NO N-B ANK ING FINANCIAL CO MPANIE S

NE E D FO R RE G IS T RAT IO N

 S ecti on 45-IA of the R eserve B ank of Indi a Act , 1934 provi des that No non-
banki ng fi nanci al com pany shal l com m ence or carry on busi ness of a non-banki ng
fi nanci al i nsti t ut i on wit hout –
(a) obt ai ni ng a cert i fi cat e of regi st rat i on i ssued under Chapt er IIIB ; and
(b) havi ng t he net owned fund of t went y- fi ve l akh rupees or such ot her
am ount , not exceedi ng t wo hundred l akh rupees, as the B ank m ay, by
not i fi cat i on i n t he Offi ci al Gazet t e, speci fy.

 R eserve B ank of Indi a vi de i ts PRE SS RE LE AS E d ated 8 t h Ap ri l 1999 has

announced t hat “i n order t o ident i f y a part i cul ar company as a non-baki ng
f i nanci al company (N BFC ), it w i ll consi der bot h, the asset s and the i ncome
pat t ern as evi denced f rom t he l ast audi t ed bal ance sheet of t he company t o deci de
i t s prin ci pal bu si n ess . The company wi l l be t reat ed as an N BFC if it s fi nanci al
asset s are more than 50 per cent of it s t ot al asset s (net t ed off by int angi bl e
asset s) and income f rom f i nanci al asset s shoul d be more t han 50 per cent of the
gross i ncome. Bot h these t est s are requi red to be sati sf i ed as t he det ermi nant
f act or f or pri nci pal busi ness of a company.”

 R eserve B ank of Indi a vi de it s Noti fi cati on No. DNBS 132 / CG M (VS NM) – 99,
d ated 20/ 04/ 1999 has i ncreased t he requi rem ent of “net owned fund” from Rs.25
l akh t o Rs.200 Lakh for the NBF C whi ch com m ences busi ness of a non-banki ng
fi nanci al i nsti t ut i on on or aft er Apri l 21, 1999.

 Mean i n g of B u si n ess of a n on -b an ki n g fi n an ci al i nsti tu ti on

S ect i on 45- I(a) of t he R eserve B ank of Indi a Act , 1934

“busi ness of a non- banki ng fi nanci al inst i t ut i on” m eans carryi ng on of the
busi ness of a fi nanci al i nst i t ut i on referr ed t o i n cl ause (c) and i ncl udes busi ness of
a non-banki ng fi nanci al com pany referr ed t o i n cl ause (f);

 Mean i n g of Fi n an ci al In sti tu ti on

S ect i on 45- I(c) of t he R eserve B ank of Indi a Act , 1934

“fi nanci al i nst i t uti on” m eans any non- banki ng i nsti t ut i on whi ch carri es on as it s
busi ness or part of i t s busi ness any of t he foll owi ng act i vi t i es, nam el y: -
(i ) t he fi nanci ng, whet her by way of m aki ng l oans or advances or ot herwi se, of
any act i vi t y ot her t han i t s own;
 (i i ) t he acqui si t i on of shares, st ock, bonds, debent ures or securi t i es i ssued by a
Governm ent or local aut hori t y or ot her m arket abl e securi t i es of a l i ke
nat ure;
(i i i ) l et t i ng or del i veri ng of any goods t o a hi rer under a hi re - purchase
agreem ent as defi ned in cl ause (c) of sect i on 2 of the Hi re Purchase Act ,
1972 (26 of 1972);
(i v) t he carryi ng on of any cl ass of i nsurance busi ness;
(v) m anagi ng, conduct i ng or supervi si ng, as forem an, agent or i n any ot her
capaci t y, of chi t s or kuri es as defi ned in any l aw whi ch is for t he t im e
bei ng i n force in any St at e, or any busi ness, whi ch i s si m il ar t heret o;
(vi ) col l ect i ng, for any purpose or under any schem e or arrangem ent by
what ever nam e cal l ed, m oni es i n l um p sum or ot herwi se, by way of
subscri pt i ons or by sal e of uni t s, or ot her i nst rum ent s or i n any ot her
m anner and awardi ng pri zes or gi ft s, whet her i n cash or ki nd, or disbursi ng
m oni es in any ot her way, t o persons from whom moni es are col l ect ed or t o
any ot her person,

but does not i ncl ude any i nst i t uti on, whi ch carri es on as it s pri nci pal
busi ness
(a) agri cul t ural operat i ons; or
(aa) i ndust ri al act i vi t y; or
(b) t he purchase or sal e of any goods (ot her t han securi t i es) or t he
provi di ng of any servi ces; or
(c) t he purchase, const ruct i on or sal e of i m m ovabl e propert y, so,
however, t hat no port i on of t he i ncom e of the i nsti t ut i on i s
deri ved from the fi nanci ng of purchases, const ruct i ons or sal es
of im m ovabl e propert y by ot her persons;

Expl anat i on - F or the purposes of t hi s cl ause, "i ndust ri al act i vit y" m eans any
act i vi t y speci fi ed i n sub -cl auses (i ) to (xvi i i ) of cl ause (c) of sect i on 2 of t he
Indust ri al Devel opm ent B ank of Indi a Act , 1964 (18 of 1964).

 Mean i n g of NB FC

S ect i on 45- I(f) of R eserve B ank of Indi a Act , 1934

“non- banki ng fi nanci al com pany” m eans –

(i ) a fi nanci al inst it ut i on whi ch i s a com pany;
(i i ) a non- banki ng i nsti t ut i on whi ch i s a com pany and whi ch has as it s pri nci pal
busi ness t he recei vi ng of deposi t s, under any schem e or arrangem ent or i n
any ot her m anner, or l eadi ng i n any m anner;
(i i i ) such ot her non-banki ng inst i t ut i on or cl ass of such i nst it ut i ons, as t he B ank
m ay, wi t h t he previ ous approval of t he C ent ral Governm ent and by
not i fi cat i on i n t he Offi ci al Gazet t e, speci fy.
E FFE CT O F NO N-RE G IS T RAT IO N

 S ub-sect i on (4A) of S ect i on 58B of the R eserve B ank of Indi a Act , 1934 provi des

“If any person cont raven es t he provi si ons of sub- sect i on (1) of sect i on 45-IA, he
shal l be puni shabl e wi t h im pri sonm ent for a t erm whi ch shal l not be l ess than one
year but whi ch m ay ext end t o fi ve years and wit h fi ne whi ch shal l not be l ess t han
one l akh rupees but whi ch m ay ext end to fi ve l akh rupees .”

 S ect i on 58C provi des as foll ows

(1) “Wher e a person com m i tt i ng a cont ravent i on or defaul t refe rr ed t o i n

sect i on 58B is a com pany , every person who at the t i m e the
cont ravent i on or defaul t was com mi t t ed, was i ncharge of, and was
responsi bl e t o , t he com pany for t he conduct of t he busi ness of the
com pany, as wel l as the com pany, shal l be deem ed to be guil t y of t he
cont ravent i on or defaul t and shal l be li abl e t o be proceed ed agai nst and
puni shed accordi ngl y:
Provi d ed t hat not hi ng cont ai ned i n thi s sub-sect i on shall render any
such person l i abl e t o puni shm ent i f he proves t hat t he cont ravent i on or
defaul t was comm i t t ed wit hout hi s knowl edge or t hat he had exerci sed
al l due di l i gence t o prevent t he cont ravent i on or defaul t .”

(2) Not wi t hst andi ng anyt hi ng cont ai ned in sub- sect i on (1), where an
offenc e under t hi s Act has been com m it t ed by a com pany and it i s
proved that t he sam e was com mi t t ed wi t h t he consent or conni vance of,
or i s at t ri but abl e t o any negl ect on t he part of, any di rect or, m anager,
secret a ry, or ot her offi cer or em pl oyee of t he com pany, such di rect or,
m anager, secret a ry, ot her offi cer or em pl oyee shal l al so be deem ed t o
be gui lt y of t he offenc e and shal l be l i abl e to be proceeded agai nst and
puni shed accordi ngl y."
 CO MPL IANCE S FO R NB FC

Und er Parti cu l ar Freq u en cy App l i cabi l i ty

Un d er Reserve B ank of In di a Act, 1934

S ecti on 45-IA NBF C have t o m ake appl i cat i on for regi st rat i on wi t h R B I and One ti m e Al l NB FC
shal l not com m ence or carry on busi ness of a non-banki ng
fi nanci al i nsti t ut i on wi t hout obt ai ni ng regi st rat i on from R B I
and m ai nt ai ni ng NOF .
NO F req u i remen t for NB FC regi ster ed
B efore 21/ 04/ 1999 = Rs.25 l acs
On or aft er 21/ 04/ 1999 = Rs.200 l acs
S ecti on 45-IB Mai n ten an ce of p ercen tage of assets Ongoi ng NB FC acc ept i ng /
Invest and cont i nue t o invest 5% t o 25% (speci fi ed by R B I) of hol di ng Publ i c
deposi t s out st andi ng on the l ast worki ng day of t he second Deposi t
precedi ng quart er i n unencum bered approved securi t i es.
Not i fi cat i on No. DF C .121/ ED(G) - 98 dat ed 31.01.1998 and No.
DFC (C OC ) NO.108-ED(JR P )- 97 dat ed 30.04.1997
S ecti on 45-IC Reserve Fu nd Yearl y Al l NB FC
Every NBF C shal l creat e a reserve fund and t ransfer t herei n a
sum not l ess t han 20% of i ts net profi t every year as di scl osed
i n the profi t and l oss account and before any di vi dend i s
decl ared.
S ecti on 45-M Du ty of NB FC to fu rn ish statemen ts etc., req u i red b y Bank When asked for Al l NB FC
 Un d er Non - Ban ki n g Fin an ci al Comp ani es Accep tan ce of Pu b l i c Dep osi t (Reserv e B ank ) Di recti on s, 1998
Noti fi cati on No.DFC.118/ DG (S PT )- 98 d ated 31.01.1998

Para 4 Mi ni m um C redi t R at i ng, P rohi bit i on on accept an ce of Deposi t ,

repayabl e on dem and, P eri od of Deposi t (12 t o 60 Mont hs
onl y), C eil i ng on quant um of deposi t s (depends on st at us,
rat i ng, et c.), St at us i n case of Downgradi ng of credi t rat i ng,
R egul ari sat i on of P ubli c Deposi t accept ed earl i er, C ei li ng on Al l NB F C
t he rat e of i nt erest (m ax 11%), P aym ent of B rokerage, et c.
Para 4A, 4B B ranches, agent s, cl osures of branches Not ap pl i cab l e
ongoi ng
Para 5 Inform at i on t o be incl uded i n the B oard’s report su b ject to
e.g. tot al no. of account s of publ i c deposi t , t ot al am ount due or
1) not accep ti n g
unpai d, et c.
Pu b l i c Dep osi t
Para 6 S afe cust ody of approved securi t i es
2) passed a
Para 7 Em pl oyee S ecuri t y Deposi t
resol u ti on un d er
Para 8 Copi es of bal ance sheet and account s t oget her wi t h the
para 9
Di rect ors’ report , audi t ors’ report , not es on account s, ret urns
i n F orm – NBS 1 and i nti m at i on of any change i n address,
di rect ors, pri nci pal offi cers, speci m en si gnat ures et c shoul d be
furni shed to t he R eserve B ank wit hi n 30 days of t he occurren ce
of event .
Para 9 Non-appl i cabi l i t y of Di rect i on t o cert ai n t ypes of NB F C
a) Insurance com pany
b) Loan com pany, an i nvestm ent com pany , a hi re purchase
com pany or equi pm ent l easi ng com pany not hol di ng or Every year wi t hi n 30 Al l NB FC , whi ch
accept i ng publ i c deposi t s and pass a resol ut i on t o the effe ct days from the want s t o cl ai m
wi t hi n 30 days of t he com m encem ent of the fi nanci al year com m encem ent of exem pt i ons
c) An i nvest m ent com pany (i nvest i ng onl y i n group com pani es fi nanci al year
 not l ess than 90% of i t s asset s) and pass a resol uti on t hat
has not accept ed and woul d not accept Publ i c Deposi t and
woul d not t rade i n such shares/ securi t i es wi t hi n 30 days of
t he com m encem ent of t he fi nanci al year.

Un d er Non - Ban ki n g Fin an ci al Comp ani es Prud en ti al Norms (Reserv e B an k ) Di recti on s, 1998
Noti fi cati on No.DFC.119/ DG (S PT )- 98 d ated 31.01.1998

Para 3, 4, 5, 6 In come recogn i ti on Ongoi ng Al l NB FC

Incom e from NP A shal l be recogni z ed onl y when act ual l y
real i sed. Al l unreal i sed incom e on NP A shal l be revers ed.
In come from in vestmen t
Di vi dend i ncom e on shares and uni t s of Mut ual F unds shal l be
t aken on cash basi s.
Incom e from B onds and Debent ures from Govt . S ecuri t i es m ay
be t aken on accrual basi s.
Incom e from securi t i es (guarant e ed by C ent ral Govt . or St at e
Govt .) m ay be t aken on accru al basi s.
Accou n ti n g S tan d ard s
Account i ng st andards shal l be fol l owed
Accou n ti n g of i nvestmen t
Board of Di rect ors shal l fram e i nvestm ent pol i cy
Ot her requi rem ent regardi ng account i ng of i nvest m ent
Para 6A Need for Pol i cy on Deman d / Call L oan s Ongoi ng Al l NB FC gi vi ng
Pol i cy for dem and / cal l loan shal l be fram ed l oan et c.
Para 7, 8, 9 Asset cl assi fi cati on Ongoi ng Al l NB FC
Asset s shal l be cl assi fi ed as S t andard, Sub- st andard, Doubt ful
and Loss asset s.
 Provi si on i n g req ui remen ts Ongoi ng
P rovi si on for asset s (i .e. loans, advances or ot her credi t
faci l i t i es incl udi ng bi l l s purchased & di scount ed, Leased and
hi re purchased asset s) shal l be m ade
Di scl osu re i n th e B al an ce Sh eet Yearl y
P rovi si on as i n para 8 shoul d be di scl osed wit hout net t i ng off
Para 9A Con sti tu ti on of Au d i t Commi tte e Ongoi ng NB FC havi ng asset s
Com pany havi ng asset s of R s.50 crore and above shal l of R s.50 crore and
const it ut e an Audi t Com m it t ee. above
Para 9B , 9BB Accou n ti n g Year Yearl y Al l NB FC
Every NBF C shal l prepare it s B/ S and P / L as on 31 s t March
S ch ed u l e to th e Bal an ce Sh eet
Every NBF C shal l append t o i t s B/ S part i cul ars in t he form at as
set i n schedul e
Para 9C T ran sacti on i n G overn men t S ecu ri ti es Ongoi ng Al l NB FC
NBF C shal l hol d invest m ent i n approved securi t i es i n a
dem at eri al i sed form onl y.
Para 10 Req ui remen t as to Cap i tal ad eq u acy Ongoi ng NB FC acc ept i ng /
NBF C shal l m ai nt ai n mi ni m um capi t al rat i o hol di ng Publ i c
Deposi t
Para 11 Loan again st NB FC’s own sh ares p roh ib i ted Ongoi ng Al l NB FC
No l oan agai nst own shares shal l be gi ven
Para 11A NB FC fai l in g to rep ay pu bl i c d ep osi t p roh ib i ted from As l ong as defaul t NB FC acc ept i ng /
maki n g l oan s and i n vestmen ts exi st s hol di ng publi c
deposi t
Para 11B Restri cti on s on i n vestmen t i n l and an d bu il d in g and Ongoi ng NB FC acc ept i ng /
un qu oted sh ares hol di ng publi c
R est ri ct i on has been speci fi ed (10% of NOF ) deposi t
Para 12 Con cen trati on of cred i t / i n vestmen t Ongoi ng NB FC acc ept i ng /
 R est ri ct i on has been speci fi ed (Lend or i nvest to si ngl e person hol di ng Publ i c
15% and group 25%) (B ot h l end and i nvest 25% and 40% Deposi t s
respect i vel y)
Para 13 Su b mi ssi on of h al f- yearl y retu rn Hal f Yeal y NB FC acc ept i ng /
Hal f yearl y ret urn i n F orm – NBS - 2 to be subm i t t ed hol di ng Publ i c
Deposi t and R NBF C
Para 13A In formati on i n regard to ch an ge of ad d ress, di recto rs, Wheneve r change Al l NB FC
au d i tors, Pri n cip al offi cer, etc. to b e su b mi tted b y NB FC’s occur
not accep ti n g/ h ol d in g p ub li c d ep osi t
Wi t hi n 30 days from t he dat e of occurr enc e of any change
Para 13B Exp osu re to Capi tal Mark et Quart erl y NB FC hol di ng publi c
Quart erl y ret urn i n Form NB S -6 deposi t of R s.50
crore or m ore and
R NB F C havi ng
l i abi li t i es of Rs.50
crores or more
Para 13C Norms rel ati n g to In frastru ctu re L oan Al l NB FC gi vi ng
R est ruct uri ng of Infrast ru ct ure Loan. Infrast ruct ur e Loan

Und er vari ou s Noti fi cati on / Press rel ease i ssu ed b y Reserve Bank

Ci rcu l ar No. DNBS (DD) CC.No. 15/ 02.01/ 2000-01 d ated Ongoi ng Al l NB F C havi ng
27/ 06/ 2001 asset s m ore than
Asset – Li abi l i ty Man agemen t (AL M) S ystem R s.100 crores
Noti fi cati on No. RB I/ 2005-06/ 157 d ated 6 t h S ep temb er 2005 Mont hl y Al l NB F C havi ng
Mont hl y ret urn on i m port ant fi nanci al param et ers on NB F C not asset s m ore than
accept i ng / hol di ng publ i c deposi t s and havi ng asset s si ze of R s.100 crores
Rs.100 crores and above
AND ALSO NEEDS TO SUBMIT NET WORTH CERTIFICATE ISSEUED BY A C.A. BEFORE 30 T H JUNE EVERY
YR.