Entry options to invest in India csgaurav+919990694230


Entry options to invest in India csgaurav+919990694230

Entry options to invest in India csgaurav+919990694230

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Fast track exit mode cos act 2013


Conditions for FTE

  • The defunct company should have “Nil” Assets & Liabilities and
    • has not commenced any business activity or operation since incorporation; or
    • is not carrying over any business activity or operation for last one year before making application under FTE
  • A Company which has “Active” status or identified as “Dormant” by the MCA

Companies not eligible for FTE

  • Listed Companies
  • De-listed Companies
  • Section 8 Company (corresponding to Section 25 Company under the Companies Act, 1956)
  • Vanishing Companies
  • Companies under Inspection/Investigation pending in any Court
  • Companies where order under Section 234 of the Companies Act, 1956 has been issued and reply thereto or prosecution, if any, is pending in the court
  • Companies against which prosecution for a non-compoundable offence is pending in court
  • Companies which have accepted public deposits and has made defaults in repayment of the same
  • Companies having secured loans
  • Companies having management disputes
  • Companies whose filing of documents has been stayed by Court or Company Law Board (CLB) or Central Government or any other Competent Authority
  • Companies having dues to income tax, sales tax, central excise, banks and financial institutions or Central Government or State Government or any local authorities

How to apply for FTE?

The application shall be made in Form FTE accompanied by filing fees of Rs. 5,000/-.

Attachments to Form FTE

  1. Affidavit (as per “Annexure A” to the Circular) to be given individually by all Directors;
  2. Indemnity Bond (as per “Annexure B” to the Circular) to be given individually by all Directors;
  3. Statement of Accounts (as per “Annexure C” to the Circular) duly certified by Practicing Chartered Accountant or Statutory Auditor of the Company as the case may be;
  4. Board Resolution stating to Strike off the name of the Company under FTE Mode;
  5. Board Resolution for closure of Bank Accounts;
  6. Confirmation letter duly signed by the concerned Banks Official that the Bank Account of the Company is closed;
  7. The company shall disclose pending litigations, if any, involving the company while applying under FTE;
  8. Form FTE shall be certified by Practicing Chartered Accountant / Practicing Company Secretary / Practicing Cost Accountant.

Note: In case, the applicants name are not available in database of directors maintained by the MCA, a certificate from Practicing Chartered Accountant / Practicing Company Secretary / Practicing Cost Accountant along with membership number certifying that the applicants are present Directors of the Company. In such cases the applicants will not be required to file Form DIR-12 (earlier Form 32) and Form DIR-3 (earlier Form DIN 3).

Procedure adopted by the Registrar of Companies (ROC)

The Registrar on receipt of application shall examine the same and if application found in order, it shall intimate the Company by issuing a notice under Section 560 (3) of the Act giving 30 days time, stating that unless cause is shown to the contrary, the name of Company be struck off from the register and the lead to dissolution of the Company.

The Registrar on being satisfied shall strike off the name of the Company from its Register and send notice under Section 560 (5) of the Act for publication in the Official Gazette and the Company stands dissolved from date of publication of the notice in the Official Gazette.

Note: A Company dissolved under Section 560 of the Act can be restored before expiry of 20 years from the date of publication of notice in the Official Gazette by order of the Court. The application for restoration can be made only by the Company, member or creditor. It must be shown that on the date of dissolution of the Company, the Petitioner was a member or creditor. The procedure for application for restoration should be as per provisions of Section 560 (6) of the Act.

 

 

how to make real estate investment trust in India CS GAURAV +919990694230


SEBI (REITs)
Regulation 2014
:-


S.No.
Particulars
Regulations
1.
Sponsor
•   Maximum number of sponsor restricted
to
3
•   Minimum holding for each of the sponsor shall be equivalent to
5% of the no. of units of REITs (i.e. Post initial offer size)
    Aggregate
 Net  worth  of  sponsors
 shall  be  of  atleast  Rs
 100
crores. Moreover minimum
networth requirement for individual
sponsor is Rs 20 crores.
    Minimum 5 years experience in development of real estate or
fund management in real estate
industry. Moreover, where the
sponso is  
a   developer,  at 
 leas
 two   projects   have   been completed.
2.
Manager
•   Minimum Net worth Rs. 10 Crores.
    Minimum 5 years experience in fund management or advisory or
property management in the real estate industry.
    Atleast  50%  of  directors
 or
 members
 of
 governing  body  as independent and not directors or members of governing body
of another REITs.
    Entered  into  an  investment
 management  agreement
 with
 the trustee which provides for the responsibilities of the manager in accordance with regulation 10
3.
Trustee
    Registered 
 wit
 SEB under 
 SEB (Debentur
 Trustees)
Regulations
1993  and  not  an 
associate  of  the  sponsor  or
manager.
•   Having such
infrastructure and personnel as specified by SEBI.
4.
Minimum Asset
Criteria for listing
    In order to offer units to public the value of all the assets owned by REIT should be at least Rs 500
crores.
•   The offer size is not less than
Rs.
250 Crores.
•    Initial offer of REIT units has to
be through public issue only.
5.
Investment
Conditions
•   Investments only permitted in
following channels:
SPVs (only if SPV holds 80% of the properties directly)
Properties
Securities







TDRs (Transferable Development Rights)
    Cant invest in vacant land,
agriculture land and mortgages other than
mortgage backed
securities.
    At least 80% of the value of REIT shall be invested in
completed and rent generating
properties. Lockinperiod of 3 years from
date of purchase.
    Investment in TDRs and
Unutilized
Floor Space Index
(FSI) now permitted   under   second   tie
 o Investment   mode 
 with   a maximum cap
of 20% of REITs Assets.
    If
 investment
 in  under  construction  properties
 under  the  sub second tier of Investment mode with maximum cap of 10% of
REITs Assets then,
l
ockinperiod of 3 years from date of completion.
    Not less than 75% of the revenues of REITs and SPVs, other
than  gain  arising
 from  disposal  of
 properties,
 shall  be  from rental, leasing and income incidental to leasing of real estate.
6.
Approval of
Unitholders
    In case of sale of properties of REIT or SPV exceeding 10% of the value of assets.
    Purchase of property for a value greater than 110% of the value
as assessed by valuer or sale of property which is less than 90%
of the value as assessed
by the valuer is allowed if approved by Unit Holders (Valuation
by two independent valuers is mandatory).
    In
 case  of  transactions  with  related
 parties  on  crossing
 of
stipulated norms.
    If the aggregate consolidated borrowings and deferred payments
of the REIT net of cash and cash equivalents exceed twenty
five
per cent. of the value of the REIT assets, credit rating
from credit
rating agency is also required along with approval of unitholders.
•   With
respect to the annual meeting of unit holders, approval of
latest annual accounts and performance of the REIT
auditor and fees of such auditor, as may be required
latest valuation reports
appointment of valuer, as may be required
any other issue including special issues as specified under subregulation (6)
    Any
 issue,  in
 the  ordinary
 course  of
 business,
 which  in
 the
opinion of the sponsor(s)
or trustee or manager, is material and
requires approval of the unit holders. For instance- Any change in
 manager
 including 
removal
 of
 the
 manager
 or
 change  in
control  of
 the
 manager
any  material
 change  i
investment strategy or any change in the management fees of the REIT
7.
Cash Flows
    Not less than ninety per cent of Net distributable cash flows of the
 REIT
 shall  be
 distributed  to
 the  unit  holder
once  in  6 months.
    However if sale proceeds from any property are reinvested in
another property then
there is no requirement of distributing 90%





of the proceeds to the Unit Holders.
8.
Related Party
Transactions
    Transaction
 such   a acquisition 
 o sal
 of  propertie
 or
investments into
securities in
a financial year; or
•   Value of funds borrowed from related parties in a financial year requires previous approval of Unit holders if the value of transaction exceeds
 10%  of  the
 value
 of
 REITs  or  consolidated  borrowings
respectively
9.
Borrowings
    Aggregated
 consolidated  borrowing
 and
 deferred  payment  of REIT net of cash and cash equivalents shall never exceed 49% of the value of REIT assets.
10.
Valuations
    The valuer shall not be an associate of the sponsor(s) or manager or
trustee and
shall have not less than
five years of experience
in valuation
of
r
eal estate.
    Full
 valuation  report
 shall  include
 the  mandatory  minimum
disclosures as specified
in
Schedule V to
these regulations.
    A full valuation
shall be conducted at
the end of financial year i.e
at 31st  March by the valuer within 3 months along with half
yearly valuations.
    Prior to any issue of units to the public and any
other issue of units  as  may  be  specified  by 
the  Board, 
the  valuer  shall
undertake full valuation of all the REIT assets and
include a summary of the report in the offer document.

Other Conditions:
    No unit holder of the REIT enjoys preferential voting or any other rights over another unit
holder.
    Any
person other than the sponsor(s) holding units of the REIT prior to initial offer shall hold the units for a period of not less than one year from the date of listing of the units subject to circulars or guidelines as may be specified by the Board.
•   General period
of disclosure of information, reports is half yearly.
•   Parties to the REIT are Trustee, Sponsor and
Manager.


     Under both the initial offer and followon offer, rights issue, QIP, minimum subscription size
for
units of REIT shall be Rs 2 lakhs.




SEBI (Infrastructure Investment
Trusts) Regulations, 2014
:-


On 26th September 2014, SEBI notified norms for InvITs which are somewhat similar to REITs. Salient features of the InvIT Regulations are as follows


    InvITs shall be set up
as a
trust and registered
with
SEBI. It shall have parties such as Trustee, Sponsor(s),
Investment Manager and Project Manager.
    InvITs shall invest in infrastructure projects, either directly or through SPV. In case of PPP projects, such investments should only be through SPV. An InvIT shall hold or propose to hold
controlling
interest and more than 50% of the
equity
share capital or interest in the
underlying SPV, except where the same is not possible because of a regulatory
requirement/ requirement emanating from the concession
agreement.
•   Sponsor(s) of an InvIT shall, collectively, hold not less than 25% of the total units of the
InvIT on post issue basis for a period
of at least 3 years.
     The proposed holding of an InvIT in the underlying assets shall be not less than Rs. 500 crore and the offer size of the InvIT shall not be less then
Rs.
250 crore at the time of initial offer of
units.


     An InvIT which proposes to invest at least 80% of the value of the assets in the completed and revenue generating infrastructure assets, should raise funds only through public issue of
units. The minimum
subscription from any
i
nvestor in initial and followon offer shall be ten
lakh
rupees.



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Formation of Company with Charitable Objects


License for New Companies
1.    
Make an Application
To incorporate a
company under this Section, an application shall be made in Form No. INC-12
Application shall be accompanied by the following documents:
a)    
MOA & AOA of
the company
b)   
Declaration as
given in Form No. INC-14 by an Advocate, a Chartered Accountant, a Company
Secretary or Cost Accountant in practice, that the draft MOA & AOA have
been drawn up in conformity with the provision of section 8 and rules made
there under and all the requirements under section 8 has been complied with.
c)    
An estimate of
future income & expenditure of the company for next 3 years, specifying the
source of income and the objects of the expenditure.
d)   
A declaration by
each of the person making the application in Form INC-15.
License for Existing Companies
When Central government
is satisfied that a person or an association of persons proposed to be registered
under this Act as a limited company –
a)    
Has in its
Object the promotion of commerce, art, science, sports, education, research,
social welfare, religion, charity, protection of environment or anu such other
object
b)   
Intends to apply
its profit in promoting its objects
c)    
Prohibit the
payment of dividend.
Steps to Incorporate Section 8 Company:
1.   Obtaining Directors Identification
Number (DIN)
a.      Applicant
to Obtain DIN if he does not have the DIN.
Checklist
for Obtaining DIN:-
b.    
Signed copy of PAN
c.    
Signed copy of Address Proof
d.    
 Color Photograph
e.    
Area of Occupation (Self employed,
Professional, home maker, Student, Serviceman)
f.      
Educational Qualification
Certificate
g.    
Email address
h.    
Mobile number
i.      
Place of birth
Note: – For Obtaining DIN applicant must have the
Digital Signature.
For
obtaining Digital Signature following documents are required:-
a)     Signed
original application
b)    1
color photograph of the applicant
c)     Photograph
should be crossed signed on the application
d)    Signed
copy of PAN
e)     Signed
copy of Address proof
f)      Email
g)     Mobile
number
         
2.  
 Selecting a name
a.   The
promoter under a proposed name shall make an application for Reservation of name in Form INC-1 to Registrar of
Companies of the state in which registered office of company is proposed to be
situated.
b.   Applicant
is required to give maximum 6 alternative names to the registrar.
c.   The
proposed name shall not be Identical/ similar to the name of a Company already
exist.
d.   The
proposed name shall not be registered in the Trade marks
e.   If
the proposed name contains name of any other person than promoters or their
close blood relatives then NO Objection Certificate from that other person
would be required.
f.     If
the proposed name includes name of the relatives then proof of relation would
be required.
g.   If
the promoter have 1 specific name in mind then certification from Practicing
Professional is required.
3.  
Memorandum
in Form No INC-13
The Memorandum of association of
the proposed company shall be in Form
No. INC-13
4.  
Make an Application
To incorporate a
company under this Section, an application shall be made to Registrar in Form No. INC-12
Application shall be accompanied by the following documents:
e)    
MOA & AOA of
the company
f)     
Declaration
as given in Form No. INC-14 by an
Advocate, a Chartered Accountant, a Company Secretary or Cost Accountant in
practice, that the draft MOA & AOA have been drawn up in conformity with
the provision of section 8 and rules made there under and all the requirements
under section 8 has been complied with.
g)    
An estimate of
future income & expenditure of the company for next 3 years, specifying the
source of income and the objects of the expenditure.
h)    
A declaration by each of the person making
the application
in Form INC-15.
5.  
Give Notice in News-paper
Within a week from the date of making
the application to the Registrar of Companies, publish a notice, and a copy of
the notice, shall be send forthwith to the registrar, in Form no. INC-26, an shall be published:

1. At least once in a vernacular newspaper in the
principal vernacular language
 of
the district in which the registered office of the proposed company is to be
situated, and circulating in that district, and

2. at least once in English language in an
English newspaper
 circulating
in that district; and

3. On the websites as may be notified by the
Central Government. Copy of such notice in newspapers shall be submitted to the
Registrar of Companies immediately after their publication.
6.   Approval of other authorities
The Registrar of Companies may require
the applicant to furnish the approval or concurrence of any appropriate
authority, regulatory body, department or Ministry of the Central or State
Government(s)
7.   Registrar to decide on granting of license
The Registrar will wait for 30 days for
objections, if any, of any person pursuant to notice published in newspapers.
The Registrar may also consult necessary authorities and regulatory bodies.

Thereafter, the Registrar of Companies at its
discretion may grant the license.
Sec 8(4) (i) a company
registered under this section shall not alter the Provisions of its MOA or AOA
except with the previous approval of the Central Government.
Sec 8(6) The Central
Government may, by order, revoke
such license granted under section 8, if:
a) the company contravenes with the requirement of section 8
b) the company contravenes
the conditions subject to which license is issued; or
c) affairs of the company are conducted in a fraudulent manner or in violation
of object of the company or prejudicial to the interest of the public.
Further, the Central Government may direct the company to change its status
from section 8 company to either private or public limited company. And also
direct it to change its name to include the word “Limited” or words “Private Limited”.
However, before making order, the Central Government shall give reasonable
opportunity of being heard.
Upon receiving such an order, where the license granted to a company registered
under section 8 has been revoked, the company shall intimate to the Registrar
to convert its status and change of name accordingly.

Sec 8(7)
On revocation of license the Central Government may, by order, if it is
satisfied that it is essential in public interest, direct that the company be
wound up or amalgamate with another company registered under this section
having similar objects.
However, before making
order, the Central Government shall give reasonable opportunity of hearing to
the company.
Where the license is revoked and the Central Government
is satisfied that in public interest, such company shall amalgamate with
another company registered under section 8 and having similar objects, then the
Central Government may order details of amalgamation like forming a single
company, transfer of assets and liabilities etc. This right of the Central
Government prevails even if they are contrary to other provisions of the
Companies Act, 2013.
Sec 8(10) Section 8 company can amalgamate only with other section 8
company and having similar objects.
Sec 8(11) Penalty
Section 8 company who makes
default in complying with the provisions of section 8 shall be punishable with
fine which shall not be less than Rs. 10,00,000/- but which may extend to Rs.
1,00,00,000/-.

Further, the directors and every officer of the company who
is in default shall be punishable with imprisonment for a term which may extend
to 3 years or fine which shall not be less than Rs. 25,000/- but may extend to
Rs. 25,00,000/- or with both, imprisonment and fine.





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Exemptions to Private companies under ease of foing business India


SECTION
EXEMPTION PROPOSED BY GLOBALCA TEAM
EXEMPTION NOTIFIED BY MCA
MAJOR IMPACT/
EFFECTS OF NOTIFICATION ON PRIVATE COMPANIES
Section73  (2) of
Chapter
V (Prohibition on Acceptance
of Deposits from Public)
Exemption: Shall not Apply to Private Companies
provided – It has less than 50
members
and  if they accept        monies from their
 members
not exceeding
25% of aggregate
of  the  paidup capital and free reserves  or  100  %  of
the paid up capital, whichever is more
AND
Which  
informs  the detai of  such  
monies to the Registrar.
Private Companies borrowing monies from members upto  aggregate limit of paidup
share capital   
freereserves, need 
 not
 requir
to comply with
 conditions mentioned     in      section
73(2)(a) to (e).
However  details  
of money so borrowed shall be filed with ROC
 in manner as  may   be specified
Private Companies may borrow from its members
without complying with   the  following conditions:
(i)         Issuance
of circular and filing    its    copy    with ROC
(ii)      
 Maintaining      Deposit
Repayment Reserve
(iii)       Providing       
 Deposit
Insurance
Section   141  (3) (g) Chapter  X– Eligibility,
Qualifications, disqualifications of Auditor
Whole Exemption
Shalnot  apply in respect of appointment of 
auditors by  private companies.
Text
of notification:-
“Other  tha OPC, Dormant,  Small Companies and  Private Companies 
having  paid up 
 capital
 of   les
 than Rs.  100  Crores shal
be inserted      
 after          20
Companies.
Limit  of  20
companies
 shall include only:
(i)       
 Public Companies
(ii)       
Private        Companies whose  Pai up
 capital is Rs. 100 Crore or more



Section 180 of
Chapter XII
Restriction on Powers    
of Board
Whole   Exemption Shal
not  apply to private
companies having equal  to
or less than
 50
members.
This Section shall not apply to Private Companies
PrivatCompanies  are allowed
to exercise the following powers without shareholders approval:-
(i)
Borrow any amount exceeding
paidup capital  & free reserves
(ii) Sell/lease/dispose off whole  or substantially the whole of
the undertaking
(iii) Invest         in        trust securities the 
amount of
compensation received
 b
 it  
as   a result  of merger or amalgamation
Section 185 of
Chapter
XII– Loan
to Directors
Shalnot
 apply to private
companies
havinborrowings from   
banks    and financial institutions or anybody corporate
not more  
 than  
 twice    of their  paidup
capital  or Rs. 50
crore, whichever is lower
AND
whose share   capital   is devoid  of  any investmen
by  any other  body  corporate.
This   Section   shal
 apply only   
to   private Companies which  has :
1.  
Body   Corporate  as its Shareholder
2. Borrowed    money from    Bank/ Financial
Institution/     
 Body
Corporate exceeding lower of the following:-
i Twice  its
 Paid up capital
ii. Rs. 50 crore
3. No            repayment default     subsisting of  such   borrowings at    time    of 
 giving loan
Problem of giving
 loans/ guarantee/security by Group Companies is possible now.



Section 188 of
Chapter XII
Related Party Transaction
Whole Exemption
1. Does      not      include Holding,
Subsidiary, Associate Company and sister concern(subsidiary
of holding)
in the definition of Related Party
 (Section 2(76))
2. Member     
 although being  related party to the concerned resolution 
 can    still cast
 his  vote  
at General Meeting
.
1. Transactions    
 between Holding
& Subsidiary companies
shall not be considered 
as  Related Party   
 transactions    and they  are not required
to comply with
 the requirements of  Section
 
188.
2.   Now  
 in    case  
 company enters into any contract/ arrangemenwith 
 a member whis related party, 
that   member  can
stilcast  his  vote  in General  meeting  on   the said resolution.
Section 62 (1) (a)
&    62  
 (2)    of
Chapter IV
(Further issue of
capital)
Words “not  being less than fifteen
days  and not  exceeding thirty
days shall  be substituted with  “not being less
 than seven days     and     not exceeding  
fifteen days
Sending
of offer letter minimum 3 days  period before opening of offer
AND
Minimum & maximum offer
 period 
of  15  &  30 days  respectively
Can   be  reduced,
 if  90%
member   give   
their consent in writing/electronic mode
Where
 there  is an
emergency,
time  limit  can  be reduced with the consent of shareholders
Section   160 
 &
162  of
 Chapter
XI
Section 160 Right of persons other   than retiring
directors       
 
to stand            for directorship Section   162   Appointment of directors
 to   be voted individually
Whole Exemption
These Sections 
shall not apply to Private Companies
Section 160: Amount of Rs. 1
Lakh
 need
 not  be  deposited by the person
who has submitted his candidature to b
appointed as  director before  14 days  of the date
 of General Meeting.
Section 162: More  than  
One director can be appointed by single resolution



Section   101107
&    109   
of Chapter VII- Section 101 – Notice  
of Meeting
Section
102– Statement to  be annexed 
to notice
Section
103– Quorum for meeting
Section 104
– Chairman of Meeting.
Partial Exemption: These exemptions shall apply unless  otherwise provided in the respective sections  ;
OR
Unless Articles of Companies provide alternatives
These Sections 
shall not apply to Private Companies
Now      Private    Companies may override the below mentioned provisions b
its articles:-
(i)        Alter 
 the   content  &
length of notice
(ii)       Reduce            quorum below 2
(iii)     Increase     
the     time limit of morthan   48 hours
for depositing Proxy   
 form    
before the date of meeting of the Company
Section 43 of
Chapter
IVKinds of
Share Capital
Section  47
Voting Rights.
Whole Exemption
Section 43,
47 shall not apply where memorandum  or articles  of association of
the  private company so provides
Where
 the 
Memorandum
of Association or Articles of Association provides the Kinds  
of  shar Capital (Section 43)
and  Voting Right (Sectio
 –  
47) otherwise than  so prescribed, then  provisions provided in Memorandum
of Association o
 Articles   
o Association shall
prevail.
Section 196 (4) Section  
196  (5) of Chapter
XIII– Appointment
of MD,     Whole time  Director or Manager.
Whole Exemption
This Section shall not apply to Private Companies
Now Whole Time Director, Managing 
Directo or Manager  can  
be  appointed by directors
on terms  and conditions and  remuneration as fixed by directors.
It does not require
any ratification
 by  
Shareholders in the General Meeting of Company  and   approval  by the Central Government.













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ANALYSIS OF SECRETARIAL STANDARDS -2






SECRETARIAL STANDARD 2 (GENERAL MEETINGS)
A. Notice in writing of every Meeting
shall be given to every Member of the
company. Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor, to Debenture
Trustees, if any, and, wherever applicable or so required, to other specified persons.
B. In case of companies having a website, the Notice shall be hosted on the
website.
C.
 
Meetings shall be called during business hours, i.e., between 9 a.m. and 6 p.m., on a day that is not a National Holiday. A Meeting called by the requisitionists
shall be convened only on a working day.
D. Notice and accompanying documents shall be given at least twentyone clear days in advance
of the Meeting.
For the purpose of reckoning twentyone days clear Notice, the day of sending
the
Notice and the day of Meeting
shall not be counted. Further
in case the company sends the Notice by post or courier, an additional two days shall be
provided for the service of Notice.
E.  No items of business other than those specified in the Notice and those
specifically permitted under the Act shall be taken up at the Meeting.
F.  One  person can  be
 an  authorized representative of
 more 
than one  body corporate. In such a case, he is treated as more than one Member present in
person for the purpose of Quorum.



G. A Meeting
convened upon due Notice shall not be postponed or cancelled.
If, for reasons beyond the control of the Board, a Meeting cannot be held on the date originally fixed, the Board may reconvene the Meeting, to transact the same business as specified in the original Notice, after giving not less than three
days
intimation to the Members. The intimation shall be either sent individually in the manner stated in this Standard or published in a vernacular newspaper in
the
principal vernacular language of the district in which the registered office of
the
company is situated,
and
in an English newspaper in English language, both
having a wide circulation in that district.

H. The Auditors/ Secretarial Auditor, unless exempted by the company, shall, either by themselves or through their authorized representative, attend the
General Meetings of the company
and
shall have the right to be heard at such
Meetings on that part of the business which concerns them as Auditors.



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Frequently Asked Questions on NBFCs


Frequently Asked Questions on NBFCs
1. What is a Non-Banking Financial Company (NBFC)?
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).
2. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ?
NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
3. Is it necessary that every NBFC should be registered with RBI?
In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of Rs. 25 lakhs (Rs two crore since April 1999). However, in terms of the powers given to the Bank. to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.
4. What are the different types/categories of NBFCs registered with RBI?
NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs, b) non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct. Within this broad categorization the different types of NBFCs are as follows:
  1. Asset Finance Company(AFC) : An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.
  2. Investment Company (IC) : IC means any company which is a financial institution carrying on as its principal business the acquisition of securities,
  3. Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.
  4. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
  5. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:-

    (a) it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;

    (b) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;

    (c) it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

    (d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

    (e) Its asset size is Rs 100 crore or above and

    (f) It accepts public funds

  1. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
  2. Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less than 85%of its assets in the nature of qualifying assets which satisfy the following criteria:

    a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000;

    b. loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles;

    c. total indebtedness of the borrower does not exceed Rs. 50,000;

    d. tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;

    e. loan to be extended without collateral;

    f. aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs;

    g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

  3. Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 75 percent of its total assets and its income derived from factoring business should not be less than 75 percent of its gross income.
5. What are the requirements for registration with RBI?
A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:
i. it should be a company registered under Section 3 of the companies Act, 1954
ii. It should have a minimum net owned fund of Rs 200 lakh. (The minimum net owned fund (NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated separately in the FAQs on specialized NBFCs)
6. What is the procedure for application to the Reserve Bank for Registration?
The applicant company is required to apply online and submit a physical copy of the application along with the necessary documents to the Regional Office of the Reserve Bank of India. The application can be submitted online by accessing RBI’s secured websitehttp://ift.tt/1C0wBXo . At this stage, the applicant company will not need to log on to the COSMOS application and hence user ids are not required.. The company can click on “CLICK” for Company Registration on the login page of the COSMOS Application. A window showing the Excel application form available for download would be displayed. The company can then download suitable application form (i.e. NBFC or SC/RC) from the above website, key in the data and upload the application form. The company may note to indicate the correct name of the Regional Office in the field “C-8” of the “Annex-Identification Particulars” in the Excel application form. The company would then get a Company Application Reference Number for the CoR application filed on-line. Thereafter, the company has to submit the hard copy of the application form (indicating the online Company Application Reference Number, along with the supporting documents, to the concerned Regional Office. The company can then check the status of the application from the above mentioned secure address, by keying in the acknowledgement number.
7. What are the essential documents required to be submitted along with the application form to the Regional Office of the Reserve Bank?
A hard copy of the application form is available at www.rbi.org.in → Site Map → NBFC List → Forms and Returns. An indicative checklist of the documents required to be submitted along with the application can be accessed from www.rbi.org.in → Site Map → NBFC List → Forms and Returns → Documents required for registration as NBFCs.
8. Where can one find list of Registered NBFCs and instructions issued to NBFCs?
The list of registered NBFCs is available on the web site of Reserve Bank of India and can be viewed at www.rbi.org.in → Sitemap → NBFC List. The instructions issued to NBFCs from time to time are also hosted at www.rbi.org.in → Sitemap → NBFC List. → NBFC Notifications, besides, being issued through Official Gazette notifications and press releases.
9. Can all NBFCs accept deposits?
All NBFCs are not entitled to accept public deposits. Only those NBFCs to which the Bank had given a specific authorisation are allowed to accept/hold public deposits.
10. Is there any ceiling on acceptance of Public Deposits? What is the rate of interest and period of deposit which NBFCs can accept?
Yes, there is a ceiling on acceptance of Public Deposits by NBFCs authorized to accept deposits.. An NBFC maintaining required minimum NOF,/Capital to Risk Assets Ratio (CRAR) and complying with the prudential norms can accept public deposits as follows:
Category of NBFC having minimum NOF of Rs 200 lakhs
Ceiling on public deposit
AFC* maintaining CRAR of 15% without credit rating
1.5 times of NOF or Rs 10 crore whichever is less
AFC with CRAR of 12% and having minimum investment grade credit rating 4 times of NOF
LC/IC** with CRAR of 15% and having minimum investment grade credit rating
1.5 times of NOF
* AFC = Asset Finance Company
** LC/IC = Loan company/Investment Company
As has been notified on June 17, 2008 the ceiling on level of public deposits for NBFCs accepting deposits but not having minimum Net Owned Fund of Rs 200 lakh is revised as under:
Category of NBFC having NOF more
than Rs 25 lakh but less than Rs 200 lakh
Revised Ceiling on public deposits
AFCs maintaining CRAR of 15% without credit rating
Equal to NOF
AFCs with CRAR of 12% and having minimum investment grade credit rating
1.5 times of NOF
LCs/ICs with CRAR of 15% and having minimum investment grade credit rating
Equal to NOF
Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or compounded at rests not shorter than monthly rests
The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.
11. What are the salient features of NBFCs regulations which the depositor may note at the time of investment?
Some of the important regulations relating to acceptance of deposits by NBFCs are as under:
  1. The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.
  2. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests.
  3. NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
  4. NBFCs (except certain AFCs) should have minimum investment grade credit rating.
  5. The deposits with NBFCs are not insured.
  6. The repayment of deposits by NBFCs is not guaranteed by RBI.
  7. Certain mandatory disclosures are to be made about the company in the Application Form issued by the company soliciting deposits.
12. What is ‘deposit’ and ‘public deposit’? Is it defined anywhere?
The term ‘deposit’ is defined under Section 45 I(bb) of the RBI Act, 1934. ‘Deposit’ includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form but does not include:
  1. amount raised by way of share capital, or contributed as capital by partners of a firm;
  2. amount received from a scheduled bank, a co-operative bank, a banking company, Development bank, State Financial Corporation, IDBI or any other institution specified by RBI;
  3. amount received in ordinary course of business by way of security deposit, dealership deposit, earnest money, advance against orders for goods, properties or services;
  4. amount received by a registered money lender other than a body corporate;
  5. amount received by way of subscriptions in respect of a ‘Chit’.
Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998 defines a ‘ public deposit’ as a ‘deposit’ as defined under Section 45 I(bb) of the RBI Act, 1934 and further excludes the following:
  1. amount received from the Central/State Government or any other source where repayment is guaranteed by Central/State Government or any amount received from local authority or foreign government or any foreign citizen/authority/person;
  2. any amount received from financial institutions specified by RBI for this purpose;
  3. any amount received by a company from any other company;
  4. amount received by way of subscriptions to shares, stock, bonds or debentures pending allotment or by way of calls in advance if such amount is not repayable to the members under the articles of association of the company;
  5. amount received from shareholders by private company;
  6. amount received from directors or relative of the director of an NBFC;
  7. amount raised by issue of bonds or debentures secured by mortgage of any immovable property or other asset of the company subject to conditions;
  8. the amount brought in by the promoters by way of unsecured loan;
  9. amount received from a mutual fund;
  10. any amount received as hybrid debt or subordinated debt;
  11. any amount received by issuance of Commercial Paper.
  12. any amount received by a systemically important non-deposit taking non-banking financial company by issuance of ‘perpetual debt instruments’
  13. any amount raised by the issue of infrastructure bonds by an Infrastructure Finance Company
Thus, the directions exclude from the definition of public deposit, amount raised from certain set of informed lenders who can make independent decision.
13. Are Secured debentures treated as Public Deposit? If not who regulatesthem?
Debentures secured by the mortgage of any immovable property of the company or by any other asset or with an option to convert them into shares in the company, if the amount raised does not exceed the market value of the said immovable property or other assets, are excluded from the definition of ‘Public Deposit’ in terms of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Secured debentures are debt instruments and are regulated by Securities & Exchange Board of India.
14. Whether NBFCs can accept deposits from NRIs?
Effective from April 24, 2004, NBFCs cannot accept deposits from NRIs except deposits by debit to NRO account of NRI provided such amount does not represent inward remittance or transfer from NRE/FCNR (B) account. However, the existing NRI deposits can be renewed.
15. Is nomination facility available to the Depositors of NBFCs?
Yes, nomination facility is available to the depositors of NBFCs. The Rules for nomination facility are provided for in section 45QB of the Reserve Bank of India Act, 1934. Non-Banking Financial Companies have been advised to adopt the Banking Companies (Nomination) Rules, 1985 made under Section 45ZA of the Banking Regulation Act, 1949. Accordingly, depositor/s of NBFCs are permitted to nominate one person to whom the NBFC can return the deposit in the event of the death of the depositor/s. NBFCs are advised to accept nominations made by the depositors in the form similar to one specified under the said rules, viz Form DA 1 for the purpose of nomination, and Form DA2 and DA3 for cancellation of nomination and change of nomination respectively.
16. What else should a depositor bear in mind while depositing money with NBFCs?
While making deposits with an NBFC, the following aspects should be borne in mind:
  1. Public deposits are unsecured.
  2. A proper deposit receipt is issued, giving details such as the name of the depositor/s, the date of deposit, the amount in words and figures, rate of interest payable and the date of repayment of matured deposit along with the maturity amount. Depositor/s should insist on the above and also ensure that the receipt is duly signed and stamped by an officer authorised by the company on its behalf.
  3. In the case of brokers/agents etc collecting public deposits on behalf of NBFCs, the depositors should satisfy themselves that the brokers/agents are duly authorized by the NBFC.
  4. The Reserve Bank of India does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.
  5. Deposit Insurance facility is not available to the depositors of NBFCs.
17. It is said that rating of NBFCs is necessary before it accepts deposit? Is it true? Who rates them?
An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. An exception is made in case of unrated AFC companies with CRAR of 15% which can accept public deposit without having a credit rating up to a certain ceiling depending upon its Net Owned Funds (refer answer to Q 10). NBFC may get itself rated by any of the five rating agencies namely, CRISIL, CARE, ICRA and FITCH, Ratings India Pvt. Ltd and Brickwork Ratings India Pvt. Ltd
18. What are the symbols of minimum investment grade rating of different companies?
The symbols of minimum investment grade rating of the Credit rating agencies are:
Name of rating agencies
Nomenclature of minimum investment
grade credit rating (MIGR)
CRISIL FA- (FA MINUS)
ICRA MA- (MA MINUS)
CARE CARE BBB (FD)
FITCH Ratings India Pvt. Ltd. tA-(ind)(FD)
Brickwork Ratings India Pvt. Ltd. BWR FBBB
SMERA SMERA A
It may be added that A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not equivalent to AAA.
19. Can an NBFC which is yet to be rated accept public deposit?
No, an NBFC cannot accept deposit without rating (except an Asset Finance Company complying with prudential norms and having CRAR of 15%, as explained above in answer to Q 10).
20. When a company’s rating is downgraded, does it have to bring down its level of public deposits immediately or over a period of time?
If rating of an NBFC is downgraded to below minimum investment grade rating, it has to stop accepting public deposits, report the position within fifteen working days to the RBI and bring within three years from the date of such downgrading of credit rating, the amount of public deposit to nil or to the appropriate extent permissible under paragraph 4(4) of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998.
21. In case an NBFC defaults in repayment of deposit what course of action can be taken by depositors?
If an NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit in a court of law to recover the deposits.
22. What is the role of Company Law Board in protecting the interest of depositors? How can one approach it?
When an NBFC fails to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board (CLB) either on its own motion or on an application from the depositor, directs by order the Non-Banking Financial Company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. After making the payment, the company will need to file the compliance with the local office of the Reserve Bank of India.
As explained above, the depositor can approach CLB by mailing an application in prescribed form to the appropriate bench of the Company Law Board according to its territorial jurisdiction along with the prescribed fee.
23. Can you give the addresses of the various benches of the Company Law Board (CLB) indicating their respective jurisdiction?
The details of addresses and territorial jurisdiction of the bench officers of CLB are as under:
ADDRESSES OF REGIONAL COMPANY LAW BOARD
S. No.
Region
Jurisdiction
Telephone No.
Fax No.
1.
Company Law Board
Principal Bench
Paryavaran Bhawan
B-Block, 3rd Floor
C.G.O. Complex
Lodhi Road,
New Delhi – 110 003
All States & Union Territories
011 – 24366126
011- 24363451
011 – 24366125
011 – 24366123
011 – 24366126
2.
Company Law Board
New Delhi Bench
Paryavaran Bhawan
B-Block, 3rd Floor
C.G.O. Complex
Lodhi Road,
New Delhi – 110 003
States of Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh, Uttaranchal and Union Territories of Chandigarh.
011 – 24363671
011- 24363451
011 – 24366125
011 – 24366123
011 – 24366126
3.
Company Law Board
Kolkata Bench
9 Old Post Office Street
6th Floor,
Kolkata – 700 001
States of Arunachal Pradesh, Assam, Bihar, Manipur, Meghalaya, Nagaland, Orissa, Sikkim, Tripura, West Bengal, Jharkhand and Union Territories of Andaman and Nicobar Island and Mizoram.
033 – 22486330
033 – 22621760
4.
Company Law Board
Mumbai Bench
N.T.C. House, 2nd Floor,
15 Narottam Morarjee Marg,
Ballard Estate, Mumbai – 400 038
States of Goa, Gujarat, Madhya Pradesh, Maharashtra, Chhattisgarh and (Union Territories of Dadra and Nagar Haveli and Daman and Diu)
022 – 22619636/
022 – 22611456
022 – 22619636
5.
Company Law Board
Chennai Bench
Corporate Bhawan (UTI Building),
3rd Floor, No. 29 Rajaji Salai,
Chennai – 600001.
States of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Union Territories of Pondicherry and Lakshadweep Island.
044 – 25262793
044 – 25262794
24. We hear that in a number of cases Official Liquidators have been appointed on the defaulting NBFCs. What is the procedure adopted by the Official Liquidator?
An Official Liquidator is appointed by the court after giving the company reasonable opportunity of being heard in a winding up petition. The liquidator performs the duties of winding up of the company and such duties in reference thereto as the court may impose. Where the court has appointed an official liquidator or provisional liquidator, he becomes custodian of the property of the company and runs day-to-day affairs of the company. He has to draw up a statement of affairs of the company in prescribed form containing particulars of assets of the company, its debts and liabilities, names/residences/occupations of its creditors, the debts due to the company and such other information as may be prescribed. The scheme is drawn up by the liquidator and same is put up to the court for approval. The liquidator realizes the assets of the company and arranges to repay the creditors according to the scheme approved by the court. The liquidator generally inserts advertisement in the newspaper inviting claims from depositors/investors in compliance with court orders. Therefore, the investors/depositors should file the claims within due time as per such notices of the liquidator. The Reserve Bank also provides assistance to the depositors in furnishing addresses of the official liquidator.
25. The Consumer Court plays useful role in attending to depositors problems. Can one approach Consumer Forum, Civil Court, CLB simultaneously?
Yes, a depositor can approach any or all of the redressal authorities i.e consumer forum, court or CLB.
26. Is there an Ombudsman for hearing complaints against NBFCs?
No, there is no Ombudsman for hearing complaints against NBFCs. However, in respect of credit card operations of an NBFC, if a complainant does not get satisfactory response from the NBFC within a maximum period of thirty (30) days from the date of lodging the complaint, the customer will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s.
All NBFCs have in place a Grievance Redressal Officer, whose name and contact details have to be mandatorily displayed in the premises of the NBFCs. The grievance can be taken up with the Grievance Redressal Officer. In case the complainant is not satisfied with the settlement of the complaint by the Grievance Redressal Officer of the NBFC, he/she may approach the nearest office of the Reserve Bank of India with the complaint. The details of the Office of the Reserve Bank has also to be mandatorily displayed in the premises of the NBFC.
27. What are various prudential regulations applicable to NBFCs?
The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. The directions interalia, prescribe guidelines on income recognition, asset classification and provisioning requirements applicable to NBFCs, exposure norms, constitution of audit committee, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land and building and unquoted shares, loan to value (LTV) ratio for NBFCs predominantly engaged in business of lending against gold jewellery, besides others. Deposit accepting NBFCs have also to comply with the statutory liquidity requirements. Details of the prudential regulations applicable to NBFC holding deposits and those not holding deposits is available in the DNBS section of master Circulars in the RBI website www.rbi.org.in → sitemap → Master Circulars.
28. Please explainthe terms ‘owned fund’ and ‘net owned fund’ in relation to NBFCs?
‘Owned Fund’ means aggregate of the paid-up equity capital , preference shares which are compulsorily convertible into equity, free reserves , balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, after deducting therefrom accumulated balance of loss, deferred revenue expenditure and other intangible assets.’Net Owned Fund’ is the amount as arrived at above, minus the amount of investments of such company in shares of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group, to the extent it exceeds 10% of the owned fund.
29. What are the responsibilities of the NBFCs accepting/holding public deposits with regard to submission of Returns and other information to RBI?
The NBFCs accepting public deposits should furnish to RBI
  1. Audited balance sheet of each financial year and an audited profit and loss account in respect of that year as passed in the annual general meeting together with a copy of the report of the Board of Directors and a copy of the report and the notes on accounts furnished by its Auditors;
  2. Statutory Quarterly Return on deposits – NBS 1;
  3. Certificate from the Auditors that the company is in a position to repay the deposits as and when the claims arise;
  4. Quarterly Return on prudential norms-NBS 2;
  5. Quarterly Return on liquid assets-NBS 3;
  6. Annual return of critical parameters by a rejected company holding public deposits – NBS4
  7. Half-yearly ALM Returns by companies having public deposits of Rs. 20 crore and above or asset size of Rs. 100 crore and above irrespective of the size of deposits holding
  8. Monthly return on exposure to capital market by deposit taking NBFC with total assets of Rs 100 crore and above–NBS6; and
  9. A copy of the Credit Rating obtained once a year
30. What are the documents or the compliance required to be submitted to the Reserve Bank of India by the NBFCs not accepting/holding public deposits?
The NBFCs having assets of Rs. 100 crore and above but not accepting public deposits are required to submit:
(i) Quarterly statement of capital funds, risk weighted assets, risk asset ratio etc., for the company – NBS 7
(ii) Monthly Return on Important Financial Parameters of the company
(iii) Asset- Liability Management (ALM) returns:
(iv) Statement of short term dynamic liquidity in format ALM [NBS-ALM1] -Monthly,
(v) Statement of structural liquidity in format ALM [NBS-ALM2] Half Yearly
(vi) Statement of Interest Rate Sensitivity in format ALM -[NBS-ALM3], Half yearly
B. The non deposit taking NBFCs having assets of more than Rs.50 crore and above but less than Rs 100 crore are required to submit Quarterly return on important financial parameters of the company. Basic information like name of the company, address, NOF, profit / loss during the last three years has to be submitted quarterly by non-deposit taking NBFCs with asset size between Rs 50 crore and Rs 100 crore
All companies not accepting public deposits have to pass a board resolution to the effect that they have neither accepted public deposit nor would accept any public deposit during the year.
However, all the NBFCs (other than those exempted) are required to be registered with RBI and also make sure that they continue to be eligible to retain the Registration. Further, all NBFCs (including non-deposit taking) should submit a certificate from their Statutory Auditors every year to the effect that they continue to undertake the business of NBFI requiring holding of CoR under Section 45-IA of the RBI Act, 1934
NBFCs are also required to furnish the information in respect of any change in the composition of its Board of Directors, address of the company and its Directors and the name/s and official designations of its principal officers and the name and office address of its Auditors. With effect from April 1, 2007, non-deposit taking NBFCs with assets of Rs 100 crore and above were advised to maintain minimum CRAR of 10% and also comply with single/group exposure norms. As on date, such NBFCs are required to maintain a minimum CRAR of 15%.
31. The NBFCs have been made liable to pay interest on the overdue matured deposits if the company has not been able to repay the matured public deposits on receipt of a claim from the depositor. Please elaborate the provisions.
As per Reserve Bank’s Directions, overdue interest is payable to the depositors in case the company has delayed the repayment of matured deposits, and such interest is payable from the date of receipt of such claim by the company or the date of maturity of the deposit whichever is later, till the date of actual payment. If the depositor has lodged his claim after the date of maturity, the company would be liable to pay interest for the period from the date of claim till the date of repayment. For the period between the date of maturity and the date of claim it is the discretion of the company to pay interest.
32. Can a company pre-pay its public deposits?
An NBFC accepts deposits under a mutual contract with its depositors. In case a depositor requests for pre-mature payment, Reserve Bank of India has prescribed Regulations for such an eventuality in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 wherein it is specified that NBFCs cannot grant any loan against a public deposit or make premature repayment of a public deposit within a period of three months (lock-in period) from the date of its acceptance. However, in the event of death of a depositor, the company may, even within the lock-in period, repay the deposit at the request of the joint holders with survivor clause / nominee / legal heir only against submission of relevant proof, to the satisfaction of the company
An NBFC, (which is not a problem company) subject to above provisions, may permit after the lock–in period, premature repayment of a public deposit at its sole discretion, at the rate of interest prescribed by the Bank
A problem NBFC is prohibited from making premature repayment of any deposits or granting any loan against public deposit/deposits, as the case may be. The prohibition shall not, however, apply in the case of death of depositor or repayment of tiny deposits i.e. up to Rs. 10000/- subject to lock in period of 3 months in the latter case.
33. What is the liquid assets requirement for the deposit taking companies? Where are these assets kept? Do depositors have any claims on them?
In terms of Section 45-IB of the RBI Act, 1934, the minimum level of liquid assets to be maintained by NBFCs is 15 per cent of public deposits outstanding as on the last working day of the second preceding quarter. Of the 15%, NBFCs are required to invest not less than ten percent in approved securities and the remaining 5% can be in unencumbered term deposits with any scheduled commercial bank. Thus, the liquid assets may consist of Government securities, Government guaranteed bonds and term deposits with any scheduled commercial bank.
The investment in Government securities should be in dematerialised form which can be maintained in Constituents’ Subsidiary General Ledger (CSGL) Account with a scheduled commercial bank (SCB) / Stock Holding Corporation of India Limited (SHICL). In case of Government guaranteed bonds the same may be kept in dematerialised form with SCB/SHCIL or in a dematerialised account with depositories [National Securities Depository Ltd. (NSDL)/Central Depository Services (India) Ltd. (CDSL)] through a depository participant registered with Securities & Exchange Board of India (SEBI). However in case there are Government bonds which are in physical form the same may be kept in safe custody of SCB/SHCIL.
NBFCs have been directed to maintain the mandated liquid asset securities in a dematerialised form with the entities stated above at a place where the registered office of the company is situated. However, if an NBFC intends to entrust the securities at a place other than the place at which its registered office is located, it may do so after obtaining the permission of RBI in writing. It may be noted that liquid assets in approved securities will have to be maintained in dematerialised form only.
The liquid assets maintained as above are to be utilised for payment of claims of depositors. However, deposits being unsecured in nature, depositors do not have direct claim on liquid assets.
34. Please tell us something about the companies which are NBFCs, but are exempted from registration?
Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions.
Housing Finance Companies are regulated by National Housing Bank, Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India, and Insurance companies are regulated by Insurance Regulatory and Development Authority. Similarly, Chit Fund Companies are regulated by the respective State Governments and Nidhi Companies are regulated by Ministry of Corporate Affairs, Government of India.
It may also be mentioned that Mortgage Guarantee Companies have been notified as Non-Banking Financial Companies under Section 45 I(f)(iii) of the RBI Act, 1934.
35. There are some entities (not companies) which carry on activities like that of NBFCs. Are they allowed to take deposits? Who regulates them?
Any person who is an individual or a firm or unincorporated association of individuals cannot accept deposits except by way of loan from relatives, if his/its business wholly or partly includes loan, investment, hire-purchase or leasing activity or principal business is that of receiving of deposits under any scheme or arrangement or in any manner or lending in any manner.
36. What is a Residuary Non-Banking Company (RNBC)? In what way it is different from other NBFCs?
Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being Investment, Asset Financing, Loan Company. These companies are required to maintain investments as per directions of RBI, in addition to liquid assets. The functioning of these companies is different from those of NBFCs in terms of method of mobilization of deposits and requirement of deployment of depositors’ funds as per Directions. Besides, Prudential Norms Directions are applicable to these companies also.
37. We understand that there is no ceiling on raising of deposits by RNBCs, then how safe is deposit with them?
It is true that there is no ceiling on raising of deposits by RNBCs but every RNBC has to ensure that the amounts deposited and investments made by the company are not less than the aggregate amount of liabilities to the depositors
To secure the interest of depositor, such companies are required to invest in a portfolio comprising of highly liquid and secure instruments viz. Central/State Government securities, fixed deposits with scheduled commercial banks (SCB), Certificate of deposits of SCB/FIs, units of Mutual Funds, etc. to the extent of 100 per cent of their deposit liability.
38. Can RNBC forfeit deposit if deposit installments are not paid regularly or discontinued?
No Residuary Non-Banking Company shall forfeit any amount deposited by the depositor, or any interest, premium, bonus or other advantage accrued thereon.
39. Please tell us something on rate of interest payable by RNBCs on deposits and maturity period of deposits
The amount payable by way of interest, premium, bonus or other advantage, by whatever name called by a RNBC in respect of deposits received shall not be less than the amount calculated at the rate of 5% (to be compounded annually) on the amount deposited in lump sum or at monthly or longer intervals; and at the rate of 3.5% (to be compounded annually) on the amount deposited under daily deposit scheme. Further, a RNBC can accept deposits for a minimum period of 12 months and maximum period of 84 months from the date of receipt of such deposit. They cannot accept deposits repayable on demand.
40. There are some companies like Multi-Level Marketing companies, Chit funds etc. Do they come under the purview of RBI?
No, Multi-Level Marketing companies, Direct Selling Companies, Online Selling Companies don’t fall under the purview of RBI. Activities of these companies fall under the regulatory/administrative domain of respective state government. A list of such companies and their regulators are as follows:
Category of Companies
Regulator
Chit Funds
Respective State Governments
Insurance companies
IRDA
Housing Finance Companies
NHB
Venture Capital Fund /
SEBI
Merchant Banking companies
SEBI
Stock broking companies
SEBI
Nidhi Companies
Ministry of corporate affairs, Government of India
41. What are Unincorporated Bodies (UIBs)? Has RBI any role to play in curbing illegal deposit acceptance activities of UIBs?
Unincorporated bodies (UIBs) include an individual, a firm or an unincorporated association of individuals. In terms of provision of section 45S of RBI act, these entities are prohibited from accepting any deposit. The state government has to play a proactive role in arresting the illegal activities of such entities to protect interests of depositors/investors.
UIBs do not come under the regulatory domain of RBI. Whenever RBI receives any complaints against UIBs, it immediately forwards the same to the state government police agencies (Economic Offences Wing (EOW)). The complainants are advised to lodge the complaints directly with the state government police authorities (EOW) so that appropriate action against the culprits is taken immediately and the process is hastened.
RBI on its part has taken various steps to curb activities of UIBs which includes spreading awareness through advertisements in leading newspapers to sensitise public, organize various investors awareness programmes in various districts of the country, keeps close liaison with the law enforcing agencies (Economic Offences Wing).
42. Companies registered with MCA but not registered with RBI as NBFCs also sometimes default in repayment of deposit/amounts invested with them? What is the recourse available to the investors in such an event? Does RBI have any role to play in such cases?
Companies registered with MCA but not required to be registered with RBI as NBFC are not under the regulatory domain of RBI. Whenever RBI receives any such complaints about the companies registered with MCA but not registered with RBI as NBFCs, it forwards the complaints to the Registrar of Companies (ROC) of the respective state for any action. The complainants are advised that the complaints relating to irregularities of such companies should be promptly lodged with ROC concerned for initiating corrective action. However, in case it comes to the knowledge of RBI those companies were required to be registered with the RBI, but have not done so and have accepted deposits as defined under RBI Act, such action as is deemed necessary under the provisions of the RBI Act will be taken.
43. Whether the circular on Lending against shares dated August 21, 2014 is applicable to existing loans also?
The Circular is applicable from the date of the circular and therefore the Circular shall not apply on those transactions which have been entered into prior to the date of the Circular. However, the guidelines will be applicable in case of roll-over/ renewal of loans. Guidelines will not apply to transactions where documents have been executed prior to the date of the circular and disbursement is pending. 
44. Will the circular be applicable on restructured accounts?
No. the Circular will not be applicable on restructured accounts
45. Will the Circular be applicable on those loans where the primary security is not shares?
Loans which are against the collateral of multiple securities and it is specifically agreed to in the agreement that primary security would be something other than shares, LTV would not be applicable. However, reporting requirements shall remain. In cases where such differentiation is not made (thereby NBFCs can off-load shares at the instance of a default), LTV would be applicable.
46. Whether LTV is to be computed at scrip level or at portfolio level?
LTV would be computed at portfolio level.
47. Whether PoA/ Non-Disposal undertaking structure by whatever name called is covered under the Circular?
Yes, the Circular would be applicable and the type of encumbrance created is immaterial.





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All about NBFC Corporate Governance disclosures India by RBI latest 2015


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Notification No. DNBR.019/CGM (CDS)-2015 dated April 10, 2015
The Reserve Bank of India having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to issue the directions relating to Corporate Governance as set out below, in exercise of the powers conferred by Sections 45-L, 45-M and 45-MA of the Reserve Bank of India Act, 1934 (2 of 1934), and of all the powers enabling it in this behalf, hereby gives the Directions hereinafter specified.
1. Short title and commencement of the Directions
  1. These Directions shall be known as the Non-Banking Financial Companies – Corporate Governance (Reserve Bank) Directions, 2015.
  2. These Directions shall come into force with immediate effect.
2. Extent of the Directions
  1. These Directions shall apply to every non-deposit accepting Non-Banking Financial Company with asset size of Rs.500 crore and above (NBFCs-ND-SI), as per its last audited balance sheet, and all deposit accepting Non-Banking Financial Companies (NBFCs-D), henceforth called as Applicable NBFCs.
  2. The provisions of these Directions shall not apply to a Systemically Important Core Investment Company as defined in the Core Investment Companies (Reserve Bank) Directions, 2011.
3. Constitution of Committees of the Board
(1) Audit Committee
i. All Applicable NBFCs shall constitute an Audit Committee, consisting of not less than three members of its Board of Directors.
Explanation I : The Audit Committee constituted by a non-banking financial company as required under Section 177 of the Companies Act, 2013 shall be the Audit Committee for the purposes of this paragraph.
Explanation II : The Audit Committee constituted under this paragraph shall have the same powers, functions and duties as laid down in Section 177 of the Companies Act, 2013.
ii. The Audit Committee must ensure that an Information System Audit of the internal systems and processes is conducted at least once in two years to assess operational risks faced by the NBFCs.
(2) Nomination Committee
All Applicable NBFCs shall form a Nomination Committee to ensure ‘fit and proper’ status of proposed/ existing directors.
Explanation I : The Nomination Committee constituted under this paragraph shall have the same powers, functions and duties as laid down in Section 178 of the Companies Act, 2013.
(3) Risk Management Committee
To manage the integrated risk, all Applicable NBFCs shall form a Risk Management Committee, besides the Asset Liability Management Committee.
4. Fit and Proper Criteria
(1) All Applicable NBFCs shall
  1. ensure that a policy is put in place with the approval of the Board of Directors for ascertaining the fit and proper criteria of the directors at the time of appointment, and on a continuing basis. The policy on the fit and proper criteria shall be on the lines of the Guidelines contained in Annex 1;
  2. obtain a declaration and undertaking from the directors giving additional information on the directors. The declaration and undertaking shall be on the lines of the format given in Annex 2;
  3. obtain a Deed of Covenant signed by the directors, which shall be in the format as given in Annex 3;
  4. furnish to the Reserve Bank a quarterly statement on change of directors, and a certificate from the Managing Director of the NBFC that fit and proper criteria in selection of the directors has been followed. The statement must reach the Regional Office of the Reserve Bank within 15 days of the close of the respective quarter. The statement submitted by NBFCs for the quarter ending March 31, should be certified by the auditors.
Provided that the Bank, if it deems fit and in public interest, reserves the right to examine the fit and proper criteria of directors of any non-banking financial company irrespective of the asset size of such non-banking financial company.
5. Disclosure and transparency
(1) All Applicable NBFCs shall put up to the Board of Directors, at regular intervals, as may be prescribed by the Board in this regard, the following:
  1. the progress made in putting in place a progressive risk management system and risk management policy and strategy followed by the NBFC;
  2. conformity with corporate governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.
(2) All Applicable NBFCs shall also disclose the following in their Annual Financial Statements, with effect from March 31, 2015:
  1. registration/ licence/ authorisation, by whatever name called, obtained from other financial sector regulators;
  2. ratings assigned by credit rating agencies and migration of ratings during the year;
  3. penalties, if any, levied by any regulator;
  4. information namely, area, country of operation and joint venture partners with regard to Joint ventures and overseas subsidiaries and
  5. Asset-Liability profile, extent of financing of parent company products, NPAs and movement of NPAs, details of all off-balance sheet exposures, structured products issued by them as also securitization/ assignment transactions and other disclosures, as given in Annex 4.
6. Rotation of partners of the Statutory Auditors Audit Firm
All Applicable NBFCs shall rotate the partner/s of the Chartered Accountant firm conducting the audit, every three years so that same partner does not conduct audit of the company continuously for more than a period of three years. However, the partner so rotated will be eligible for conducting the audit of the NBFC after an interval of three years, if the NBFC, so decides. NBFCs shall incorporate appropriate terms in the letter of appointment of the firm of auditors and ensure its compliance.
7. Framing of Internal Guidelines
All applicable NBFCs shall frame their internal guidelines on corporate governance with the approval of the Board of Directors, enhancing the scope of the guidelines without sacrificing the spirit underlying the above guidelines and it shall be published on the company’s web-site, if any, for the information of various stakeholders.
(C D Srinivasan)
Chief General Manager

Annex-1
‘Fit and Proper’ Criteria for directors of NBFCs
Reserve Bank had issued a Directive in June 2004 to banks on undertaking due diligence on the persons before appointing them on the Boards of banks based on the ‘Report of the Consultative Group of directors of Banks / Financial Institutions’. Specific ‘fit and proper’ criteria to be fulfilled by the directors were also advised.
2. The importance of due diligence of directors to ascertain suitability for the post by way of qualifications, technical expertise, track record, integrity, etc.needs no emphasis for any financial institution. It is proposed to follow the same guidelines mutatis mutandis in case of NBFCs also. While the Reserve Bank does carry out due diligence on directors before issuing Certificate of Registration to an NBFC, it is necessary that NBFCs put in place an internal supervisory process on a continuing basis. Further, in order to streamline and bring in uniformity in the process of due diligence, while appointing directors, NBFCs are advised to ensure that the procedures mentioned below are followed and minimum criteria fulfilled by the persons before they are appointed on the Boards:
(a) NBFCs should undertake a process of due diligence to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other ‘fit and proper’ criteria. NBFCs should obtain necessary information and declaration from the proposed / existing directors for the purpose in the format given at Annex- 2.
(b) The process of due diligence should be undertaken by the NBFCs at the time of appointment / renewal of appointment.
(c) The boards of the NBFCs should constitute Nomination Committees to scrutinize the declarations.
(d) Based on the information provided in the signed declaration, Nomination Committees should decide on the acceptance or otherwise of the directors, where considered necessary.
(e) NBFCs should obtain annually as on 31st March a simple declaration from the directors that the information already provided has not undergone change and where there is any change, requisite details are furnished by them forthwith.
(f) The Board of the NBFC must ensure in public interest that the nominated/ elected directors execute the deeds of covenants in the format given in Annex-3.

Annex-2
Name of NBFC: ________________________
Declaration and Undertaking by Director (with enclosures as appropriate as on           )
I. Personal details of director  
a. Full name  
b. Date of Birth  
c. Educational Qualifications  
d. Relevant Background and Experience  
e. Permanent Address  
f. Present Address  
g. E-mail Address / Telephone Number  
h. Permanent Account Number under the Income Tax Act and name and address of Income Tax Circle  
i. Relevant knowledge and experience  
j. Any other information relevant to Directorship of the NBFC  
II Relevant Relationships of director  
a. List of Relatives if any who are connected with the NBFC (Refer Section 6 and Schedule 1A of the Companies Act, 1956 and corresponding provisions of New Companies Act, 2013)  
b. List of entities if any in which he/she is considered as being interested (Refer Section 299(3)(a) and Section 300 of the Companies Act, 1956 and corresponding provisions of New Companies Act, 2013)  
c. List of entities in which he/she is considered as holding substantial interest within the meaning of NBFC Prudential Norms Directions, 2007  
d. Name of NBFC in which he/she is or has been a member of the board (giving details of period during which such office was held)  
e. Fund and non-fund facilities, if any, presently availed of by him/her and/or by entities listed in II (b) and (c) above from the NBFC  
f. Cases, if any, where the director or entities listed in II (b) and (c) above are in default or have been in default in the past in respect of credit facilities obtained from the NBFC or any other NBFC / bank.  
III Records of professional achievements  
a. Relevant professional achievements  
IV. Proceedings, if any, against the director  
a. If the director is a member of a professional association/body, details of disciplinary action, if any, pending or commenced or resulting in conviction in the past against him/her or whether he/she has been banned from entry into any profession/ occupation at any time.  
b. Details of prosecution, if any, pending or commenced or resulting in conviction in the past against the director and/or against any of the entities listed in II (b) and (c) above for violation of economic laws and regulations  
c. Details of criminal prosecution, if any, pending or commenced or resulting in conviction in the last five years against the director  
d. Whether the director attracts any of the disqualifications envisaged under Section 274 of the Companies Act 1956 and corresponding provisions of New Companies Act, 2013?  
e. Has the director or any of the entities at II (b) and (c) above been subject to any investigation at the instance of Government department or agency?  
f. Has the director at any time been found guilty of violation of rules/regulations/ legislative requirements by customs/ excise /income tax/foreign exchange /other revenue authorities, if so give particulars  
g. Whether the director has at any time come to the adverse notice of a regulator such as SEBI, IRDA, MCA.  
(Though it shall not be necessary for a candidate to mention in the column about orders and findings made by the regulators which have been later on reversed/set aside in toto, it would be necessary to make a mention of the same, in case the reversal/setting aside is on technical reasons like limitation or lack of jurisdiction, etc and not on merit, If the order of the regulator is temporarily stayed and the appellate/ court proceedings are pending, the same also should be mentioned.)  
V. Any other explanation / information in regard to items I to III and other information considered relevant for judging fit and proper  
Undertaking
I confirm that the above information is to the best of my knowledge and belief true and complete. I undertake to keep the NBFC fully informed, as soon as possible, of all events which take place subsequent to my appointment which are relevant to the information provided above.
I also undertake to execute the deed of covenant required to be executed by all directors of the NBFC.
Place : Signature
Date :  
VI. Remarks of Chairman of Nomination Committee/Board of Directors of NBFC  
Place : Signature
Date:  

Annex-3
Form of Deed of Covenants with a Director
THIS DEED OF COVENANTS is made this ______ day of ________Two thousand _____ BETWEEN _______________, having its registered office at ____________ (hereinafter called the ‘NBFC”) of the one part and Mr / Ms_____________ of ______________ (hereinafter called the “Director”) of the other part.
WHEREAS
A. The director has been appointed as a director on the Board of Directors of the NBFC (hereinafter called “the Board”) and is required as a term of his / her appointment to enter into a Deed of Covenants with the NBFC.
B. The director has agreed to enter into this Deed of Covenants, which has been approved by the Board, pursuant to his said terms of appointment.
NOW IT IS HEREBY AGREED AND THIS DEED OF COVENANTS WITNESSETH AS FOLLOWS :
1. The director acknowledges that his / her appointment as director on the Board of the NBFC is subject to applicable laws and regulations including the Memorandum and Articles of Association of the NBFC and the provisions of this Deed of Covenants.
2. The director covenants with the NBFC that :
(i) The director shall disclose to the Board the nature of his / her interest, direct or indirect, if he / she has any interest in or is concerned with a contract or arrangement or any proposed contract or arrangement entered into or to be entered into between the NBFC and any other person, immediately upon becoming aware of the same or at meeting of the Board at which the question of entering into such contract or arrangement is taken into consideration or if the director was not at the date of that meeting concerned or interested in such proposed contract or arrangement, then at the first meeting of the Board held after he / she becomes so concerned or interested and in case of any other contract or arrangement, the required disclosure shall be made at the first meeting of the Board held after the director becomes concerned or interested in the contract or arrangement.
(ii) The director shall disclose by general notice to the Board his / her other directorships, his / her memberships of bodies corporate, his / her interest in other entities and his / her interest as a partner or proprietor of firms and shall keep the Board apprised of all changes therein.
(iii) The director shall provide to the NBFC a list of his / her relatives as defined in the Companies Act, 1956 or 2013 and to the extent the director is aware of directorships and interests of such relatives in other bodies corporate, firms and other entities.
(iv) The director shall in carrying on his / her duties as director of the NBFC:
  1. use such degree of skill as may be reasonable to expect from a person with his / her knowledge or experience;
  2. in the performance of his / her duties take such care as he / she might be reasonably expected to take on his / her own behalf and exercise any power vested in him / her in good faith and in the interests of the NBFC;
  3. shall keep himself / herself informed about the business, activities and financial status of the NBFC to the extent disclosed to him / her;
  4. attend meetings of the Board and Committees thereof (collectively for the sake of brevity hereinafter referred to as “Board”) with fair regularity and conscientiously fulfil his / her obligations as director of the NBFC;
  5. shall not seek to influence any decision of the Board for any consideration other than in the interests of the NBFC;
  6. shall bring independent judgment to bear on all matters affecting the NBFC brought before the Board including but not limited to statutory compliances, performance reviews, compliances with internal control systems and procedures, key executive appointments and standards of conduct;
  7. shall in exercise of his / her judgement in matters brought before the Board or entrusted to him / her by the Board be free from any business or other relationship which could materially interfere with the exercise of his / her independent judgement; and
  8. shall express his / her views and opinions at Board meetings without any fear or favour and without any influence on exercise of his / her independent judgement;
(v) The director shall have :
  1. fiduciary duty to act in good faith and in the interests of the NBFC and not for any collateral purpose;
  2. duty to act only within the powers as laid down by the NBFC’s Memorandum and Articles of Association and by applicable laws and regulations; and
  3. duty to acquire proper understanding of the business of the NBFC.
(vi) The director shall :
  1. not evade responsibility in regard to matters entrusted to him / her by the Board;
  2. not interfere in the performance of their duties by the whole-time directors and other officers of the NBFC and wherever the director has reasons to believe otherwise, he / she shall forthwith disclose his / her concerns to the Board; and
  3. not make improper use of information disclosed to him / her as a member of the Board for his / her or someone else’s advantage or benefit and shall use the information disclosed to him / her by the NBFC in his / her capacity as director of the NBFC only for the purposes of performance of his / her duties as a director and not for any other purpose.
3. The NBFC covenants with the director that:
(i) the NBFC shall apprise the director about:
  1. Board procedures including identification of legal and other duties of Director and required compliances with statutory obligations;
  2. control systems and procedures;
  3. voting rights at Board meetings including matters in which Director should not participate because of his / her interest, direct or indirect therein;
  4. qualification requirements and provide copies of Memorandum and Articles of Association;
  5. corporate policies and procedures;
  6. insider dealing restrictions;
  7. constitution of, delegation of authority to and terms of reference of various committees constituted by the Board;
  8. appointments of Senior Executives and their authority;
  9. remuneration policy,
  10. deliberations of committees of the Board, and
  11. communicate any changes in policies, procedures, control systems, applicable regulations including Memorandum and Articles of Association of the NBFC, delegation of authority, Senior Executives, etc. and appoint the compliance officer who shall be responsible for all statutory and legal compliance.
(ii) the NBFC shall disclose and provide to the Board including the director all information which is reasonably required for them to carry out their functions and duties as a director of the NBFC and to take informed decisions in respect of matters brought before the Board for its consideration or entrusted to the director by the Board or any committee thereof;
(iii) the disclosures to be made by the NBFC to the directors shall include but not be limited to the following :
  1. all relevant information for taking informed decisions in respect of matters brought before the Board;
  2. NBFC’s strategic and business plans and forecasts;
  3. organisational structure of the NBFC and delegation of authority;
  4. corporate and management controls and systems including procedures;
  5. economic features and marketing environment;
  6. information and updates as appropriate on NBFC’s products;
  7. information and updates on major expenditure;
  8. periodic reviews of performance of the NBFC; and
  9. report periodically about implementation of strategic initiatives and plans;
(iv) the NBFC shall communicate outcome of Board deliberations to directors and concerned personnel and prepare and circulate minutes of the meeting of Board to directors in a timely manner and to the extent possible within two business days of the date of conclusion of the Board meeting; and
(v) advise the director about the levels of authority delegated in matters placed before the Board.
4. The NBFC shall provide to the director periodic reports on the functioning of internal control system including effectiveness thereof.
5. The NBFC shall appoint a compliance officer who shall be a Senior executive reporting to the Board and be responsible for setting forth policies and procedures and shall monitor adherence to the applicable laws and regulations and policies and procedures including but not limited to directions of Reserve Bank of India and other concerned statutory and governmental authorities.
6. The director shall not assign, transfer, sublet or encumber his / her office and his / her rights and obligations as director of the NBFC to any third party provided that nothing herein contained shall be construed to prohibit delegation of any authority, power, function or delegation by the Board or any committee thereof subject to applicable laws and regulations including Memorandum and Articles of Association of the NBFC.
7.The failure on the part of either party hereto to perform, discharge, observe or comply with any obligation or duty shall not be deemed to be a waiver thereof nor shall it operate as a bar to the performance, observance, discharge or compliance thereof at any time or times thereafter.
8. Any and all amendments and / or supplements and / or alterations to this Deed of Covenants shall be valid and effectual only if in writing and signed by the director and the duly authorised representative of the NBFC.
9. This Deed of Covenants has been executed in duplicate and both the copies shall be deemed to be originals.
IN WITNESS WHEREOF THE PARTIES HAVE DULY EXECUTED THIS AGREEMENT ON THE DAY, MONTH AND YEAR FIRST ABOVE WRITTEN.
For the NBFC Director  
By …………………..  
Name: Name:  
Title:  
 
In the presence of:  
1. 2. …………………….

Annex-4
Indicative List of Balance Sheet Disclosure for NBFCs with Asset Size Rs.500 Crore and Above and Deposit Taking NBFCs
1. Minimum Disclosures
At a minimum, the items listed in this Annex should be disclosed in the NTA by all applicable NBFCs. The disclosures listed are intended only to supplement, and not to replace, other disclosure requirements as applicable.
2. Summary of Significant Accounting Policies
NBFCs should disclose the accounting policies regarding key areas of operations at one place along with NTA in their financial statements. A suggestive list includes – Basis of Accounting, Transactions involving Foreign Exchange, Investments – Classification, Valuation, etc, Advances and Provisions thereon, Fixed Assets and Depreciation, Revenue Recognition, Employee Benefits, Provision for Taxation, Net Profit, etc.
3.1 Capital
(Amount in Rs. crore)
Particulars Current Year Previous Year
i) CRAR (%)    
ii) CRAR – Tier I Capital (%)    
iii) CRAR – Tier II Capital (%)    
iv) Amount of subordinated debt raised as Tier-II capital    
v) Amount raised by issue of Perpetual Debt Instruments    
3.2 Investments
(Amount in Rs.crore)
Particulars Current Year Previous Year
(1) Value of Investments    
(i) Gross Value of Investments    
(a) In India    
(b) Outside India,    
(ii) Provisions for Depreciation    
(a) In India    
(b) Outside India,    
(iii) Net Value of Investments    
(a) In India    
(b) Outside India.    
(2) Movement of provisions held towards depreciation on investments.    
(i) Opening balance    
(ii) Add : Provisions made during the year    
(iii) Less : Write-off / write-back of excess provisions during the year    
(iv) Closing balance    
3.3 Derivatives
3.3.1 Forward Rate Agreement / Interest Rate Swap
(Amount in Rs crore)
Particulars Current Year Previous Year
(i) The notional principal of swap agreements    
(ii) Losses which would be incurred if counterparties failed to fulfill their obligations under the agreements    
(iii) Collateral required by the NBFC upon entering into swaps    
(iv) Concentration of credit risk arising from the swaps $    
(v) The fair value of the swap book @    
Note: Nature and terms of the swaps including information on credit and market risk and the accounting policies adopted for recording the swaps should also be disclosed.
$ Examples of concentration could be exposures to particular industries or swaps with highly geared companies.
@ If the swaps are linked to specific assets, liabilities, or commitments, the fair value would be the estimated amount that the NBFC would receive or pay to terminate the swap agreements as on the balance sheet date.
3.3.2 Exchange Traded Interest Rate (IR) Derivatives
(Amount in Rs.crore)
S. No. Particulars Amount
(i) Notional principal amount of exchange traded IR derivatives undertaken during the year (instrument-wise)
a)    
b)    
c)    
(ii) Notional principal amount of exchange traded IR derivatives outstanding as on 31st March ….. (instrument-wise)
a)    
b)    
c)    
(iii) Notional principal amount of exchange traded IR derivatives outstanding and not “highly effective” (instrument-wise)
a)    
b)    
c)    
(iv) Mark-to-market value of exchange traded IR derivatives outstanding and not “highly effective” (instrument-wise)
a)    
b)    
c)    
3.3.3 Disclosures on Risk Exposure in Derivatives
Qualitative Disclosure
NBFCs shall describe their risk management policies pertaining to derivatives with particular reference to the extent to which derivatives are used, the associated risks and business purposes served. The discussion shall also include:
a) the structure and organization for management of risk in derivatives trading,
b) the scope and nature of risk measurement, risk reporting and risk monitoring systems,
c) policies for hedging and / or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants, and
d) accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation.
Quantitative Disclosures
(Amount in Rs. crore)
Sl. No. Particular Currency Derivatives Interest Rate Derivatives
(i) Derivatives (Notional Principal Amount)
For hedging  
(ii) Marked to Market Positions [1]
a) Asset (+)    
b) Liability (-)    
(iii) Credit Exposure [2]    
(iv) Unhedged Exposures    
3.4 Disclosures relating to Securitisation
3.4.1 The NTA of the originating NBFCs should indicate the outstanding amount of securitised assets as per books of the SPVs sponsored by the NBFC and total amount of exposures retained by the NBFC as on the date of balance sheet to comply with the Minimum Retention Requirements (MRR). These figures should be based on the information duly certified by the SPV’s auditors obtained by the originating NBFC from the SPV. These disclosures should be made in the format given below.
S. No. Particulars No. / Amount in ₹ crore
1. No of SPVs sponsored by the NBFC for securitisation transactions*  
2. Total amount of securitised assets as per books of the SPVs sponsored  
3. Total amount of exposures retained by the NBFC to comply with MRR as on the date of balance sheet  
a) Off-balance sheet exposures  
First loss  
Others  
b) On-balance sheet exposures  
First loss  
Others  
4. Amount of exposures to securitisation transactions other than MRR  
a) Off-balance sheet exposures  
i) Exposure to own securitizations  
First loss  
Loss  
ii) Exposure to third party securitisations  
First loss  
Others  
b) On-balance sheet exposures  
i) Exposure to own securitisations  
First loss  
Others  
ii) Exposure to third party securitisations  
First loss  
Others  
*Only the SPVs relating to outstanding securitisation transactions may be reported here
3.4.2 Details of Financial Assets sold to Securitisation / Reconstruction Company for Asset Reconstruction
(Amount in Rs. crore)
Particulars Current year Previous Year
(i) No. of accounts    
(ii) Aggregate value (net of provisions) of accounts sold to SC / RC    
(iii) Aggregate consideration    
(iv) Additional consideration realized in respect of accounts transferred in earlier years    
(v) Aggregate gain / loss over net book value    
3.4.3 Details of Assignment transactions undertaken by NBFCs
(Amount in Rs. crore)
Particulars Current year Previous Year
(i) No. of accounts    
(ii) Aggregate value (net of provisions) of accounts sold    
(iii) Aggregate consideration    
(iv) Additional consideration realized in respect of accounts transferred in earlier years    
(v) Aggregate gain / loss over net book value    
3.4.4 Details of non-performing financial assets purchased / sold
NBFCs which purchase non-performing financial assets from other NBFCs shall be required to make the following disclosures in the NTA to their Balance sheets:
A. Details of non-performing financial assets purchased :
(Amount in Rs.crore)
Particulars Current year Previous Year
1. (a) No. of accounts purchased during the year    
(b) Aggregate outstanding    
2. (a) Of these, number of accounts restructured during the year    
(b) Aggregate outstanding    
B. Details of Non-performing Financial Assets sold :
(Amount in Rs. crore)
Particulars Current year Previous Year
1. No. of accounts sold    
2. Aggregate outstanding    
3. Aggregate consideration received    
3.5 Asset Liability Management Maturity pattern of certain items of Assets and Liabilities
  Up to 30/31 days Over 1 month upto 2 Month Over 2 months upto 3 months Over 3 month & up to 6 month Over 6 Month & up to 1 year Over 1 year & up to 3 years Over 3 years & up to 5 years Over 5 years Total
Deposits                  
Advances                  
Investments                  
Borrowings                  
Foreign Currency assets                  
Foreign Currency liabilities                  
3.6 Exposures
3.6.1 Exposure to Real Estate Sector
(Amount in Rs. crore)
Category Current Year Previous Year
a) Direct Exposure
(i) Residential Mortgages –    
Lending fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented    
(ii) Commercial Real Estate –    
Lending secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.). Exposure would also include non-fund based limits    
(iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures –    
a. Residential    
b. Commercial Real Estate    
Total Exposure to Real Estate Sector    
3.6.2 Exposure to Capital Market
(Amount in Rs. crore)
Particulars Current Year Previous Year
(i) direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt;    
(ii) advances against shares / bonds / debentures or other securities or on clean basis to individuals for investment in shares (including IPOs / ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds;    
(iii) advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;    
(iv) advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares / convertible bonds / convertible debentures / units of equity oriented mutual funds ‘does not fully cover the advances;    
(v) secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers;    
(vi) loans sanctioned to corporates against the security of shares / bonds / debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources;    
(vii) bridge loans to companies against expected equity flows / issues;    
(viii) all exposures to Venture Capital Funds (both registered and unregistered)    
Total Exposure to Capital Market    
3.6.3 Details of financing of parent company products
3.6.4 Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the NBFC
The NBFC should make appropriate disclosure in the NTA to the annual financial statements in respect of the exposures where the NBFC had exceeded the prudential exposure limits during the year. The sanctioned limit or entire outstanding, whichever is high, shall be reckoned for exposure limit.
3.6.5 Unsecured Advances
a) For determining the amount of unsecured advances the rights, licenses, authorisations, etc., charged to the NBFCs as collateral in respect of projects (including infrastructure projects) financed by them, should not be reckoned as tangible security. Hence such advances shall be reckoned as unsecured.
b) NBFCs should also disclose the total amount of advances for which intangible securities such as charge over the rights, licenses, authority, etc. has been taken as also the estimated value of such intangible collateral. The disclosure may be made under a separate head in NTA. This would differentiate such loans from other entirely unsecured loans.
4. Miscellaneous
4.1 Registration obtained from other financial sector regulators
4.2 Disclosure of Penalties imposed by RBI and other regulators
Consistent with the international best practices in disclosure of penalties imposed by the regulators, placing the details of the levy of penalty on the NBFC in public domain will be in the interests of the investors and depositors. Further, strictures or directions on the basis of inspection reports or other adverse findings should also be placed in the public domain. The penalties should also be disclosed in the NTA.
4.3 Related Party Transactions
  1. Details of all material transactions with related parties shall be disclosed in the annual report
  2. The company shall disclose the policy on dealing with Related Party Transactions on its website and also in the Annual Report.
4.4 Ratings assigned by credit rating agencies and migration of ratings during the year
4.5 Remuneration of Directors
All pecuniary relationship or transactions of the non-executive directors vis-à-vis the company shall be disclosed in the Annual Report.
4.6 Management
As part of the directors’ report or as an addition thereto, a Management Discussion and Analysis report should form part of the Annual Report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the company’s competitive position:
  1. Industry structure and developments.
  2. Opportunities and Threats.
  3. Segment–wise or product-wise performance.
  4. Outlook
  5. Risks and concerns.
  6. Internal control systems and their adequacy.
  7. Discussion on financial performance with respect to operational performance.
  8. Material developments in Human Resources / Industrial Relations front, including number of people employed.
4.7 Net Profit or Loss for the period, prior period items and changes in accounting policies
Since the format of the profit and loss account of NBFCs does not specifically provide for disclosure of the impact of prior period items on the current year’s profit and loss, such disclosures, wherever warranted, may be made in the NTA.
4.8 Revenue Recognition
An enterprise should also disclose the circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties.
4.9 Accounting Standard 21 -Consolidated Financial Statements (CFS)
NBFCs may be guided by general clarifications issued by ICAI from time to time.
A parent company, presenting the CFS, should consolidate the financial statements of all subsidiaries – domestic as well as foreign. The reasons for not consolidating a subsidiary should be disclosed in the CFS. The responsibility of determining whether a particular entity should be included or not for consolidation would be that of the Management of the parent entity. In case, its Statutory Auditors are of the opinion that an entity, which ought to have been consolidated, has been omitted, they should incorporate their comments in this regard in the “Auditors Report”.
5. Additional Disclosures
5.1 Provisions and Contingencies
To facilitate easy reading of the financial statements and to make the information on all Provisions and Contingencies available at one place, NBFCs are required to disclose in the NTA the following information:
(Amount in Rs. crore)
Break up of ‘Provisions and Contingencies’ shown under the head Expenditure in Profit and Loss Account Current Year Previous Year
Provisions for depreciation on Investment    
Provision towards NPA    
Provision made towards Income tax    
Other Provision and Contingencies (with details)    
Provision for Standard Assets    
5.2 Draw Down from Reserves
Suitable disclosures are to be made regarding any draw down of reserves in the NTA.
5.3 Concentration of Deposits, Advances, Exposures and NPAs
5.3.1 Concentration of Deposits (for deposit taking NBFCs)
(Amount in Rs. crore)
Total Deposits of twenty largest depositors  
Percentage of Deposits of twenty largest depositors to Total Deposits of the NBFC  
5.3.2 Concentration of Advances
(Amount in Rs. crore)
Total Advances to twenty largest borrowers  
Percentage of Advances to twenty largest borrowers to Total Advances of the NBFC  
5.3.3 Concentration of Exposures
(Amount in Rs. crore)
Total Exposure to twenty largest borrowers / customers  
Percentage of Exposures to twenty largest borrowers / customers to Total Exposure of the NBFC on borrowers / customers  
5.3.4 Concentration of NPAs
(Amount in Rs. crore)
Total Exposure to top four NPA accounts  
5.3.5 Sector-wise NPAs
Sl. No. Sector Percentage of NPAs to Total Advances in that sector
1. Agriculture & allied activities  
2. MSME  
3. Corporate borrowers  
4. Services  
2. Unsecured personal loans  
3. Auto loans  
4. Other personal loans  
5.4 Movement of NPAs
(Amount in Rs. crore)
Particulars Current Year Previous Year
(i) Net NPAs to Net Advances (%)    
(ii) Movement of NPAs (Gross)
(a) Opening balance    
(b) Additions during the year    
(c) Reductions during the year    
(d) Closing balance    
(iii) Movement of Net NPAs
(a) Opening balance    
(b) Additions during the year    
(c) Reductions during the year    
(d) Closing balance    
(iv) Movement of provisions for NPAs (excluding provisions on standard assets)
(a) Opening balance    
(b) Provisions made during the year    
(c) Write-off / write-back of excess provisions    
(d) Closing balance    
5.5 Overseas Assets (for those with Joint Ventures and Subsidiaries abroad)
Name of the Joint Venture/ Subsidiary Other Partner in the JV Country Total Assets
5.6 Off-balance Sheet SPVs sponsored
(which are required to be consolidated as per accounting norms)
Name of the SPV sponsored
Domestic Overseas
   
6. Disclosure of Complaints
6.1 Customer Complaints
(a) No. of complaints pending at the beginning of the year  
(b) No. of complaints received during the year  
(c) No. of complaints redressed during the year  
(d) No. of complaints pending at the end of the year





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