NBFCS - REGULATORY AND COMPLIANCE ISSUES

Transcription

1 NBFCS - REGULATORY AND COMPLIANCE ISSUES JAYANT THAKUR CHARTERED ACCOUNTANT 3 RD SEPTEMBER 2011

2 OUTLINE Summary of existing law and types of NBFCs Important issues Role of Auditors Systemically Important Companies CICs Various types of confirmations from auditors Auditors Directions Others RBI report on NBFCs State Laws/Recent Supreme Court Decision Sahara Case 3rd September 2011 NBFCs - Jayant Thakur 2

3 EXISTING LAWS AND TYPES OF NBFCS Reserve Bank of India Act Directions Acceptance of Deposits and Prudential Norms Directions to Auditors Various Circulars, Guidelines, other notifications, etc. 3rd September 2011 NBFCs - Jayant Thakur 3

4 WHAT IS AN NBFC? Principal Business Registration and continuation thereof Exemptions Severe consequences of non-registration Formula of Reserve Bank of India and certification by auditor 3rd September 2011 NBFCs - Jayant Thakur 4

5 SYSTEMICALLY IMPORTANT NBFC Asset size Implications 3rd September 2011 NBFCs - Jayant Thakur 5

6 DEPOSITS What are deposits What are public deposits Eligibility/limits, etc. re deposits Separate detailed subject What are exempted deposits Shareholder/director deposits ICDs 3rd September 2011 NBFCs - Jayant Thakur 6

7 AUDITORS DIRECTIONS Reporting of non-compliance Requirements of registration Compliance with deposits directions Compliance with Prudential Norms 3rd September 2011 NBFCs - Jayant Thakur 7

8 CIC Background Holding companies Definition problem Legal views/reserve Bank of India s exemptions Problems of holding companies Reserve Bank of India s concerns Over-leverage Proposed solution New separate Directions notified for CICs Definition of SI-CIC Public Funds 3rd September 2011 NBFCs - Jayant Thakur 8

9 CIC Requirement of registration time schedule Group Companies SI-CIC vs. Non- SI-CIC Vs. Non- SI -CIC Non-SI-CIC Companies that become CICs Who can register What about those who do not register Requirements relating to business Holding of assets Activities 3rd September 2011 NBFCs - Jayant Thakur 9

10 CIC Continuing requirements Capital Adequacy Ratio Debt Equity Ratio Outside liabilities at no point of time Transitional problems Auditors Certificate 3rd September 2011 NBFCs - Jayant Thakur 10

11 MERGER/TAKEOVER OF NBFCS Issues involved Merger of NBFC with another NBFC/non-NBFC Acquiring shares/control of NBFC Whether the NBFC holds deposits Deposit accepting 2009 Directions Prior written approval required Deposit taking NBFC Takeover/acquisition of control Merger of NBFC Merger with NBFC Other cases Section 391/394 merger Other mergers/acquisition of control 3rd September 2011 NBFCs - Jayant Thakur 11

12 PENAL ACTIONS Non-registration Acceptance of deposits in violation of directions Willfully false statements or omissions Non-compliance by auditor Violation by non-corporate entities 3rd September 2011 NBFCs - Jayant Thakur 12

13 RBI REPORT ON NBFC Scenario of NBFCs Regulations set to change substantially Registration, non-deposit accepting, non-public fund accepting, etc. NBFCs not accepting deposit/asset size < 50 cr NBFCs not accepting public funds/asset size < 1000 cr Good alternative to amendment of Act Change of control of NBFC Principal Business definition 50/50%. 75% for AFCs 3rd September 2011 NBFCs - Jayant Thakur 13

14 RBI REPORT ON NBFC Merging of loan/investment categories Limts on acceptance of deposits by AFCs Weightage for capital market/real estate exposure Finally, explicit tax relief to NBFC same as banks recommended SARFESI benefits for NBFCs too like banks Financial conglomerates that have merchant banking, brokers, NBFCs, etc in group. Government owned NBFCs New deposit-accepting NBFC 3rd September 2011 NBFCs - Jayant Thakur 14

15 RBI REPORT ON NBFC SI status and multiple NBFCs Captive NBFCs NBFCs having assets more than Rs. 100/1000 crores and clause 49 New types of NBFCs to be registered Minimum NOF for NBFCs 3rd September 2011 NBFCs - Jayant Thakur 15

16 SEBI PROPOSED AIF REGULATIONS Relevance for NBFCs Deposits Vs. Shares Background of Regulations New way to structure certain entities Minimum net worth Minimum involvement of Promoters Detailed, micro-regulations of AIFs Registration Types Straight-jacketed categories 3rd September 2011 NBFCs - Jayant Thakur 16

17 SEBI PROPOSED AIF REGULATIONS No and minimum amount by investors Maximum size of funds Investment pattern of fund All existing and new AIFs to register Existing VCFs excepted 3rd September 2011 NBFCs - Jayant Thakur 17

18 SEBI s Sahara Order Relevance for NBFCs and others Background Alleged raising of funds through OFCDs Small unit size of OFCDs Possibly thousands of subscribers 3rd September 2011 NBFCs - Jayant Thakur 18

19 SEBI s Sahara Order SEBI s interpretation re Section 67(3) even if an issue is made by way of private placement to fifty or more persons, it would be deemed to be a public issue irrespective of whether it was offered to public at large or to just a section of the public chosen, in whatever manner. associated/affiliated or connected with Sahara India Group of Companies Other implications NBFC Directions and other law relating to deposits SEBI Regulations 3rd September 2011 NBFCs - Jayant Thakur 19

20 States Depositors Protection Act Recent Supreme Court decision K. K. Baskaran (C.A of 2011 dated 4 th March 2011) Constitutional validity Earlier Bombay High Court FB decision Maharashtra, Gujarat, Tamil Nadu, Bihar, etc. 3rd September 2011 NBFCs - Jayant Thakur 20

21 States Depositors Protection Act Broad features of state laws Financial/non-financial establishments Company/non-company Deposits in cash/kind Limited exemptions Unreasonably high interest or unreasonable deployment of funds Fraudulent intent actual/deemed Punishment/attachment of assets of Company, promoters, employees, etc. Supreme Court s decision 3rd September 2011 NBFCs - Jayant Thakur 21