NBFC Compliance After Registration: A Detailed Guide

NBFC Compliance After Registration: A Detailed Guide. After the banking sector, Non-Banking Financial Companies (NBFCs) play a significant role in India's financial ecosystem by offering essential services such as loans, asset financing, and investments. NBFCs serve a segment of the population often overlooked by traditional banks, such as individuals with poor credit scores or those without bank accounts, providing them access to financial resources they might otherwise be unable to obtain and this has led to a significant rise in the demand for NBFC Registration in India.
However, setting up an NBFC is just the first step. Once operational, NBFCs must fulfill a complex web of regulatory requirements imposed by the Reserve Bank of India (RBI), the Ministry of Corporate Affairs (MCA), and other regulatory bodies, designed to ensure that NBFCs operate safely and responsibly within the financial system and failure to comply can result in severe consequences, including penalties, revocation of licenses, and reputational damage. A prime example of the risks associated with non-compliance is PayTM, a well-known name in India's financial sector. Despite its significant presence and popularity, PayTM faced the cancellation of its RBI license due to failure to meet regulatory standards, which resulted in major financial losses and tarnished its market reputation. Such incidents highlight the importance of strict adherence to regulatory norms for any NBFC aiming to thrive in India’s highly regulated financial landscape.
At Compliance Calendar LLP, we offer comprehensive assistance for NBFCs in meeting their regulatory requirements and through this article aims to provide a detailed understanding of the compliance requirements an NBFC must fulfill post-registration, both in terms of one-time setup and regular ongoing compliance.
What is the NBFC One-Time Setup Compliance ?
Once an NBFC is registered, several key steps must be completed to ensure its operations are compliant with applicable laws and regulations. The one-time setup focuses on forming policies, securing approvals, preparing loan documentation, and ensuring regulatory registrations. Let’s break down these mandatory components in detail:
A. Mandatory Board Approved Policies
A significant part of the one-time setup process for any NBFC is obtaining board approval for several key policies, guiding the organization’s operations, lending practices, and risk management. 
Below is a list of these mandatory policies and their importance:
KYC (Know Your Customer) and AML (Anti-Money Laundering) Policy:
This policy outlines the process of verifying customers’ identities and monitoring their activities to prevent financial crimes, such as money laundering and terrorism financing. It ensures that the company conducts proper due diligence on all clients and regularly monitors their transactions to detect any suspicious activity.
Fair Practices Code (FPC):
The FPC is designed to ensure transparency and fairness in dealings with customers. This includes fair lending practices, clear communication of loan terms, and the ethical treatment of borrowers. By adhering to the FPC, NBFCs build trust with their clients, minimize the risk of disputes, and comply with RBI guidelines.
Interest Rate Policy (IRP):
NBFCs must have a well-defined interest rate policy to regulate how interest rates are determined and applied to loans. This policy ensures fairness and transparency while protecting the NBFC from fluctuating market conditions.
Grievance Redressal Policy (GRP):
The GRP outlines the mechanisms for handling and resolving customer grievances. An effective policy ensures that customers have a platform to address their complaints, and it reflects the NBFC’s commitment to customer service.
Outsourcing Policy:
Many NBFCs outsource certain activities, such as IT services or loan processing. The outsourcing policy ensures that such activities are performed by third parties in a manner that complies with regulatory guidelines and does not compromise data security or service quality.
IT Security Policy:
As financial institutions, NBFCs handle sensitive customer data. This policy governs the security measures needed to protect this data from breaches, theft, or unauthorized access. It covers areas such as encryption, cybersecurity, and data storage protocols.
Risk Management Policy:
Risk is an inherent part of any lending business. This policy helps the NBFC assess, monitor, and mitigate risks across various areas, including credit risk, market risk, and operational risk. The formation of a risk management committee is crucial for enforcing this policy effectively.
Loan Policy to Key Management Personnel (KMP):
This policy regulates the granting of loans to key management personnel, ensuring that these transactions are carried out fairly and transparently and adhere to internal guidelines.
Credit Policy:
The credit policy governs how loans are disbursed, the terms under which they are issued, and the criteria for eligibility. This policy is fundamental to maintaining consistent and fair lending practices.
Formation of Risk Committee:
Establishing a Risk Committee at the board level ensures that risks are identified, analyzed, and managed continuously. This committee plays a critical role in monitoring risk-related issues and ensuring the NBFC's long-term sustainability.
B. Board Meetings and Approvals
Once the policies are drafted, they must be approved in formal board meetings. These meetings are also an opportunity for NBFCs to discuss other critical matters, such as:

Approval of Scale-Based Regulation 2023: NBFCs must adhere to the RBI's scale-based regulation framework, which categorizes NBFCs based on their size and complexity.

Fair Lending Practices and Loan Products: Approval of loan products and lending terms, ensuring that they align with fair practices and regulatory guidelines.

Approval for Opening New Branches: Any expansion plans must be approved by the board, as they involve significant operational and financial decisions.

Credit Information Reporting: Discuss and approve the reporting mechanisms to Credit Information Companies (CICs) such as CIBIL and Experian.

C. Extra General Meeting (EGM)
An EGM is typically called to approve specific decisions that require shareholder consent specially under Section 180 of the Companies Act 2013. One mandatory decision for NBFCs is to approve the borrowing power of the board, enabling the NBFC to raise funds through loans or other borrowing instruments, critical for its lending operations.
D. Loan Products
The nature of an NBFC’s loan products is fundamental to its business model. NBFCs offer various types of loans, including personal loans, business loans, and asset-backed loans. These products must be designed in line with regulatory norms, taking into account fair lending practices, interest rates, and customer eligibility. Once the loan products are finalized, they must be approved by the board and NBFC Business plan should be prepared considering all key factors should align with theCompany Objectives. 
E. Loan Documentation Kit
An NBFC’s loan documentation must be comprehensive, legally sound, and transparent. A typical loan documentation kit includes:

Loan Application Form: Used by customers to apply for a loan.

Loan Agreement: Legally binding contract between the lender and borrower, outlining the terms of the loan.

Sanction Letter: Issued when a loan is approved, detailing the terms and conditions.

Schedule of Charges: List of fees and charges applicable to the loan.

Interest Calculation Method: Specifies how interest will be calculated (e.g., flat rate, reducing balance).

Repayment Schedule: Details of the loan repayment plan, including the EMI amount and due dates.

Demand Promissory Note: A legal document where the borrower promises to repay the loan.

Guarantee Deed: In cases where a guarantor is involved, this document outlines the guarantor’s obligations.

List of Executed Documents: A checklist of all documents that need to be signed by both parties.

Undertakings: Legal undertakings from the borrower to comply with the terms of the loan.

F. Website Compliance
In today’s digital age, an NBFC’s website must comply with specific regulations, especially if the company is dealing with sensitive financial information. The following must be displayed on the website:

Cookies Policy: Outlining how user data is tracked via cookies.

Disclaimer: Legal disclaimers related to the company’s services and liabilities.

Terms and Conditions: Detailed terms governing the use of the website and services.

Display of Key Information: As mandated by the RBI, certain information (such as the Grievance Redressal Officer's contact details) must be prominently displayed on the website.

Companies should upload Annual Report as per Section 92 of the Companies Act 2013 if having a website.

G. Additional Registrations
After registration, your NBFC must register with various regulatory bodies, such as:

CIBIL, Experian, Crif Highmark, and Equifax: These are the four main credit bureaus that provide credit scores and reports. NBFCs must report borrower data to these agencies.

NESL (National E-Governance Services Ltd): NESL is India’s first Information Utility under the Insolvency and Bankruptcy Code. NBFCs must register with NESL to comply with debt information sharing norms.

CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India): CERSAI maintains records of property mortgaged for loans. NBFCs must register with CERSAI if they offer secured loans.

CKYC (Central Know Your Customer Registry): CKYC ensures that a customer’s KYC documents are centrally stored, and financial institutions, including NBFCs, can access them.

FIU-IND (Financial Intelligence Unit – India): This registration is required for reporting suspicious transactions.

CIMS (Credit Information Management System): NBFCs must register with CIMS for efficient credit risk assessment.

What is the Regular NBFC Compliance ? 
Once the NBFC is fully operational, it must comply with several ongoing regulatory requirements, and fall under specially RBI, MCA, and taxation authorities. Ensuring that these compliances are met regularly will help the NBFC avoid penalties, maintain its operational license, and build trust with customers and investors.
NBFC-RBI Compliance
The RBI has set specific filing requirements for NBFCs, mandatory for maintaining transparency and ensuring that NBFCs operate within the legal framework and key NBFC RBI Compliance include:
1. DNBS 02: A quarterly filing related to the company’s financial statements.
2. DNBS 13: A quarterly filing that covers compliance with provisions of the RBI Act.
3. DNBS 10: An annual filing that covers compliance with all major regulations.
4. CIC Reporting: Regular reporting to Credit Information Companies (CICs) to update borrower data.
5. CKYC Updates: Ensuring that all customer KYC information is updated in the CKYC registry.
6. Accounting Compliance: Ensuring adherence to Indian Accounting Standards and RBI guidelines, including:

IRAC Norms: Income Recognition and Asset Classification norms for recognizing NPAs (Non-Performing Assets).

Provisioning: Making necessary provisions for bad loans and potential losses.

NPA Recognition and Income Reversal: Timely recognition of NPAs and reversal of interest on loans that have become NPAs.

NBFC-MCA (ROC Filing) Compliance
NBFCs are also required to comply with MCA regulations under the Companies Act 2013, which include maintaining updated corporate records and filing necessary forms and key compliance tasks include in NBFC ROC Compliance are:-
1. Annual Director KYC: Ensuring that all directors have updated their KYC details on or before 30 september every year. 
2. Annual Filing: Filing forms such as AOC-4, MGT-7, and ADT-1 annually along with DPT-3 If any
3. MGT-8: Filing of an annual return certification which normally mandates in NBFC subject to Threshold. 
4. MSME-1: Filing half-yearly returns to report payments due to Micro, Small, and Medium Enterprises.
5. Event-Based Filings (MGT-14): Filing resolutions for approval of certain actions like policy updates or borrowing limits and all other matters under 179 & 117 of the Companies Act 2014.
6. PAS-6: Filing half-yearly returns related to outstanding shares is now mandatory for all companies classified as 'other than small companies' in India, which have a paid-up share capital exceeding 4 crores and a turnover of more than 40 crores and these companies are also required to mandatorily dematerialize their shares within 18 months from the closure of the financial year in which they were categorized as 'other than small companies'.
7. Director’s Report and Minutes Book: Maintaining and filing annual reports, director’s reports, and minutes of meetings including Notice for Directors Meetings, Shareholders Meetings as per Secretarial Standard (SS-1 & SS-2).  
8. Corporate Governance Reports: Filing annual governance reports to ensure transparency and accountability.
NBFC-Taxation Compliance
NBFCs are subject to various taxation laws, including income tax, GST, and TDS. Some key tax compliances include:
1. SFT Return: A Statement of Financial Transactions (SFT) return must be filed annually by May 31st. It helps the government track high-value transactions.
2. Other Tax Filings: Timely filing of GST and TDS returns, as well as paying the applicable taxes, is critical for ensuring compliance.
The regulatory landscape for NBFCs is complex, and compliance is non-negotiable. At Compliance Calendar LLP, we help NBFCs navigate these regulatory waters by providing end-to-end solutions for both one-time setup and ongoing compliance. From creating and implementing board-approved policies to managing your filings with the RBI, MCA, and taxation authorities, we ensure your NBFC stays compliant and operational.
Don’t let compliance become a burden—reach out to Compliance Calendar LLP for a thorough review of your NBFC’s current compliance status, and we’ll help you complete any pending tasks and stay on top of regular filings. With us, you can be confident that your NBFC will always be one step ahead.
NBFC Compliance related FAQ’s 
Q1. Which companies are required to file the MGT-8 annual return certification?
Ans. MGT-8 is an annual return certification that is required under the Companies Act, 2013,and applies to certain companies based on their size and type. A practicing company secretary must certify the accuracy and compliance of the annual return filed in Form MGT-7 and MGT-8 is applicable to the following types of companies:
1. Listed Companies: Every listed company, regardless of its size, is required to obtain MGT-8 certification.
2. Companies with Specific Thresholds:

Paid-up Share Capital: Companies having a paid-up share capital of Rs.10 crore or more.

Turnover: Companies with an annual turnover of Rs.50 crore or more.

If a company meets either of these thresholds, the MGT-8 certification becomes mandatory.
Q2. What are the consequences if an NBFC fails to comply with Rule 9B regarding dematerialization of shares?
Ans. According to Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, all Non-Banking Financial Companies (NBFCs) that do not qualify as small companies are required to dematerialize their shares.
All NBFCs classified as 'other than small companies' are required to dematerialize their shares. A small company, as defined under the Companies Act, 2013, is one with a paid-up share capital of up to Rs.4 crore and a turnover of up to Rs.40 crore. NBFCs that exceed these limits must comply with the dematerialization requirement.
Mandatory Dematerialization: NBFCs that fall under the 'other than small companies' category must ensure that their entire shareholding is converted into dematerialized form.
Timeline: As per the rule, these companies must dematerialize their shares within 18 months from the closure of the financial year in which they were categorized as 'other than small companies.'
Restriction on Share Transactions: Once an NBFC is required to dematerialize shares, all future transactions involving the transfer of shares, issuance of new shares, or any changes to the shareholding must only be carried out in dematerialized form.
Penalties:
Hence, Failure to comply with Rule 9B regarding the mandatory dematerialization of shares  for Private companies can result in penalties under Section 450 of the Companies Act, 2013. 
1. For the company: The company may be fined up to Rs.10,000.
2. For continuing failure: In case of ongoing non-compliance, the company can incur an additional fine of Rs.1,000 for each day the default continues after the first penalty.
3. For officers in default: Every officer of the company who is in default can be penalized with a fine up to Rs.10,000, and for continuing failure, an additional Rs.1,000 per day for each day the non-compliance continues.
Q3. Company Law Advisory required for NBFC Company?
Ans. All Non-Banking Financial Companies (NBFCs) should have a full-time Practicing Company Secretary (PCS) to provide expert guidance through retainership services with NBFC Consultancy, the role of a PCS is very important for ensuring compliance with corporate laws, especially under the Companies Act, 2013 along with whole time Company secretary appointment is mandatory in any NBFC by having 5 crores plus capital and Key responsibilities include:
1. Corporate Law Advisory: Offering regular updates and guidance on matters related to the Companies Act, 2013, and other relevant legal frameworks.
2. Corporate Restructuring: Assisting in mergers, acquisitions, demergers, and other restructuring activities, ensuring all necessary compliances are met.
3. Funding Compliance: Guiding NBFCs in securing funding while complying with regulatory requirements and ensuring proper documentation.
4. Mandatory Compliances: Managing mandatory filings, maintaining records, ensuring dematerialization of shares, and providing board-approved policies.
Having a full-time PCS or Consultant like Compliance Calendar LLP, ensures that NBFCs stay compliant with complex regulatory requirements, minimizing risks and ensuring smooth operations.
Q4. What do the following abbreviations stand for in the context of NBFC regulations: SAC, DNBS, NBFC-ND-SI, HFC, FAFT, NBFC-UL, NBFC-ML, NBFC-BL, NOFHCs, LCR, CRILC, SMA, ALM, NBFCs-D, and NBFC-CIC?
Ans. The followings abbreviations read as a:

SAC: Statutory Auditor Certificate – A certificate provided by the statutory auditor confirming the NBFC’s compliance with regulatory requirements.

DNBS: Department of Non-Banking Supervision – A division of the Reserve Bank of India responsible for regulating and supervising NBFCs.

NBFC-ND-SI: Non-Deposit taking Systemically Important Non-Banking Financial Company – An NBFC that does not accept public deposits and has assets of Rs.500 crore or more, making it systemically important.

HFC: Housing Finance Company – A type of NBFC focused on providing home loans and financing housing-related projects.

FAFT: Financial Action Task Force – An international body that sets standards for combating money laundering and terrorist financing.

NBFC-UL: Non-Banking Financial Company - Upper Layer – Part of the scale-based regulation for larger NBFCs that are subject to more stringent regulatory oversight.

NBFC-ML: Non-Banking Financial Company - Middle Layer – An NBFC with moderate regulatory compliance requirements, positioned between the base and upper layers.

NBFC-BL: Non-Banking Financial Company - Base Layer – The foundational layer in the scale-based regulation framework, involving smaller NBFCs with simpler regulatory requirements.

NOFHCs: Non-Operative Financial Holding Company – A type of holding company under which the promoter's investment in NBFCs or banks is structured.

LCR: Liquidity Coverage Ratio – A requirement to ensure that NBFCs have enough high-quality liquid assets to meet short-term obligations.

CRILC: Central Repository of Information on Large Credits – A database that stores information about large credit exposures of banks and NBFCs.

SMA: Special Mention Account – A category used to identify loans that show signs of stress and are at risk of becoming non-performing assets (NPAs).

ALM: Asset Liability Management – A strategy for managing the mismatch between assets and liabilities to maintain liquidity and manage risk.

NBFCs-D: Non-Banking Financial Company taking Deposits – NBFCs that accept deposits from the public.

NBFC-CIC: Non-Banking Financial Company - Core Investment Company – A type of NBFC that primarily focuses on investments in group companies or subsidiaries.

Q5. How Compliance Calendar LLP Can Help with NBFC Compliance
Ans. At Compliance Calendar LLP, we provide comprehensive compliance solutions for NBFCs to ensure adherence to all regulatory requirements by providing NBFC Compliance services, Company Law advisory services, also include such as drafting and vetting services and implementing KYC/AML policies, Fair Practices Code, Interest Rate Policy, and Grievance Redressal Policy, as well as setting up risk management frameworks and ensuring compliance with outsourcing and IT security guidelines. We assist with mandatory compliances such as dematerialization of shares, regular RBI filings, MCA filings, and board meeting documentation. Additionally, we offer expert corporate law advisory and taxation compliance support, including IRAC norms and financial reporting. Through our retainership services, we provide ongoing compliance assistance, helping NBFCs maintain smooth operations while avoiding penalties and ensuring regulatory compliance at all times.
Q6. How to register a NBFC Company in India ? 
Ans. Before proceeding with the NBFC registration process, ensure that the company meets the revised eligibility criteria:
1. Company Registration: The applicant must be a company registered under the Companies Act, 2013 along with Name should have the key words related to financial activity. 
2. Minimum Net Owned Funds (NOF):

For most NBFCs, the NOF requirement has been increased to Rs.5 crore.

For NBFCs operating in specific sectors like Microfinance or Infrastructure, the NOF requirement may be higher, up to Rs.10 crore, depending on the nature of the activities.

3. Principal Business Criteria: More than 50% of the total assets must be financial assets, and more than 50% of the total income must come from financial activities.
4. Experienced Directors: The directors should have relevant experience in the financial sector to ensure professional management of the company.

Learn an article: NBFC Registration can be a good option in finance for HNI Individuals ?

After the banking sector, Non-Banking Financial Companies (NBFCs) play a significant role in India's financial ecosystem by offering essential services such as loans, asset financing, and investments. NBFCs serve a segment of the population often overlooked by traditional banks, such as individuals with poor credit scores or those without bank accounts, providing them access to financial resources they might otherwise be unable to obtain and this has led to a significant rise in the demand for NBFC Registration in India.

However, setting up an NBFC is just the first step. Once operational, NBFCs must fulfill a complex web of regulatory requirements imposed by the Reserve Bank of India (RBI), the Ministry of Corporate Affairs (MCA), and other regulatory bodies, designed to ensure that NBFCs operate safely and responsibly within the financial system and failure to comply can result in severe consequences, including penalties, revocation of licenses, and reputational damage. A prime example of the risks associated with non-compliance is PayTM, a well-known name in India's financial sector. Despite its significant presence and popularity, PayTM faced the cancellation of its RBI license due to failure to meet regulatory standards, which resulted in major financial losses and tarnished its market reputation. Such incidents highlight the importance of strict adherence to regulatory norms for any NBFC aiming to thrive in India’s highly regulated financial landscape.

At Compliance Calendar LLP, we offer comprehensive assistance for NBFCs in meeting their regulatory requirements and through this article aims to provide a detailed understanding of the compliance requirements an NBFC must fulfill post-registration, both in terms of one-time setup and regular ongoing compliance.

What is the NBFC One-Time Setup Compliance ?

Once an NBFC is registered, several key steps must be completed to ensure its operations are compliant with applicable laws and regulations. The one-time setup focuses on forming policies, securing approvals, preparing loan documentation, and ensuring regulatory registrations. Let’s break down these mandatory components in detail:

A. Mandatory Board Approved Policies

A significant part of the one-time setup process for any NBFC is obtaining board approval for several key policies, guiding the organization’s operations, lending practices, and risk management.

Below is a list of these mandatory policies and their importance:

KYC (Know Your Customer) and AML (Anti-Money Laundering) Policy:

This policy outlines the process of verifying customers’ identities and monitoring their activities to prevent financial crimes, such as money laundering and terrorism financing. It ensures that the company conducts proper due diligence on all clients and regularly monitors their transactions to detect any suspicious activity.

Fair Practices Code (FPC):

The FPC is designed to ensure transparency and fairness in dealings with customers. This includes fair lending practices, clear communication of loan terms, and the ethical treatment of borrowers. By adhering to the FPC, NBFCs build trust with their clients, minimize the risk of disputes, and comply with RBI guidelines.

Interest Rate Policy (IRP):

NBFCs must have a well-defined interest rate policy to regulate how interest rates are determined and applied to loans. This policy ensures fairness and transparency while protecting the NBFC from fluctuating market conditions.

Grievance Redressal Policy (GRP):

The GRP outlines the mechanisms for handling and resolving customer grievances. An effective policy ensures that customers have a platform to address their complaints, and it reflects the NBFC’s commitment to customer service.

Outsourcing Policy:

Many NBFCs outsource certain activities, such as IT services or loan processing. The outsourcing policy ensures that such activities are performed by third parties in a manner that complies with regulatory guidelines and does not compromise data security or service quality.

IT Security Policy:

As financial institutions, NBFCs handle sensitive customer data. This policy governs the security measures needed to protect this data from breaches, theft, or unauthorized access. It covers areas such as encryption, cybersecurity, and data storage protocols.

Risk Management Policy:

Risk is an inherent part of any lending business. This policy helps the NBFC assess, monitor, and mitigate risks across various areas, including credit risk, market risk, and operational risk. The formation of a risk management committee is crucial for enforcing this policy effectively.

Loan Policy to Key Management Personnel (KMP):

This policy regulates the granting of loans to key management personnel, ensuring that these transactions are carried out fairly and transparently and adhere to internal guidelines.

Credit Policy:

The credit policy governs how loans are disbursed, the terms under which they are issued, and the criteria for eligibility. This policy is fundamental to maintaining consistent and fair lending practices.

Formation of Risk Committee:

Establishing a Risk Committee at the board level ensures that risks are identified, analyzed, and managed continuously. This committee plays a critical role in monitoring risk-related issues and ensuring the NBFC's long-term sustainability.

B. Board Meetings and Approvals

Once the policies are drafted, they must be approved in formal board meetings. These meetings are also an opportunity for NBFCs to discuss other critical matters, such as:

Approval of Scale-Based Regulation 2023: NBFCs must adhere to the RBI's scale-based regulation framework, which categorizes NBFCs based on their size and complexity.
Fair Lending Practices and Loan Products: Approval of loan products and lending terms, ensuring that they align with fair practices and regulatory guidelines.
Approval for Opening New Branches: Any expansion plans must be approved by the board, as they involve significant operational and financial decisions.
Credit Information Reporting: Discuss and approve the reporting mechanisms to Credit Information Companies (CICs) such as CIBIL and Experian.

C. Extra General Meeting (EGM)

An EGM is typically called to approve specific decisions that require shareholder consent specially under Section 180 of the Companies Act 2013. One mandatory decision for NBFCs is to approve the borrowing power of the board, enabling the NBFC to raise funds through loans or other borrowing instruments, critical for its lending operations.

D. Loan Products

The nature of an NBFC’s loan products is fundamental to its business model. NBFCs offer various types of loans, including personal loans, business loans, and asset-backed loans. These products must be designed in line with regulatory norms, taking into account fair lending practices, interest rates, and customer eligibility. Once the loan products are finalized, they must be approved by the board and NBFC Business plan should be prepared considering all key factors should align with theCompany Objectives.

E. Loan Documentation Kit

An NBFC’s loan documentation must be comprehensive, legally sound, and transparent. A typical loan documentation kit includes:

Loan Application Form: Used by customers to apply for a loan.
Loan Agreement: Legally binding contract between the lender and borrower, outlining the terms of the loan.
Sanction Letter: Issued when a loan is approved, detailing the terms and conditions.
Schedule of Charges: List of fees and charges applicable to the loan.
Interest Calculation Method: Specifies how interest will be calculated (e.g., flat rate, reducing balance).
Repayment Schedule: Details of the loan repayment plan, including the EMI amount and due dates.
Demand Promissory Note: A legal document where the borrower promises to repay the loan.
Guarantee Deed: In cases where a guarantor is involved, this document outlines the guarantor’s obligations.
List of Executed Documents: A checklist of all documents that need to be signed by both parties.
Undertakings: Legal undertakings from the borrower to comply with the terms of the loan.

F. Website Compliance

In today’s digital age, an NBFC’s website must comply with specific regulations, especially if the company is dealing with sensitive financial information. The following must be displayed on the website:

Cookies Policy: Outlining how user data is tracked via cookies.
Disclaimer: Legal disclaimers related to the company’s services and liabilities.
Terms and Conditions: Detailed terms governing the use of the website and services.
Display of Key Information: As mandated by the RBI, certain information (such as the Grievance Redressal Officer's contact details) must be prominently displayed on the website.
Companies should upload Annual Report as per Section 92 of the Companies Act 2013 if having a website.

G. Additional Registrations

After registration, your NBFC must register with various regulatory bodies, such as:

CIBIL, Experian, Crif Highmark, and Equifax: These are the four main credit bureaus that provide credit scores and reports. NBFCs must report borrower data to these agencies.
NESL (National E-Governance Services Ltd): NESL is India’s first Information Utility under the Insolvency and Bankruptcy Code. NBFCs must register with NESL to comply with debt information sharing norms.
CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India): CERSAI maintains records of property mortgaged for loans. NBFCs must register with CERSAI if they offer secured loans.
CKYC (Central Know Your Customer Registry): CKYC ensures that a customer’s KYC documents are centrally stored, and financial institutions, including NBFCs, can access them.
FIU-IND (Financial Intelligence Unit – India): This registration is required for reporting suspicious transactions.
CIMS (Credit Information Management System): NBFCs must register with CIMS for efficient credit risk assessment.

What is the Regular NBFC Compliance ?

Once the NBFC is fully operational, it must comply with several ongoing regulatory requirements, and fall under specially RBI, MCA, and taxation authorities. Ensuring that these compliances are met regularly will help the NBFC avoid penalties, maintain its operational license, and build trust with customers and investors.

NBFC-RBI Compliance

The RBI has set specific filing requirements for NBFCs, mandatory for maintaining transparency and ensuring that NBFCs operate within the legal framework and key NBFC RBI Compliance include:

1. DNBS 02: A quarterly filing related to the company’s financial statements.

2. DNBS 13: A quarterly filing that covers compliance with provisions of the RBI Act.

3. DNBS 10: An annual filing that covers compliance with all major regulations.

4. CIC Reporting: Regular reporting to Credit Information Companies (CICs) to update borrower data.

5. CKYC Updates: Ensuring that all customer KYC information is updated in the CKYC registry.

6. Accounting Compliance: Ensuring adherence to Indian Accounting Standards and RBI guidelines, including:

IRAC Norms: Income Recognition and Asset Classification norms for recognizing NPAs (Non-Performing Assets).
Provisioning: Making necessary provisions for bad loans and potential losses.
NPA Recognition and Income Reversal: Timely recognition of NPAs and reversal of interest on loans that have become NPAs.

NBFC-MCA (ROC Filing) Compliance

NBFCs are also required to comply with MCA regulations under the Companies Act 2013, which include maintaining updated corporate records and filing necessary forms and key compliance tasks include in NBFC ROC Compliance are:-

1. Annual Director KYC: Ensuring that all directors have updated their KYC details on or before 30 september every year.

2. Annual Filing: Filing forms such as AOC-4, MGT-7, and ADT-1 annually along with DPT-3 If any

3. MGT-8: Filing of an annual return certification which normally mandates in NBFC subject to Threshold.

4. MSME-1: Filing half-yearly returns to report payments due to Micro, Small, and Medium Enterprises.

5. Event-Based Filings (MGT-14): Filing resolutions for approval of certain actions like policy updates or borrowing limits and all other matters under 179 & 117 of the Companies Act 2014.

6. PAS-6: Filing half-yearly returns related to outstanding shares is now mandatory for all companies classified as 'other than small companies' in India, which have a paid-up share capital exceeding 4 crores and a turnover of more than 40 crores and these companies are also required to mandatorily dematerialize their shares within 18 months from the closure of the financial year in which they were categorized as 'other than small companies'.

7. Director’s Report and Minutes Book: Maintaining and filing annual reports, director’s reports, and minutes of meetings including Notice for Directors Meetings, Shareholders Meetings as per Secretarial Standard (SS-1 & SS-2).

8. Corporate Governance Reports: Filing annual governance reports to ensure transparency and accountability.

NBFC-Taxation Compliance

NBFCs are subject to various taxation laws, including income tax, GST, and TDS. Some key tax compliances include:

1. SFT Return: A Statement of Financial Transactions (SFT) return must be filed annually by May 31st. It helps the government track high-value transactions.

2. Other Tax Filings: Timely filing of GST and TDS returns, as well as paying the applicable taxes, is critical for ensuring compliance.

The regulatory landscape for NBFCs is complex, and compliance is non-negotiable. At Compliance Calendar LLP, we help NBFCs navigate these regulatory waters by providing end-to-end solutions for both one-time setup and ongoing compliance. From creating and implementing board-approved policies to managing your filings with the RBI, MCA, and taxation authorities, we ensure your NBFC stays compliant and operational.

Don’t let compliance become a burden—reach out to Compliance Calendar LLP for a thorough review of your NBFC’s current compliance status, and we’ll help you complete any pending tasks and stay on top of regular filings. With us, you can be confident that your NBFC will always be one step ahead.

NBFC Compliance related FAQ’s

Q1. Which companies are required to file the MGT-8 annual return certification?

Ans. MGT-8 is an annual return certification that is required under the Companies Act, 2013,and applies to certain companies based on their size and type. A practicing company secretary must certify the accuracy and compliance of the annual return filed in Form MGT-7 and MGT-8 is applicable to the following types of companies:

1. Listed Companies: Every listed company, regardless of its size, is required to obtain MGT-8 certification.

2. Companies with Specific Thresholds:

Paid-up Share Capital: Companies having a paid-up share capital of Rs.10 crore or more.
Turnover: Companies with an annual turnover of Rs.50 crore or more.

If a company meets either of these thresholds, the MGT-8 certification becomes mandatory.

Q2. What are the consequences if an NBFC fails to comply with Rule 9B regarding dematerialization of shares?

Ans. According to Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, all Non-Banking Financial Companies (NBFCs) that do not qualify as small companies are required to dematerialize their shares.

All NBFCs classified as 'other than small companies' are required to dematerialize their shares. A small company, as defined under the Companies Act, 2013, is one with a paid-up share capital of up to Rs.4 crore and a turnover of up to Rs.40 crore. NBFCs that exceed these limits must comply with the dematerialization requirement.

Mandatory Dematerialization: NBFCs that fall under the 'other than small companies' category must ensure that their entire shareholding is converted into dematerialized form.

Timeline: As per the rule, these companies must dematerialize their shares within 18 months from the closure of the financial year in which they were categorized as 'other than small companies.'

Restriction on Share Transactions: Once an NBFC is required to dematerialize shares, all future transactions involving the transfer of shares, issuance of new shares, or any changes to the shareholding must only be carried out in dematerialized form.

Penalties:

Hence, Failure to comply with Rule 9B regarding the mandatory dematerialization of shares for Private companies can result in penalties under Section 450 of the Companies Act, 2013.

1. For the company: The company may be fined up to Rs.10,000.

2. For continuing failure: In case of ongoing non-compliance, the company can incur an additional fine of Rs.1,000 for each day the default continues after the first penalty.

3. For officers in default: Every officer of the company who is in default can be penalized with a fine up to Rs.10,000, and for continuing failure, an additional Rs.1,000 per day for each day the non-compliance continues.

Q3. Company Law Advisory required for NBFC Company?

Ans. All Non-Banking Financial Companies (NBFCs) should have a full-time Practicing Company Secretary (PCS) to provide expert guidance through retainership services with NBFC Consultancy, the role of a PCS is very important for ensuring compliance with corporate laws, especially under the Companies Act, 2013 along with whole time Company secretary appointment is mandatory in any NBFC by having 5 crores plus capital and Key responsibilities include:

1. Corporate Law Advisory: Offering regular updates and guidance on matters related to the Companies Act, 2013, and other relevant legal frameworks.

2. Corporate Restructuring: Assisting in mergers, acquisitions, demergers, and other restructuring activities, ensuring all necessary compliances are met.

3. Funding Compliance: Guiding NBFCs in securing funding while complying with regulatory requirements and ensuring proper documentation.

4. Mandatory Compliances: Managing mandatory filings, maintaining records, ensuring dematerialization of shares, and providing board-approved policies.

Having a full-time PCS or Consultant like Compliance Calendar LLP, ensures that NBFCs stay compliant with complex regulatory requirements, minimizing risks and ensuring smooth operations.

Q4. What do the following abbreviations stand for in the context of NBFC regulations: SAC, DNBS, NBFC-ND-SI, HFC, FAFT, NBFC-UL, NBFC-ML, NBFC-BL, NOFHCs, LCR, CRILC, SMA, ALM, NBFCs-D, and NBFC-CIC?

Ans. The followings abbreviations read as a:

SAC: Statutory Auditor Certificate – A certificate provided by the statutory auditor confirming the NBFC’s compliance with regulatory requirements.
DNBS: Department of Non-Banking Supervision – A division of the Reserve Bank of India responsible for regulating and supervising NBFCs.
NBFC-ND-SI: Non-Deposit taking Systemically Important Non-Banking Financial Company – An NBFC that does not accept public deposits and has assets of Rs.500 crore or more, making it systemically important.
HFC: Housing Finance Company – A type of NBFC focused on providing home loans and financing housing-related projects.
FAFT: Financial Action Task Force – An international body that sets standards for combating money laundering and terrorist financing.
NBFC-UL: Non-Banking Financial Company - Upper Layer – Part of the scale-based regulation for larger NBFCs that are subject to more stringent regulatory oversight.
NBFC-ML: Non-Banking Financial Company - Middle Layer – An NBFC with moderate regulatory compliance requirements, positioned between the base and upper layers.
NBFC-BL: Non-Banking Financial Company - Base Layer – The foundational layer in the scale-based regulation framework, involving smaller NBFCs with simpler regulatory requirements.
NOFHCs: Non-Operative Financial Holding Company – A type of holding company under which the promoter's investment in NBFCs or banks is structured.
LCR: Liquidity Coverage Ratio – A requirement to ensure that NBFCs have enough high-quality liquid assets to meet short-term obligations.
CRILC: Central Repository of Information on Large Credits – A database that stores information about large credit exposures of banks and NBFCs.
SMA: Special Mention Account – A category used to identify loans that show signs of stress and are at risk of becoming non-performing assets (NPAs).
ALM: Asset Liability Management – A strategy for managing the mismatch between assets and liabilities to maintain liquidity and manage risk.
NBFCs-D: Non-Banking Financial Company taking Deposits – NBFCs that accept deposits from the public.
NBFC-CIC: Non-Banking Financial Company - Core Investment Company – A type of NBFC that primarily focuses on investments in group companies or subsidiaries.

Q5. How Compliance Calendar LLP Can Help with NBFC Compliance

Ans. At Compliance Calendar LLP, we provide comprehensive compliance solutions for NBFCs to ensure adherence to all regulatory requirements by providing NBFC Compliance services, Company Law advisory services, also include such as drafting and vetting services and implementing KYC/AML policies, Fair Practices Code, Interest Rate Policy, and Grievance Redressal Policy, as well as setting up risk management frameworks and ensuring compliance with outsourcing and IT security guidelines. We assist with mandatory compliances such as dematerialization of shares, regular RBI filings, MCA filings, and board meeting documentation. Additionally, we offer expert corporate law advisory and taxation compliance support, including IRAC norms and financial reporting. Through our retainership services, we provide ongoing compliance assistance, helping NBFCs maintain smooth operations while avoiding penalties and ensuring regulatory compliance at all times.

Q6. How to register a NBFC Company in India ?

Ans. Before proceeding with the NBFC registration process, ensure that the company meets the revised eligibility criteria:

1. Company Registration: The applicant must be a company registered under the Companies Act, 2013 along with Name should have the key words related to financial activity.

2. Minimum Net Owned Funds (NOF):

For most NBFCs, the NOF requirement has been increased to Rs.5 crore.
For NBFCs operating in specific sectors like Microfinance or Infrastructure, the NOF requirement may be higher, up to Rs.10 crore, depending on the nature of the activities.

3. Principal Business Criteria: More than 50% of the total assets must be financial assets, and more than 50% of the total income must come from financial activities.

4. Experienced Directors: The directors should have relevant experience in the financial sector to ensure professional management of the company.