Query on NBFC

Question 1  : What is the funding source for  those  Non-Banking Financial institution’s   not accepting  Public Deposits ?

Owned funds and from relatives of promoter group, or directors. Sometimes foreign funds.

Question 2  : Is it required for every NBFC to be registered with Reserve Bank of Indiaalthough the company does not accept Public Deposits ?

Yes.

Question 3 : Is it possible to incorporate a Company ( not NBFC ) with the principal business of accepting of loan (from the promoter company ) and lending it to its subsidiary companies ?

No. Cannot do this.

Question 4 : Is it advisable to incorporate a NBFC with the basic objective,  getting of loan from the promoter company and lending it to its subsidiary companies ?

Yes. Possible to do this. But the funds inflow cannot be only by Loans from the promoter company. It has to be equity capital brought in by promoter company. 

No, its not advisable to do so. Because RBI have survillence on the working of NBFC. Every NBFC need to submit a certificate from the auditors that NBFC needs to have registered with the RBI so, in your case Auditors will not issue such certificate to you or lots of difficulties will arise during audit of your companies. So, in my opinion you should not do that.

Hi,

Can anybody tell me than in case a Company qualifies to be a NBFC during the year i.e. deemed NBFC due to its 50% of current assets being financial assets and more than 50% income derived from financial assets, and the Company has not registered with RBI nor has filed any returns, how should this be disclosed in the financials of the Company as at year end. Should the financials be qualified or a note be inserted?? It would really be helpful if someone could provide names of other companies with similar issues.

It is indeed very critical condition where there are two ways of dealing with the problem. 

1. Pursuade the company to file and application with RBI for registering as NBFC. In this case, you may have to approach RBI with and application for registering as NBFC as per the formats and requirements prescribed by rbi. 

2. In case the company does not want to apply for NBFC registration, auditor may have to qualify the auditor's report or it may be mentioned in notes to accounts. In this case, as per auditor's report directions, the exception report for violation of RBI act, 1934 will need to be submitted directly to RBI, regional office. It is also required to send report to Board of Directors on specified points given as per Auditor's report Directions in relation to NBFCs, Download it from - https://www.rbi.org.in/scriptts/BS_NBFCNotificationView.aspx?Id=4494, study it meticulously and comply accordingly. 

Originally posted by : Sanjiv
	Hi, Can anybody tell me than in case a Company qualifies to be a NBFC during the year i.e. deemed NBFC due to its 50% of current assets being financial assets and more than 50% income derived from financial assets, and the Company has not registered with RBI nor has filed any returns, how should this be disclosed in the financials of the Company as at year end. Should the financials be qualified or a note be inserted?? It would really be helpful if someone could provide names of other companies with similar issues.

The Company is carrying on activity of acquisition of shares without registration with RBI. It does not accept public deposits and has NOF much less than 2 crores. As per the last year’s B/s, the financial assets are more than 50% of total asset and more than 50% income is out of such financial assets. However, the auditors have not qualified the auditors’ report.

The management intends to continue such activity without raising the NOF.

Pls advice

1.      Whether the Company can continue to carry on the activity w/o registration with RBI or will it be required to increase NOF and get registered with RBI while rectifying the violation.

2.      Penal actions that may be faced for the violation done in last year

Whether in case of  merger between an NBFC and another entity, the license will be automatically transferred or a fresh license has to obtained from the RBI? In this case, the NBFC is losing its identity and merging with a non-listing NBFC with a view to acquire the NBFC status.

Dear All,

1. I have same query as Pallavi.. the difference is we have raised our NOF more than 2 cr and applied for NBFC. 

2. RBI have asked to our statutory auditor to file an Exception Report for not applying for COR as the company is fulfilling the principal business criteria as the financial assets are more than 50% of total asset and more than 50% income is out of such financial assets. 

3. But that time our NOF is less than 2cr . as soon as we have raised it above 2r we have applied in next F.Y to RBI for COR

kindly advice what should be written in the exception report to satisfy the requirements of RBI as we are continuing our same business.