Page 288 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
requirements, while the top layer remains empty unless specific systemic risks are identified.
Auditor's Role
The auditor of an NBFC has increased responsibilities due to various RBI directions. In addition to reporting
to shareholders, the auditor must also make an additional report to the Board of Directors on specified matters.
Audit Approach
Given the regulatory complexities, the auditor needs to adapt their approach to take into account all the RBI
directions and norms applicable to NBFCs.

(CNO-NBFC.020) WHAT IS NBFC? CRITERIA FOR NBFC?
Definition of NBFC: 45 I(f) of Reserve Bank of India (Amendment) Act, 1997 defines a non-banking financial
company as:
➢ Definition
A Non-Banking Financial Company (NBFC) is a company: -
Registered under the Companies Act, 2013,
It may receive deposits under any scheme or arrangement in one lump sum or in instalments.
Its principal business is lending, investments in various types of shares /stocks /bonds /debentures /
securities, leasing, hire-purchase, insurance business, chit business etc. and

However, a Non-Banking Financial Company does not include any institution whose principal business is
agricultural activity, industrial activity, trading activity or sale/purchase/construction of immovable property.

➢ How to test whether principal business is finance?
Further, 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 RBI.

(CNO—NBFC.040) Registration and Regulation of NBFC:

Under Section 45–IA of the Reserve Bank of India (Amendment) Act, 1997, no non-banking financial
company is allowed to commence or carry on the business of a non-banking financial institution
without
• obtaining a certificate of registration issued by the Reserve Bank of India.
• having a net owned fund (NOF) of Rs 2 crore not exceeding Rs 100 crore, as the RBI may, by
notification in the Official Gazette, specify.
• As on today RBI has prescribed Rs 2 crore / 10 crore for different categories as minimum
(NOF)

(CNO—NBFC.060) Types of NBFCs- Compliance and Regulatory Perspective:

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