NBFC Concerns

NBFC is required to follow all the provisions/guidelines as directed by the Reserve Bank of India (RBI) from time to time. NBFCs must keep a close check on various concerns that if not followed can lead to cancellation of Certificate of Registration (CoR).

Concerns include maintaining net-owned funds, acceptance of deposits, payment of deposits, filing of returns to RBI, the applicability of interest rates, and many more. Some concerns that must not be overlooked by the NBFCs are mentioned below.

Concern 1: Pre-payment of public deposits

Directions for Acceptance of Public Deposits 1998 provide that:

• against the public deposit, an NBFC cannot grant the loan or make premature repayment of such deposit within 03 months from the date of its acceptance.
• Where the depositor dies, the company may repay the deposit at the request of the joint holders within the lock-in period.

Concern 2: Interest rates charged by the NBFCs to their borrowers

RBI has provided that:

• The interest shall be charged as per the terms and conditions of the loan agreement entered into between the borrower and the NBFCs
• The details of the rate of interest and manner of calculation must be disclosed to the borrowers in the application form and the sanction letter etc.

Concern 3: A Company not registered as NBFCs made default in repayment of deposit

Such companies are not governed by RBI. However, where RBI is of the opinion that such companies were required to be registered, but have not done so and still accept deposits from the public, necessary action shall be taken against such companies as per RBI.

Concern 4: Regulations to be followed by non-deposit accepting NBFCs with asset size of less than rupees five hundred crores

The following regulations shall be applicable to such NBFCs:

• Where no public funds are accessed, no prudential regulations or conduct of business regulations viz., Fair Practices Code (FPC), KYC, etc. shall apply.
• Companies that have a customer interface (not accessing public funds) must follow the conduct of business regulations including FPC, KYC, etc.
• Companies accepting public funds (having no customer interface) must follow limited prudential regulations.
• Companies accepting public funds and having customer interfaces are subject to limited prudential regulations and conduct of business regulations.

Concern 5: Returns to be submitted by NBFCs for RBI

The following are the returns to be submitted by NBFCs for RBI:

By NBFCs accepting deposits:

• NBS-1, to be submitted quarterly on deposits
• NBS-2, to be submitted quarterly on Prudential Norms
• NBS-3, to be submitted quarterly on Liquid Assets 
• NBS-4, to be submitted annually for parameters by a rejected company holding public deposits.
• NBS-6, to be submitted monthly for exposure to the capital market (for NBFC with total assets of rupees 100 crores and above)
• ALM return, to be submitted half-yearly (by NBFC holding public deposits of more than twenty crores or asset size of more than 100 crores)
• Auditor’s Report along with audited Balance sheet
• Branch Info Return

By NBFCs - ND-SI

• NBS-7, to be submitted quarterly to provide details of capital funds, risk asset ratio, etc.
• Monthly Return to provide details of Important Financial Parameters
• ALM returns
• Branch Info return

Along with all the concerns mentioned above, all NBFCs must comply with the direction of RBI as issued from time to time to ensure that they are allowed to operate as an NBFC.