Page 294 - CA Final PARAM Digital Book.

Kindly guide Mr Shyam with respect to his reporting requirements as per relevant NBFC provisions.
Answer In exercise of the powers conferred under clause (b) of sub-section (1) of section 45–IA of the RBI Act and all
the powers enabling it in that behalf, the Bank hereby specifies two hundred lakh rupees as the Net Owned
Fund (NOF) required for a non-banking financial company to commence or carry on the business of non-
banking financial institution, except wherever otherwise a specific requirement as to NOF is prescribed by
the Bank.

It will be incumbent upon such NBFCs, the NOF of which currently falls below ₹ 200 lakh, to submit a
statutory auditor's certificate certifying compliance with the prescribed levels by the end of the period as
given above.

NBFCs failing to achieve the prescribed level within the stipulated period shall not be eligible to hold the
CoR as NBFCs. Every non-banking financial company shall submit a certificate from its Statutory Auditor that
it is engaged in the business of a 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
the 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.

Hence, in the current case, it is the responsibility of the Statutory Auditor, i.e., Mr. Shyam, to report where
NOF has fallen below ₹ 200 Lakhs

QNO Compliance with Prudential Norms Old Course – (N08E, N12E, N13R, M15R, M16R, PM17,
515.000 TITANIUM CNO—NBFC.200 M18M, N18E)
You are the auditor of IJK Ltd., a NBFC registered with RBI. How would you proceed to ensure the

compliance of Prudential Norms directions by it.
Answer Compliance of Prudential Norms by NBFC:

➢ Verification by Auditor
The auditor has to verify the compliance of prudential norms relating to
• At the time of giving advances / investment
o Prohibition on loans and investments for failure to repay public deposits
and
o Prohibition of granting loans against its own shares;
o Norms for concentration of credit etc.
In case of Investment Company, NBFC Prudential Norms stipulates that NBFCs should not lend
more than 15% of its owned funds to any single borrower and not more than 25% to any single
group of borrowers. The ceiling on investments in shares by a NBFC in a single entity and the
aggregate of investments in a single group of entities has been fixed at 15% and 25%
respectively. Moreover, a composite limit of credit to and investments in a single entity/group
of entities has been fixed at 25% and 40% respectively of the owned fund of the concerned
NBFC. Verify that the credit facilities extended, and investments made by the concerned NBFC
are in accordance with the prescribed ceiling.
• The auditor shall ensure that Board of the NBFC shall frame a policy for granting
demand/call loans and implement the same.

• After the giving advances / investment
o Income recognition (Advances);
Auditor should ensure that unrealized income from non-performing assets

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