.2. Obligation of auditor to submit an Obligation of auditor to submit an exception report to the Bank (RBI)exception report to the Bank (RBI)

Auditor to make a report to the regional Auditor to make a report to the regional office containing the details of office containing the details of unfavorable unfavorable or qualifiedor qualified statements and about the statements and about the non-non-compliancecompliance, as the case may be, in respect , as the case may be, in respect of the companyof the company


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Returns RequirementsReturns Requirements For NBFC-ND-SI (Apart from returns applicable For NBFC-ND-SI (Apart from returns applicable

to all NBFCs of any asset size)to all NBFCs of any asset size) Monthly Return on Financial ParametersMonthly Return on Financial Parameters Monthly NBS-ALM-1 for Short Term Dynamic Monthly NBS-ALM-1 for Short Term Dynamic

LiquidityLiquidity Half Yearly NBS-ALM-2 for Structural Half Yearly NBS-ALM-2 for Structural

Liquidity, NBS-ALM-3 for Interest Rate Liquidity, NBS-ALM-3 for Interest Rate SensitivitySensitivity

NBS – 7 Quarterly return on Capital Funds, NBS – 7 Quarterly return on Capital Funds, Risk AssetsRisk Assets

Monthly Reporting if Raised short term Monthly Reporting if Raised short term foreign currency borrowingsforeign currency borrowings

Fraud Reporting – as and when detected FMR Fraud Reporting – as and when detected FMR I and Quarterly in FMR II, III for Fraud I and Quarterly in FMR II, III for Fraud outstanding, Progress report respectivelyoutstanding, Progress report respectively


Returns Returns Requirements.cont…Requirements.cont…

Quarterly return on important Quarterly return on important financial parameters for NBFC financial parameters for NBFC having asset size between 50-100 having asset size between 50-100 crorescrores

Note: Above is indicative list of Note: Above is indicative list of important returns and the same is important returns and the same is not exhaustive, one has to see the not exhaustive, one has to see the detailed list based on the asset size detailed list based on the asset size and type of the NBFC. and type of the NBFC.



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Core Investment Companies Core Investment Companies (CICs) (CICs)

What is CICs?:What is CICs?:(i) Holds not less than 90% of Net Assets in group (i) Holds not less than 90% of Net Assets in group

companies; companies;

(ii) Investments in equity shares in group companies (ii) Investments in equity shares in group companies constitutes not less than 60% of its Net Assets; (Net constitutes not less than 60% of its Net Assets; (Net asset defined in Directions) asset defined in Directions)

(iii) It does not trade in its investments except through (iii) It does not trade in its investments except through block saleblock sale for the purpose of for the purpose of dilutiondilution or or disinvestmentdisinvestment;;

(iv) It does not carry on any other financial activity (iv) It does not carry on any other financial activity except some specified actsexcept some specified actsCIC is considered SI only if raising/holding public funds CIC is considered SI only if raising/holding public funds

AND Total Assets of Rs. 100 crore or aboveAND Total Assets of Rs. 100 crore or above


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Core Investment Companies Core Investment Companies (CICs)(CICs)For CIC-ND-SIFor CIC-ND-SI

Capital Requirements:Capital Requirements: minimum capital ratio. minimum capital ratio. i.e. Adjusted net worth at all time shall not be i.e. Adjusted net worth at all time shall not be less than 30% of its aggregate Risk Weighted less than 30% of its aggregate Risk Weighted Assets and Risk adjusted value of off balance Assets and Risk adjusted value of off balance sheet as at the last balance sheet datesheet as at the last balance sheet date

Leverage Ratio:Leverage Ratio: Outside liabilities at all times Outside liabilities at all times shall not exceed 2.5 times its Adjusted Networth shall not exceed 2.5 times its Adjusted Networth as on the date if the last audited balance sheetas on the date if the last audited balance sheet

Exemptions Given: (i) CIC-ND-SI are exempted Exemptions Given: (i) CIC-ND-SI are exempted from para 15, 16 and 18 of the NBFC Norms, from para 15, 16 and 18 of the NBFC Norms, 2007 and ii) Norms 2007 not apply for CIC-NDs 2007 and ii) Norms 2007 not apply for CIC-NDs (Other than systemically important)(Other than systemically important)04-05-2013 ICAI-Delhi CA 04-05-2013 ICAI-Delhi CA


Core Investment Core Investment CompaniesCompanies (CICs)(CICs) RBI has Announced Core Investment RBI has Announced Core Investment

Companies - Overseas Investment Companies - Overseas Investment (Reserve Bank) Directions, 2012 for CICs (Reserve Bank) Directions, 2012 for CICs making investments abroad, opening making investments abroad, opening branches, representative offices, branches, representative offices, undertaking joint ventures, etc. abroad. undertaking joint ventures, etc. abroad. The same needs to be followed. The same needs to be followed.

RBI has also separately issued guidelines RBI has also separately issued guidelines for entry of Core Investment Companies for entry of Core Investment Companies in insurance sectorin insurance sector



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Formation Procedure A company with main object clause/ancillary

clause for carrying out NBFI activities (check object clause)

Obtain checklist of requirements from RBI website Fill up prescribed form, available on RBI website,

according to instructions with the requirements Fill up the e-form provided in excel format Get the required certifications of the statutory

auditors/chartered accountants (as the case may be)

Submit softcopy on RBI website before submission of the hard copy.


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Formation Procedure…Cont

Obtain the printout of successful submission of the softcopy. Mention the date of submission on the print if date is not appearing on print.

Submit the hardcopy application in duplicate to regional office of RBI

Each page in the application file should be numbered

Prepare the application in triplicate so that a replica is with the applicant for future reference.


Recent AmendmentsRecent Amendments

NBFCs need to display grievance redressal NBFCs need to display grievance redressal mechanism and contact details of grievance mechanism and contact details of grievance redressal officer at prominent place in redressal officer at prominent place in offices/branches/places of businessoffices/branches/places of business

Fair Practices Code (which should Fair Practices Code (which should preferably in the vernacular language as preferably in the vernacular language as understood by the borrower) based on the understood by the borrower) based on the guidelines announced should be put in place guidelines announced should be put in place by all NBFCs with the approval of their by all NBFCs with the approval of their BoardsBoards



Recent Amendments…Recent Amendments…cont…cont…

Revision in format for submission of Revision in format for submission of returns for PMLA compliances and returns for PMLA compliances and Uploading of Reports in 'Test Mode' on Uploading of Reports in 'Test Mode' on FINnet Gateway for PMLA Reporting FINnet Gateway for PMLA Reporting

Facility to NBFC-ND-SI - Direct Access to Facility to NBFC-ND-SI - Direct Access to Negotiated Dealing System-Order Negotiated Dealing System-Order MatchingMatching

Change in Loan to Value ratio for Change in Loan to Value ratio for companies predominantly in loan against companies predominantly in loan against gold productsgold products




Amendments to definition of infrastructure Amendments to definition of infrastructure loanloan

NBFCs cannot become partners in NBFCs cannot become partners in partnership firmspartnership firms

Review of Guidelines on entry of NBFCs into Review of Guidelines on entry of NBFCs into Insurance BusinessInsurance Business

RBI issued “NBFC (Opening of RBI issued “NBFC (Opening of Branch/Subsidiary/Joint Branch/Subsidiary/Joint Venture/Representative Office or Undertaking Venture/Representative Office or Undertaking Investment Abroad by NBFCs) Directions, Investment Abroad by NBFCs) Directions, 2011”2011”




Guidelines for Credit Default Swaps - Guidelines for Credit Default Swaps - NBFCs as users NBFCs as users

Revision in External Commercial Revision in External Commercial Borrowings (ECB) Policy – Infrastructure Borrowings (ECB) Policy – Infrastructure Finance Companies (IFCs) Finance Companies (IFCs)

Guidelines on classification of frauds, Guidelines on classification of frauds, approach towards monitoring of and approach towards monitoring of and reporting system for frauds for deposit reporting system for frauds for deposit taking NBFCs to apply for NBFC-ND-SI taking NBFCs to apply for NBFC-ND-SI also. also.



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Non Banking Non Banking Finance Finance

CompanyCompanyICAI-DELHIICAI-DELHI

04-05-2013 CA 04-05-2013 CA Bhavesh VoraBhavesh Vora

Documents

1 Non Banking Finance Company ICAI-DELHI 04-05-2013 CA Bhavesh Vora