Page 290 - CA Final PARAM Digital Book.

Part 2- NBFC

QNO Identification of Company as NBFC Old Course –(SM21)
513.500 TITANIUM CNO—NBFC.020
Satyam Pvt Ltd is a company engaged in trading activities, it also has made investments in shares of
other Companies and advanced loans to group companies amounting to more than 50% of its total

assets. However, trading income constitutes majority of its total income. Whether the Company is an
NBFC?
➢ In order to identify a particular company as Non-Banking Financial Company (NBFC), it will consider
both assets and income pattern as evidenced from the last audited balance sheet of the company
to decide its principal business.

➢ The company will be treated as NBFC when a company's financial assets constitute more than 50
per cent of the total assets (netted off by intangible assets) and income from financial assets
constitute more than 50 per cent of the gross income. A company which fulfils both these criteria
shall qualify as an NBFC and would require to be registered as NBFC by Reserve Bank of India.

➢ In the given case, though Satyam Pvt Ltd is fulfilling the criteria on the asset side, but however is
not fulfilling the criteria on the income side, the company cannot be classified as a deemed NBFC.

QNO Identification of Company as NBFC Old Course –(SM21)
513.800 TITANIUM CNO—NBFC.020
Krishna Pvt Ltd is primarily into the business of selling computer parts. However, the company is fulfilling
the Principal Business Criteria as at the balance sheet date i.e. Financial Assets are more than 50 % of

total assets and Financial Income is more than 50% of Gross Income. What shall be the obligation of the
Statutory Auditor in such a scenario?
➢ In the given case, Krishna Pvt Ltd is fulfilling the Principal Business Criteria i.e. Financial Assets are
more than 50 % of total assets and Financial Income is more than 50 % of Gross Income.
➢ The company which fulfils both these criteria shall qualify as an NBFC and hence is required to
obtain Certificate of Registration (CoR) with Reserve Bank of India. In such a scenario, the statutory
auditor has an obligation to submit exception report to the RBI on the following matters :
• Where, in the case of a non-banking financial company, the statement regarding any of the
items referred to in paragraph 3 of the Non-Banking Financial Companies Auditor’s Report
(Reserve Bank) Directions, 2016, is unfavorable or qualified, or in the opinion of the auditor
the company has not complied with:
• the provisions of Chapter III B of RBI Act (Act 2 of 1934); or
• Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank)
Directions, 2016; or
• 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
unfavorable 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 RBI 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.

• 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.

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