What changed
RBI issued a master circular consolidating all existing corporate governance instructions for NBFCs as of June 30, 2010. It advised that NBFCs with public deposits or deposits of ₹50 crore and above may stipulate rotation of audit partners every three years. It also recommended that deposit-taking NBFCs with deposits of ₹20 crore and above and systemically important non-deposit NBFCs (asset size ₹100 crore and above) form a Nomination Committee to ensure directors are 'fit and proper', and extended Audit Committee requirements to NBFCs with assets of ₹50 crore and above (already required) and suggested deposit-taking NBFCs with deposits of ₹20 crore may also consider forming an Audit Committee.
What it means for you
NBFCs must now enforce audit partner rotation to enhance auditor independence and governance. The Nomination Committee requirement adds a layer of scrutiny on director appointments, aligning NBFCs with banking sector standards. These measures aim to boost investor and depositor confidence by improving transparency and accountability in NBFC operations.
What you must do
- Review your NBFC's deposit/asset size to determine applicability of audit partner rotation (public deposits or deposits ≥₹50 crore) and committee requirements (deposits ≥₹20 crore or assets ≥₹100 crore).
- Consider updating audit appointment letters to include a clause for rotation of audit partners every three years, with a three-year interval before reappointment.
- If applicable, form a Nomination Committee to assess 'fit and proper' status of directors, and ensure Audit Committee is in place for NBFCs with assets ≥₹50 crore (and consider for deposit-taking NBFCs with deposits ≥₹20 crore).
- Ensure compliance with all consolidated instructions in the master circular and maintain records for RBI inspection.
Who it affects
All NBFCs accepting public deposits, NBFCs with public deposits or deposits of ₹50 crore and above (audit rotation), Deposit-taking NBFCs with deposits of ₹20 crore and above (Nomination Committee, and may consider Audit Committee), Systemically important non-deposit NBFCs with asset size of ₹100 crore and above (Nomination Committee), NBFCs with assets of ₹50 crore and above (Audit Committee already required)
What is the audit partner rotation requirement for NBFCs?
NBFCs with public deposits or deposits of ₹50 crore and above are advised to stipulate rotation of audit partners every three years. The same partner should not conduct audit for more than three consecutive years, and after rotation, they can return only after a three-year interval.
Which NBFCs need to form a Nomination Committee?
Deposit-taking NBFCs with deposit size of ₹20 crore and above, and systemically important non-deposit NBFCs (NBFC-ND-SI) with asset size of ₹100 crore and above, are advised to form a Nomination Committee to ensure directors are 'fit and proper'.
Does this master circular replace all previous corporate governance instructions?
Yes, this master circular consolidates and updates all instructions on corporate governance for NBFCs as of June 30, 2010. It supersedes the earlier circulars listed in its appendix.