Benefits of the NBFC Compliance Calendar

The advantages of NBFCs compared to traditional banking services are significant:

• Flexible Interest Rates: NBFCs have the freedom to set competitive interest rates within RBI guidelines.
• Greater Flexibility: Their adaptable policies cater to a wide range of customer needs, especially in underserved regions.
• Streamlined Loan Processing: With fewer documentation requirements, NBFCs facilitate quicker loan approvals.
• Inclusivity: More lenient credit score requirements allow NBFCs to extend loans to individuals with lower credit ratings.
• Customer-Centric Services: In addition to lending, NBFCs offer diverse financial services, including investment advice and financial education.

Document Requirements for NBFC Compliance

To initiate the compliance process, NBFCs must compile several essential documents:

• Certificate of Incorporation: A legal document proving the company's establishment.
• Memorandum and Articles of Association (MOA & AOA): Governing documents outlining the company's structure and operational guidelines.
• KYC Details and PAN Number: Essential for verifying the identity and tax status of the company.
• CIBIL Score or Credit Reports: Required for each director to assess creditworthiness.
• Bank Account Statements: To provide financial transparency.
• Auditor's Certificate: Confirming that the company has not accepted public deposits and will not do so without RBI approval.
• Audited Financial Statements: Including balance sheets and income tax returns for the past three years to demonstrate financial health.

The NBFC Compliance Calendar: Objective and Structure

The Compliance Calendar LLP team has developed a comprehensive compliance calendar designed for Compliance Officers, CFOs, and Company Secretaries. This tool aids in navigating key reporting dates and encompasses laws established by the Reserve Bank of India (RBI) across various layers of NBFCs:

Compliance Layers:

• Base Layer: For smaller NBFCs and specific operations like Peer-to-Peer lending.
• Middle Layer: Encompasses all deposit-taking NBFCs and larger non-deposit-taking entities.
• Upper Layer: Includes more complex NBFCs with extensive compliance requirements.

NBFC Compliance Requirements: A Structured Overview

• Compliances for Base Layer

XBRL Returns

The compliance framework for NBFCs in the Base Layer involves several key returns to be submitted via the XBRL system. Below are the details:

Other Regulatory Compliances

1. Adoption of Fair Practice Code: Must be completed within 30 days after the financial year-end.
2. Board Resolution for Non-Acceptance of Public Deposits: To be adopted within 30 days after the financial year-end.
3. PML/KYC Policy Adoption: Should be established within 30 days after the financial year-end.
4. Physical Submission of Financial Statement: Required within 30 days of adopting the financial statement.
5. Capital Requirements:
• Existing companies licensed before October 1, 2021: ?2 Crore
• By March 31, 2025: ?5 Crore
• By March 31, 2027: ?10 Crore
6. NPA Classification:
• 150 days overdue: By March 31, 2024
• 120 days overdue: By March 31, 2025
• 90 days overdue: By March 31, 2026
7. Risk Management Committee: NBFCs must establish a committee focused on risk management.
8. Disclosures: Requirements will expand to include types of exposure, related party transactions, loans to directors, and customer complaints.
9. Loan Policies: A board-approved policy must exist for granting loans to directors and senior officers.

• Compliances for Middle Layer

XBRL Returns

The compliance framework for the Middle Layer includes more detailed reporting obligations:

Other Regulatory Compliances

1. Internal Capital Adequacy Assessment Process: NBFCs must assess their capital needs relative to business risks.
2. Concentration of Credit/Investment: Limits are revised:
• Single Borrower/Party: 25%
• Single Group of Borrowers/Parties: 40%
3. Sensitive Sector Exposure: Boards must set internal limits for exposure to sensitive sectors, such as real estate and capital markets.
4. Regulatory Restrictions on Loans: Loan policies must adhere to specific guidelines regarding directors and senior officers.
5. Key Managerial Personnel: KMPs cannot hold positions in other NBFCs except for directorships in subsidiaries.
6. Independent Directors: An independent director may serve on the boards of up to three NBFCs, ensuring no conflicts of interest.
7. Enhanced Disclosure Requirements: Annual financial statement disclosures have increased in scope.
8. Chief Compliance Officer: NBFCs must appoint a sufficiently senior compliance officer.
9. Compensation Guidelines: Must include:
• A Remuneration Committee
• Principles for fixed and variable pay
• Malus/clawback provisions
10. Other Governance Matters: NBFCs should establish various committees, define their roles, and maintain a review calendar.
11. Core Banking Solution: Required for NBFCs with ten or more branches.

• Other Regulatory Compliances for Upper Layer

1. Large Exposure Framework: All significant exposures to counterparties must comply with established ceilings.
2. Internal Exposure Limits: To be set for critical sectors, including Capital Market and Commercial Real Estate.
3. Qualification of Board Members: The educational and experiential qualifications of board members will be scrutinized.
4. Listing & Disclosures: Listing must occur within three years of identification as an NBFC-UL.
5. Removal of Independent Directors: Procedures for the removal of independent directors need to be established.