IIBF NBFC cheat sheet

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceed 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.

NBFC definition: a company registered under the Companies Act engaged in financial activity as its principal business; the 50-50 test requires financial assets to be at least 50% of total assets and financial income at least 50% of gross income.

Principal business test for a company to be treated as an NBFC is normally satisfied if financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both limbs must be met.

Registration under Section 45-IA of the RBI Act, 1934 requires minimum net owned funds of Rs 2 crore; net owned funds are computed from Schedule III of the RBI Directions (owned funds minus investments in subsidiaries and other deductions).

Public deposit acceptance is permitted only for deposit-taking NBFCs (NBFC-D) with an investment-grade credit rating and compliance with prudential norms; all other NBFCs are non-deposit-taking (NBFC-ND).

Scale Based Regulation (effective October 2022) has four layers: Base (NBFC-BL), Middle (NBFC-ML), Upper (NBFC-UL), and Top (NBFC-TL); classification depends on asset size, public funds, and cross-sectoral activity.

NBFC-ML applies to NBFCs with asset size of Rs 1,000 crore or more, or with public funds and asset size of Rs 500 crore or more; NBFC-UL is determined by a scoring methodology of 200 points, with a cut-off of 130 points.

NBFC-TL includes NBFCs specifically identified by RBI as posing systemic risk; such entities are subject to enhanced capital, governance, and disclosure requirements, and may be subject to a separate resolution regime.

For NBFC-ML and above, the prescribed capital to risk-weighted assets ratio (CRAR) is 15%; the minimum Tier-I capital ratio is 10%; regulatory capital is computed on a consolidated basis for NBFC-UL.

Nominal value of the shares of an NBFC must be listed on a recognised stock exchange within six months of reaching the Rs 1,000 crore asset size threshold for NBFC-UL, subject to RBI notification.

Fair Practices Code (FPC) requires disclosure of all charges, interest rate, and penal charges in the loan agreement; penal charges must not be levied as a compounding of interest and are capped at the rate disclosed in the sanction letter.

Interest rates and service charges must be disclosed in the loan application and the sanction letter; borrowers have the right to be informed of the annualised rate of interest in the Key Facts Statement (KFS) for retail loans.

KFS for retail loans must be in a standard format containing the loan amount, annualised percentage rate (APR), tenure, installments, fees, penal charges, and grievance redressal details.

Grievance redressal: every NBFC must have a designated Nodal Officer and a Board-approved grievance redressal policy; escalation to the RBI Ombudsman is available under the Integrated Ombudsman Scheme, 2021 after 30 days.

Recovery agents must be trained and identified by the NBFC; all recovery communications must be documented and no recovery can occur before 8 am or after 7 pm; agents must carry authorisation and identity cards.

Outsourcing of financial services is permitted only where the NBFC retains ultimate responsibility; core management functions such as compliance, risk management, and internal audit cannot be outsourced.

Digital lending: the lending service provider (LSP) must be disclosed in the loan agreement, and all loan disbursements and repayments must be routed through the borrower's bank account with the regulated entity, not through a pass-through account.

Cooling-off period: the borrower has the right to exit a digital loan by repaying the principal without penalty within a cooling-off period specified by the regulated entity, which must be at least three days.

Deposit-taking NBFCs must display the interest rate and the fact that deposits are not insured by DICGC in all advertisements and at their premises; no gift or incentive can be offered for deposits.

Income recognition: an asset is classified as NPA where interest or principal is overdue for more than 90 days; sub-standard assets are NPAs up to 12 months, doubtful assets beyond 12 months, and loss assets are identified by the NBFC or auditors.

Provisioning norms: standard assets require 0.25%-1% general provision depending on category; sub-standard assets require 10% of the outstanding; doubtful assets require 40%-100% depending on the secured portion; loss assets require 100% provision.

Exposure norms: an NBFC-UL must not have a single borrower exposure exceeding 20% of Tier-I capital and a group exposure exceeding 25% of Tier-I capital; the cap may be raised to 25% and 35% respectively with Board approval.

Concentration risk: single-party exposure limits and sectoral exposure limits are set by the Board and monitored monthly; breaches must be reported to RBI and rectified within the prescribed time frame.

Liquidity Coverage Ratio (LCR) applies to NBFC-ND with asset size of Rs 10,000 crore or more and to all deposit-taking NBFCs; the minimum LCR is 100% of net cash outflows over a 30-day stress period.

ALM: the structural liquidity statement compares inflows and outflows across time buckets (1-14 days, 15-28 days, 1-3 months, up to 5 years and beyond); cumulative mismatches in the near buckets must be within Board-approved tolerance.

Interest rate risk in the banking book is measured by the impact on the economic value of equity (EVE) and net interest income (NII) for a 200 basis point parallel shift; the Board sets tolerance limits.

Credit risk mitigation: eligible collateral and guarantees reduce risk-weighted assets only where the instrument is legally enforceable and the NBFC has a documented right to liquidate the collateral.

Stress testing must cover credit, liquidity, and market risk scenarios, be approved by the Board, and be conducted at least annually with results reported to the Risk Management Committee.

AML/CFT: NBFCs must comply with the Prevention of Money Laundering Act, 2002 and the PMLA Rules; a Principal Officer and a Designated Director must be appointed, and the Designated Director reports suspicious transactions to FIU-IND.

KYC: customer due diligence is mandatory before opening an account or granting a loan; simplified measures apply to low-risk customers and enhanced due diligence to high-risk customers, politically exposed persons, and correspondent relationships.

Suspicious Transaction Reports (STRs) must be filed with FIU-IND within seven working days of establishing suspicion; Cash Transaction Reports (CTRs) are filed monthly for cash transactions above Rs 10 lakh.

Records of transactions must be maintained for at least five years from the date of the transaction or from the date the account is closed, whichever is later, and made available to regulators on request.

Governance: the Board must have at least one-third independent directors for NBFC-UL and a mandatory Risk Management Committee; the Audit Committee must be chaired by an independent director.

Internal audit: NBFCs must have an independent internal audit function reporting to the Audit Committee; the frequency is at least quarterly for NBFC-UL and NBFC-ML, and annually for smaller NBFCs.

Statutory audit: the auditor must be a qualified chartered accountant and must report on compliance with prudential norms; the audit report is submitted to RBI through the statutory auditor's certificate.

Compliance function: a designated Chief Compliance Officer must be appointed for NBFC-UL and NBFC-ML, with direct reporting to the Board or the Audit Committee, and a quarterly compliance certificate must be placed before the Board.

Whistleblower policy and code of conduct are mandatory for all NBFCs; the Audit Committee must review whistleblower complaints and the NBFC must report frauds to RBI within the prescribed timelines.