Master Direction - Non-Banking
Financial Companies Auditor’s Report (Reserve Bank) Directions, 2016
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RBI/DNBS/2016-17/48 September
29, 2016 Master Direction - Non-Banking Financial
Companies Auditor’s Report (Reserve Bank) Directions, 2016 In exercise of the powers
conferred by sub-section (1A) of Section 45MA of the Reserve Bank of India
Act, 1934 (Act 2 of 1934) and of all the powers enabling it in this behalf,
and in supersession of the Non-Banking Financial Companies Auditor’s Report
(Reserve Bank) Directions, 2008, the Reserve Bank of India (the Bank) hereby
issues Non-Banking Financial Companies Auditor’s Report (Reserve Bank)
Directions, 2016 (the Directions) to every
auditor of every non-banking financial companies.
Chapter
– I Preliminary 1. Short Title and Commencement. a) These Directions shall be
called Non-Banking Financial Companies Auditor’s Report (Reserve Bank)
Directions, 2016. b) These directions shall come
into force with immediate effect. 2. Applicability The Directions shall apply to
every auditor of a non-banking financial company as defined in section 45
I(f) of the Reserve Bank of India Act, 1934 (the RBI Act) hereinafter called
as ‘non-banking financial company’. Chapter-
II Auditors
to submit additional Report to the Board of Directors In addition to the Report made by
the auditor under Section 143 of the Companies Act, 2013 or section 227 of
the Companies Act, 1956 (Act 1 of 1956) on the accounts of a non-banking
financial company examined for every financial year ending on any day on or
after the commencement of these Directions, the auditor shall also make a
separate report to the Board of Directors of the Company on the matters
specified in paragraphs 3 and 4 below. 3. Material to be included in the
Auditor’s report to the Board of Directors The auditor’s report on the
accounts of a non-banking financial company shall include a statement on the
following matters, namely: - (A) In the case of all Non-Banking
Financial Companies I. Conducting Non-Banking
Financial Activity without a valid Certificate of Registration (CoR) granted
by the Bank is an offence under chapter V of the RBI Act, 1934. Therefore, if
the company is engaged in the business of non-banking financial institution
as defined in section 45-I (a) of the RBI Act and meeting the Principal
Business Criteria (Financial asset/income pattern) as laid down vide the
Bank’s press release dated April 08, 1999, and directions1 issued
by DNBR, auditor shall examine whether the company has obtained a Certificate
of Registration (CoR) from the Bank. II. In case of a company holding
CoR issued by the Bank, whether that company is entitled to continue to hold
such CoR in terms of its Principal Business Criteria (Financial asset/income
pattern) as on March 31 of the applicable year. III. Whether the non-banking
financial company is meeting the required net owned fund requirement as laid
down in Master Direction - Non-Banking
Financial Company – Non-Systemically Important Non-Deposit taking Company
(Reserve Bank) Directions, 2016 and Master
Direction - Non-Banking Financial Company - Systemically Important
Non-Deposit taking Company and Deposit taking Company (Reserve Bank)
Directions, 2016 Note: Every non-banking financial
company shall submit a Certificate from its Statutory Auditor that it is
engaged in the business of non-banking financial institution requiring it to
hold a Certificate of Registration under Section 45-IA of the RBI Act and is
eligible to hold it. A certificate from the Statutory Auditor in this regard
with reference to the position of the company as at end of the financial year
ended March 31 may be submitted to the Regional Office of the Department of
Non-Banking Supervision under whose jurisdiction the non-banking financial
company is registered, within one month from the date of finalization of the
balance sheet and in any case not later than December 30th of that year. The
format of Statutory Auditor’s Certificate (SAC) to be submitted by NBFCs has
been issued vide DNBS. PPD.02/66.15.001/2016-17 Master Direction- Non-Banking
Financial Company Returns (Reserve Bank) Directions, 2016. (B) In the case of a non-banking
financial companies accepting/holding public deposits Apart from the matters enumerated
in (A) above, the auditor shall include a statement on the following matters,
namely:- (i) Whether the public deposits
accepted by the company together with other borrowings indicated below viz. (a) from public by issue of
unsecured non-convertible debentures/bonds; (b) from its shareholders (if it
is a public limited company); and (c) which are not excluded from
the definition of ‘public deposit’ in the Non-Banking Financial Companies
Acceptance of Public Deposits (Reserve Bank) Directions, 2016, are within the
limits admissible to the company as per the provisions of the Non-Banking
Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions,
2016; (ii) Whether the public deposits
held by the company in excess of the quantum of such deposits permissible to
it under the provisions of Non-Banking Financial Companies Acceptance of
Public Deposits (Reserve Bank) Directions, 2016 are regularised in the manner
provided in the said Directions; (iii) Whether the non banking
financial company is accepting "public deposit” without minimum
investment grade credit rating from an approved credit rating agency as per
the provisions of Non-Banking Financial Companies Acceptance of Public
Deposits (Reserve Bank) Directions, 2016. (iv) Whether the capital adequacy
ratio as disclosed in the return submitted to the Bank in terms of the
Non-Banking Financial Company - Systemically Important Non-Deposit taking
Company and Deposit taking Company (Reserve Bank) Directions, 2016 has been
correctly determined and whether such ratio is in compliance with the minimum
CRAR prescribed therein; (v) In respect of non-banking
financial companies referred to in clause (iii) above, (a) whether the credit rating, for
each of the fixed deposits schemes that has been assigned by one of the
Credit Rating Agencies listed in Non-Banking Financial Companies Acceptance
of Public Deposits (Reserve Bank) Directions, 2016 is in force; and (b) whether the aggregate amount
of deposits outstanding as at any point during the year has exceeded the
limit specified by the such Credit Rating Agency; (vi) Whether the company has
violated any restriction on acceptance of public deposit as provided in
Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank)
Directions, 2016. (vii) Whether the company has
defaulted in paying to its depositors the interest and /or principal amount
of the deposits after such interest and/or principal became due; (viii) Whether the company has
complied with the prudential norms on income recognition, accounting
standards, asset classification, provisioning for bad and doubtful debts, and
concentration of credit/investments as specified in the Directions issued by
the Bank in terms of the Master Direction - Non-Banking Financial Company -
Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016 (ix) Whether the company has
complied with the liquid assets requirement as prescribed by the Bank in
exercise of powers under section 45-IB of the RBI Act and whether the details
of the designated bank in which the approved securities are held is
communicated to the office concerned of the Bank in terms of NBS 3;
Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016 (x) Whether the company has
furnished to the Bank within the stipulated period the return on deposits as
specified in the NBS 1 to – Non- Banking Financial Company Returns (Reserve
Bank) Directions, 2016 (xi) Whether the company has
furnished to the Bank within the stipulated period the quarterly return on
prudential norms as specified in the Non-Banking Financial Company Returns
(Reserve Bank) Directions, 2016 (xii) Whether, in the case of
opening of new branches or offices to collect deposits or in the case of
closure of existing branches/offices or in the case of appointment of agent,
the company has complied with the requirements contained in the Non-Banking
Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions,
2016. (C) In the case of a non-banking
financial company not accepting public deposits Apart from the aspects enumerated
in (A) above, the auditor shall include a statement on the following matters,
namely: - (i) Whether the Board of Directors
has passed a resolution for non- acceptance of any public deposits; (ii) Whether the company has
accepted any public deposits during the relevant period/year. (iii) Whether the company has
complied with the prudential norms relating to income recognition, accounting
standards, asset classification and provisioning for bad and doubtful debts
as applicable to it in terms of Non-Banking Financial Company –
Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions,
2016 and Non-Banking Financial Company - Systemically Important Non-Deposit
taking Company and Deposit taking Company (Reserve Bank) Directions, 2016; (iv) In respect of Systemically
Important Non-deposit taking NBFCs as defined in Non-Banking Financial Company
- Systemically Important Non-Deposit taking Company and Deposit taking
Company (Reserve Bank) Directions, 2016: (a) Whether the capital adequacy
ratio as disclosed in the return submitted to the Bank in form NBS- 7, has
been correctly arrived at and whether such ratio is in compliance with the
minimum CRAR prescribed by the Bank; (b) Whether the company has
furnished to the Bank the annual statement of capital funds, risk
assets/exposures and risk asset ratio (NBS-7) within the stipulated period. (v) whether the non banking
financial company has been correctly classified as NBFC Micro Finance
Institutions (MFI) as defined in the Non-Banking Financial Company –
Non-Systemically Important Non-Deposit taking Company (Reserve Bank)
Directions, 2016 and Non-Banking Financial Company - Systemically Important
Non-Deposit taking Company and Deposit taking Company (Reserve Bank)
Directions, 2016 (D) In the case of a company
engaged in the business of non-banking financial institution not required to
hold CoR subject to certain conditions Apart from the matters enumerated
in (A)(I) above where a company has obtained a specific advice from the Bank
that it is not required to hold CoR from the Bank, the auditor shall include
a statement that the company is complying with the conditions stipulated as
advised by the Bank. 4. Reasons to be stated for
unfavourable or qualified statements Where, in the auditor’s report,
the statement regarding any of the items referred to in paragraph 3 above is
unfavourable or qualified, the auditor’s report shall also state the reasons
for such unfavourable or qualified statement, as the case may be. Where the
auditor is unable to express any opinion on any of the items referred to in
paragraph 3 above, his report shall indicate such fact together with reasons
therefor. Chapter-
III Auditors
to submit Exception Report to the Bank 5. Obligation of auditor to submit
an exception report to the Bank (I) Where, in the case of a
non-banking financial company, the statement regarding any of the items
referred to in paragraph 3 above, is unfavorable or qualified, or in the
opinion of the auditor the company has not complied with: (a) the provisions of Chapter III
B of RBI Act (Act 2 of 1934); or (b) Non-Banking Financial
Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016; or (c) Non-Banking Financial Company
– Non-Systemically Important Non-Deposit taking Company (Reserve Bank)
Directions, 2016 and Non-Banking Financial Company - Systemically Important
Non-Deposit taking Company and Deposit taking Company (Reserve Bank)
Directions, 2016 It shall be the obligation of the
auditor to make a report containing the details of such unfavourable or
qualified statements and/or about the non-compliance, as the case may be, in
respect of the company to the concerned Regional Office of the Department of
Non-Banking Supervision of the Bank under whose jurisdiction the registered
office of the company is located as per first Schedule to the Non-Banking
Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions,
2016. (II) The duty of the Auditor under
sub-paragraph (I) shall be to report only the contraventions of the
provisions of RBI Act, 1934, and Directions, Guidelines, instructions
referred to in sub-paragraph (1) and such report shall not contain any
statement with respect to compliance of any of those provisions Chapter
IV Repeal
Provisions 6. With the issue of the
directions, the instructions / guidelines contained in the circular mentioned
in the Appendix, issued by the Bank
stand repealed. 7. All approvals /
acknowledgements given under the circular mentioned hereinafter shall be
deemed as given under the directions. 8. The repealed circular as
mentioned hereinafter is deemed to have been in force prior to the coming
into effect of these directions. Appendix List
of Circulars or part thereof repealed with the issuance of Master Direction
1 Master Direction –
Para 69 of Non-Banking Financial Company – Non-Systemically Important
Non-Deposit taking Company (Reserve Bank) Directions, 2016 and Para 82 of Master Direction - Non-Banking Financial
Company - Systemically Important Non-Deposit taking Company and Deposit
taking Company (Reserve Bank) Directions, 2016 |
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