What changed
RBI issued a master circular consolidating all existing corporate governance instructions for NBFCs as of June 30, 2011. It recommended (not mandated) rotation of audit firm partners every three years for NBFCs with public deposits or deposits of ₹50 crore and above. It also recommended that deposit-taking NBFCs with deposits of ₹20 crore and above and systemically important non-deposit NBFCs (asset size ≥₹100 crore) form Nomination and Risk Management Committees.
What it means for you
NBFCs must now ensure audit partner rotation to enhance audit independence and governance. Larger NBFCs need to set up Nomination Committees to vet director 'fit and proper' status and Risk Management Committees to oversee risk frameworks. This raises compliance costs but strengthens stakeholder confidence and aligns NBFCs with global best practices.
What you must do
- Review your NBFC's deposit/asset size to determine applicability of audit partner rotation and committee requirements.
- If deposits ≥₹50 crore, consider amending audit appointment letters to mandate partner rotation every 3 years with a 3-year cooling-off period (as recommended).
- For NBFC-D with deposits ≥₹20 crore or NBFC-ND-SI (assets ≥₹100 crore), consider constituting Nomination and Risk Management Committees as recommended.
- Ensure existing Audit Committee (required for assets ≥₹50 crore) has at least 3 board members and complies with all guidelines.
- Document compliance with these corporate governance norms for RBI inspection readiness.
Who it affects
All deposit-taking NBFCs (NBFC-D) with deposits of ₹20 crore and above, All systemically important non-deposit NBFCs (NBFC-ND-SI) with asset size of ₹100 crore and above, NBFCs with public deposits or deposits of ₹50 crore and above (audit rotation rule), Audit firms and partners serving NBFCs
Which NBFCs are required to rotate audit partners?
NBFCs with public deposits or total deposits of ₹50 crore and above are recommended to rotate audit firm partners every three years. The same partner should not conduct audit for more than three consecutive years and can return only after a three-year gap.
Do I need to form a Nomination Committee for my NBFC?
Yes, if your NBFC is a deposit-taking NBFC with deposits of ₹20 crore or more, or a systemically important non-deposit NBFC (assets ≥₹100 crore), RBI recommends forming a Nomination Committee to ensure directors are 'fit and proper'.
What is the effective date of this master circular?
The master circular consolidates instructions as of June 30, 2011. The audit rotation recommendation was originally issued in December 2005, and the committee guidelines are effective from July 1, 2011.