Page 294 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
credit rating agency. Obtain a copy of the credit rating assigned to NBFC and check whether the public
deposits accepted/held by it are in accordance with the level of credit rating assigned to it. In the event
of a downgrading of credit rating, the auditor should bear in mind that the NBFC will have to reduce
its public deposits in accordance with the revised credit rating assigned to it within a specified time
frame.2
Written Applications for Deposits
Ascertain whether the NBFC has accepted or renewed any public deposit only after a written
application form the depositor in the form to be supplied by the company and shall contain all
particulars specified in the Non-Banking Financial Companies and Miscellaneous Non-Banking
Companies (Advertisement) Rules, 1977.3
Deposit Register
Verify the deposit register maintained by a NBFC and test check the particulars that have been entered
therein in respect of each depositor with supporting receipts issued to the depositors. Also, check
whether the NBFC is regularly paying its deposits on due dates and in the case of a delay/default, the
reasons for the delay/default and the actual date of payment.4
Liquid Investments
Check whether the investments made in approved liquid assets by a NBFC holding public deposits
have been lodged in safe custody with a designated scheduled commercial bank as required by the
NBFC Public Deposit Directions. Obtain a certificate from the bank to that effect.5
Interest Calculations
Test checks the interest calculations in respect of public deposits mobilised by a NBFC to ascertain that
the NBFC has not paid interest in excess as per specification. Likewise, test check the brokerage
calculations with the bills and vouchers for reimbursement of out of pocket expenses submitted by a
broker to ascertain that the NBFC has not paid brokerage in excess by way of reimbursement of
expenses to brokers.6
Filling of Annual Return
Check whether the NBFC has filed its annual return as specified in the First Schedule before the 30th
June with reference to its position as on the 31st March of each year.7
Submission of Accounts / Audit Report / Directors Report
In the case of NBFCs accepting/holding public deposits ascertain whether audited statement of
accounts together with a copy of the auditor’s report and director’s report thereon have been submitted
within prescribed time limit from the date of holding the Annual general meeting.8
NBFC Prudential Norms Directions
The auditor has to verify the compliance of prudential norms relating to
• Policy Formation

The auditor shall ensure that Board of the NBFC shall frame a policy for granting demand/call
loans and implement the same.
• 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

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