Overview - NBFC Compliance
RBI regulations, annual filings, and financial reporting are critical for NBFCs to ensure seamless operations and legal compliance. Navigating these complex requirements can be challenging, with ever-evolving regulatory norms and strict filing deadlines. Non-compliance can lead to hefty penalties, operational disruptions, or even license cancellation.
Our expert team simplifies NBFC compliance by providing end-to-end solutions tailored to your business needs. From RBI registrations and periodic filings to financial audits and risk management, we ensure your NBFC stays fully compliant while you focus on growth. With in-depth regulatory expertise and a proactive approach, we help you mitigate risks and streamline compliance effortlessly.
Why NBFC Compliance important?
Ensuring compliance with RBI regulations is crucial for the smooth operation and long-term success of an NBFC. Here’s why:
Avoid penalties & license risks- Non-compliance can lead to hefty fines, legal actions, or even cancellation of the NBFC license.
Build trust & credibility- Regulatory compliance enhances transparency, boosting confidence among investors, lenders, and customers.
Ensure smooth operations- Filing timely returns, maintaining accurate financial records, and following KYC/AML norms prevent operational disruptions.
Stay updated with evolving regulations- RBI frequently updates compliance norms, making it essential to stay informed and adapt proactively.
Enhance financial stability- Proper risk management and regulatory adherence ensure the financial health and long-term sustainability of the NBFC.
Essential Requirements of NBFC Compliance
NBFC compliance involves adhering to a comprehensive set of regulations and guidelines set by the Reserve Bank of India (RBI) and other relevant authorities. Here are the essential requirements for NBFC compliance:
Registration and Licensing
- Obtain a Certificate of Registration (CoR) from the RBI, which is mandatory for all NBFCs.
- Maintain a minimum NOF as prescribed by the RBI, which currently stands at ₹10 crore for new NBFCs.
Capital Adequacy Requirements
- NBFCs must maintain a minimum CAR of 15% to ensure financial stability.
- Manage risk-weighted assets effectively to meet CAR requirements.
Asset Classification and Provisioning
- Categorize assets into standard, sub-standard, doubtful, and loss assets based on credit quality.
- Follow RBI-prescribed provisioning guidelines to cover potential credit losses.
KYC and AML Compliance
- Implement strict KYC norms to verify customer identities and assess financial risk.
- Establish AML measures to prevent fraudulent transactions and financial crimes.
Fair Practices Code (FPC)
- Implement the RBI-mandated Fair Practices Code to ensure ethical business practices.
- Maintain transparency in dealings to safeguard customer interests.
Reporting Obligations
- Submit essential reports such as NBS-1 (quarterly) and NBS-2 (monthly) to the RBI.
- File audited annual financial statements and other regulatory documents.
Registration with External Agencies
- Register with Credit Information Companies (CICs) and report business activities regularly.
- Enroll with the Financial Intelligence Unit (FIU) for AML reporting.
- Register for Central KYC to streamline and standardize customer verification processes.
Cybersecurity Measures
- Implement robust cybersecurity protocols to safeguard customer data and prevent financial fraud.
Categories of NBFCs
Liabilities
- ➤ Having Public Deposits
- ➤ Not having Public Deposits
Activities
- ➤ Asset Finance company
- ➤ Investment and Credit Company
- ➤ Infrastructure Finance Company
- ➤ Systemically Important Core Investment Company
- ➤ Non-Operative Financial Holding Company
- ➤ Mortgage Guarantee Companies
- ➤ NBFC-Factors
- ➤ Microfinance Companies
- ➤ Infrastructure Debt Fund Non-Banking Financial Company
Size
On the basis of Activities
- Asset Finance Company (AFC)- Focuses on financing physical assets like vehicles, machinery, and equipment.
- Investment and Credit Company (ICC)- Formed by merging Asset Finance, Loan, and Investment Companies, ICCs primarily engage in asset financing and offering credit.
- Mortgage Guarantee Company (MGC)- MGCs must have a net owned fund of at least ₹100 crore, with 90% of turnover or income from mortgage guarantee business.
- Infrastructure Finance Company (IFC)- IFCs allocate 75% of total assets to infrastructure loans, maintain a CRAR of 15%, and have a minimum net owned fund of ₹300 crore.
- Non-Operative Financial Holding Company (NOFHC)- NOFHCs hold banks and other financial firms regulated by RBI, enabling promoters to establish new banks.
- Micro Finance Company (MFC)- MFCs provide loans to underserved small businesses, similar to banks but focusing on micro-enterprises.
- NBFC-Factors- Specialize in factoring business, with at least 50% of assets being financial in nature.
- Infrastructure Debt Fund NBFC (IDF-NBFC)- Focuses on long-term debt financing for infrastructure projects.
- NBFC Account Aggregator- Licensed by RBI to retrieve and consolidate clients' financial data from various institutions.
- NBFC P2P Lending- Connects borrowers and lenders via digital platforms, simplifying the loan process.
- Housing Finance Companies (HFCs)- NBFCs that finance home acquisition, construction, or renovation.
On the basis of Liabilities
- Deposit Accepting NBFCs- These NBFCs are allowed to accept public deposits under certain conditions.
- Non-Deposit Accepting NBFCs- These do not accept public deposits and focus on other financial services.
NBFCs and Their Compliance Requirements
NBFCs must comply with various RBI-mandated filings based on their type and asset size. Below is a simplified breakdown of key compliance requirements:
1. Deposit Accepting NBFCs (NBFC-D)
Half-Yearly & Annual Filings:
- ALM Returns – Asset Liability Management reports for liquidity and risk assessment (within 30 days).
- NBS-8 – Annual Financial Indicators report (within 60 days).
- Statutory Auditors Certificate (SAC) – Certification of compliance (by December 31st).
Quarterly Filings:
- NBS-1 & NBS-2 – Report on financial details, prudential norms, and depositor risk (within 15 days).
- NBS-3 – Statutory Liquid Assets report (within 15 days).
- Overseas Investment Return – Details of foreign investments (within 15 days).
- Branch Information – Details of foreign investments (within 15 days).
- CRILC Compliance – Report large credit exposures (within 21 days).
Monthly Filings:
- NBS-6 – Capital Market Exposure details (within 7 days for NBFCs with public deposits over ₹20 crore or assets above ₹100 crore).
- SMA-2 Return – Report Special Mention Accounts (every Friday).
2. Non-Deposit Accepting NBFCs (NBFC-ND)
- Quarterly: Branch information and overseas investment return.
- Half-Yearly: FDI compliance report.
- Annually: NBS-9 (Annual Return) and SAC (by December 31st).
- Monthly: Important Financial Parameters Report (within 7 days).
- Quarterly: ALM-1 (Liquidity Statement), Branch Information, Overseas Investment Report.
- Half-Yearly: ALM-2 (Structural Liquidity), ALM-3 (Interest Rate Sensitivity).
- Annually: NBS-8 (Financial Indicators) and SAC (by December 31st).
3. Systemically Important NBFCs (NBFC-ND-SI)
- Monthly: Financial Parameters Report (within 7 days).
- Quarterly: ALM-1 (Liquidity), Branch Information, NBS-7 (Capital Funds & Risk), CRILC (Large Credit Exposure), Overseas Investment Report.
- Half-Yearly: ALM-2 (Liquidity), ALM-3 (Interest Rate Sensitivity), FDI Compliance.
- Annually: NBS-8 (Financial Indicators), ALM Disclosure in Balance Sheet, SAC (by December 31st).
- Weekly: SMA-2 Return (Special Mention Accounts).
NBFC Classification Under Scale-Based Regulations
(Scale Based Approach)
Upper Layer
(NBFC-UL)
- Identified by RBI based on asset size, market impact, and risk exposure.
- Stricter regulations
- Higher capital requirement
- Intensive supervision
Middle Layer
(NBFC-ML)
- All deposit-taking NBFCs (NBFC-Ds), regardless of asset size
- Non-deposit-taking NBFCs (NBFC-ND) with assets of ₹1,000 crore+
- Standalone Primary Dealers (SPDs)
- Infrastructure Debt Fund– NBFCs (IDF-NBFCs)
- Housing Finance Companies (HFCs)
- Core Investment Companies (CICs)
- Infrastructure Finance Companies (NBFC-IFCs)
Base Layer
(NBFC-BL)
- NBFC-P2P (Peer-to-Peer Lending Platforms)
- NBFC-AA (Account Aggregators)
- Non-Operative Financial Holding Companies (NOFHCs)
- NBFCs with no public funds or customer interface
NBFC Compliance Across Different Layers
The RBI has introduced layer-specific compliance requirements for NBFCs under the Scale-Based Regulation (SBR) framework, ensuring risk-based oversight.
1. Base Layer (NBFC-BL) Compliance
- NBFC-ICC: ₹2 Cr → ₹5 Cr (by Mar 2025) → ₹10 Cr (by Mar 2027)
- NBFC-MFI: ₹5 Cr (₹2 Cr in NE) → ₹7 Cr (₹5 Cr in NE) → ₹10 Cr
- NBFC-Factors: ₹5 Cr → ₹7 Cr → ₹10 Cr
2. Middle & Upper Layer (NBFC-ML & NBFC-UL) Compliance
- KMPs cannot hold office in other NBFC-ML/UL.
- Independent Directors (ID) limited to 3 NBFCs.
- BoD-approved policy for KMP/senior management.
- Remuneration Committee, fixed/variable pay structure, malus/clawback provisions.
3. Additional Compliance for Upper Layer (NBFC-UL)
- CET 1 of at least 9% of risk-weighted assets.
- Leverage requirements to be set by RBI.
- Differential standard asset provisioning similar to banks.
- NBFC-UL must be listed within 3 years of identification.
- Unlisted NBFC-ULs to prepare a BoD-approved listing roadmap.
Why Choose Us for Your NBFC Compliance?
Expertise You Can Trust
Our team of CAs, CS, and legal professionals ensures a seamless process from start to finish.
Comprehensive Due Diligence
We conduct an in-depth evaluation of the target NBFC, assessing financial health, compliance history, and potential risks to ensure a secure acquisition.
Strategic Advisory
Beyond compliance, we help you align the takeover with your business growth, market expansion, and long-term financial objectives.
Accurate Asset Valuation
Using RBI-approved methods like DCF, we provide precise valuations to help you make an informed investment decision.
Smooth NBFC Takeover
Our experts manage the entire process, from initial agreements to RBI approvals, minimizing roadblocks and ensuring a hassle-free transition.
Regulatory Compliance
We ensure strict adherence to RBI guidelines, Companies Act, and NBFC takeover norms, mitigating risks and avoiding penalties.
Some FAQs That GenZCFO Often Get Asked
NBFC compliance includes
- RBI Regulations – Capital adequacy, governance, and risk management.
- KYC & AML Compliance – Customer due diligence and anti-money laundering policies.
- Financial Reporting & Disclosures – Regular filing of financial statements.
- Tax Compliance – GST, TDS, and other tax obligations
Non-compliance can lead to
- Heavy penalties and fines
- Restrictions on operations
- Cancellation of NBFC registration
- Legal action and reputational damage
The Reserve Bank Of India (RBI) regulates NBFCs in India.
The RBI mandates a minimum 10 crores net owned fund (NOF) requirement for different types of NBFCs. The exact amount varies based on the type and activities of the NBFC.
Only deposit-taking NBFCs (NBFC-Ds) can accept public deposits, subject to RBI approval and specific guidelines.
NBFCs must have an internal complaint resolution system and register under the RBI Integrated Ombudsman Scheme (RB-IOS) for consumer protection.
Yes, Foreign Direct Investment (FDI) up to 100% is allowed in NBFCs under the automatic route, subject to minimum capitalization norms.