What changed
RBI issued a consolidated version of the Non-Banking Financial Companies Auditor's Report (Reserve Bank) Directions, 2008, incorporating all amendments up to June 30, 2011. The updated notification replaces the earlier 1998 directions and is now available on the RBI website. The source indicates this is a compilation to have all current instructions in one place.
What it means for you
NBFCs must ensure their auditors comply with the updated directions, which mandate a separate report to the board on specific regulatory compliance matters. For banks lending to or dealing with NBFCs, this enhances the reliability of audited financial statements, reducing credit risk. The consolidated directions simplify compliance by bringing all current instructions into one place.
What you must do
- Review the updated NBFC Auditor's Report Directions 2008 to ensure your NBFC clients' auditors are aware of the additional reporting requirements.
- Incorporate the auditor's additional report findings into your credit risk assessment for NBFC borrowers.
- Advise NBFC clients to verify their Certificate of Registration and asset/income pattern compliance as of March 31 each year.
- Update internal checklists to include verification of NBFC classification (e.g., AFC) as per RBI criteria.
Who it affects
All Non-Banking Financial Companies (except Residuary Non-Banking Companies and Miscellaneous Non-Banking Companies), Auditors of NBFCs, Banks with exposure to NBFCs
What is the key change in the updated directions?
The directions consolidate all amendments to the 2008 NBFC Auditor's Report Directions as of June 30, 2011, into a single document. No new requirements were added; it simply brings all existing instructions together for easier reference.
Do these directions apply to all NBFCs?
They apply to all NBFCs as defined in Section 45 I(f) of the RBI Act, 1934, except Residuary Non-Banking Companies and Miscellaneous Non-Banking Companies.
What must auditors report additionally?
Auditors must submit a separate report to the board covering whether the NBFC holds a valid Certificate of Registration, is entitled to continue holding it based on asset/income pattern, and is correctly classified (e.g., as an Asset Finance Company). For deposit-taking NBFCs, additional matters are also required.