CA Final Class Notes

NBFC Definition: ○​ Additionally:

45 I(f) of Reserve Bank of India (Amendment) Act, 1997 ■​ NBFC-IFC (Infrastructure Finance Companies)
defines a NBFC as: and
●​ A financial institution which is a company; ■​ IDF-NBFC (Infrastructure Debt Fund - NBFC)
●​ A non-banking institution which is a company and which ■​ must maintain an NOF of ₹300 crore​
has as its principal business the receiving of deposits, or ●​ Core Investment Companies (CICs):
lending in any manner; ○​ Exempt from RBI registration if:
●​ Other non-banking institutions specified by RBI with CG ■​ Asset size < ₹100 Crore, or
approval and notified in the Official Gazette. ■​ Asset size ≥ ₹100 Crore but no public funds.

Asset & Income Condition for NBFC

●​ Financial assets
🔥
> 50% of total assets (netted off by
(Core investment companies are NBFCs that invest in shares for

the purpose of owning a stake in a company, rather than for

intangible assets) (Intangible assets will be deducted trading.)

​
from total assets)

from financial assets > 50% of gross income.

Path for Net Owned Fund (NOF) Requirement:
●​ Income
●​ NBFC-Investment & Credit Company (NBFC-ICC)
●​ Must meet both conditions to qualify as an NBFC and
○​ ₹2 crore → ₹5 crore by March 31, 2025 → ₹10
register with RBI.
crore by March 31, 2027.
●​ Assessment based on the last audited financial
●​ NBFC-Micro Finance Institution (NBFC-MFI)
statements.
○​ ₹5 crore (₹2 crore in NE region) → ₹7 crore (₹5
crore in NE region) by March 31, 2025 → ₹10
Differences Between Banks & NBFCs:
crore by March 31, 2027.
●​ NBFCs cannot accept demand deposits (some can accept
●​ NBFC-Factor
term deposits).
○​ ₹5 crore → ₹7 crore by March 31, 2025 → ₹10
●​ NBFCs are not part of the payment & settlement
crore by March 31, 2027.
system.

●​ No deposit insurance from DICGC - Deposit Insurance An NBFC-Factor is a type of Non-Banking Financial Company
and Credit Guarantee Corporation for NBFC depositors. (NBFC) that specializes in factoring services, which involve the

●​ No minimum priority sector lending requirement for purchase of receivables (invoices) from businesses at a discount

NBFCs. to provide them with immediate liquidity.

Companies exempted from registration under RBI

NBFC Registration & Regulation:

●​ As per Section 45-IA of RBI Act, 1997: Regulated by other regulators:

○​ NBFCs must obtain RBI registration before starting ●​ SEBI:
business and ○​ Stock Exchanges
○​ Minimum Net Owned Fund (NOF): ₹10 Crore (earlier ○​ Merchant Banking Companies
₹2 Crore). ○​ Companies engaged in the business of
○​ Apply with prescribed form & documents; RBI stock-broking/ sub-broking
grants registration after verifying compliance. ○​ Venture Capital Fund Companies
COR - Certificate of registration will be provided. ●​ National Housing Bank:
●​ Existing NBFCs NOF Requirement ○​ Housing Finance Institutions
○​ Must meet ₹10 Crore NOF by 31st March 2027 ●​ MCA
(phased manner). ○​ Nidhi Companies
○​ Exceptions: NBFC-P2P, NBFC-AA, NBFCs with no ●​ IRDAI
public funds & no customer interface (NOF remains
○​ Insurance companies
₹2 Crore). ●​ Other regulators
○​ Chit Companies

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 CA Final Class Notes

○​ Specified Micro Finance Companies ○​ Infrastructure Debt Fund-NBFCs (IDF-NBFCs),

○​ Securitisation and Reconstruction Companies ○​ Core Investment Companies (CICs),
○​ Mutual Benefit Companies ○​ Housing Finance Companies (HFCs),
○​ CIC- NSI ○​ and Infrastructure Finance Companies
○​ Alternative Investment Fund (AIF) Companies. (NBFC-IFCs).

Scale-Based Regulation (SBR) Housing Finance Companies (HFC) will be in the Middle or
Scale-Based Regulation (SBR) effective 01 October 2022, Upper Layer (not Base Layer).
revises Non-Banking Financial Company (NBFC)
classification & regulations based on four layers (size, Standalone Primary Dealers (SPD) and Infrastructure Debt
activity, risk). Fund-NBFCs (IDF-NBFCs) will always be in the Middle Layer.

NBFC Layers Investment and Credit Companies (NBFC-ICC), Micro

Base Layer (NBFC-BL)
Finance Institutions (NBFC-MFI), NBFC-Factors, and
●​ Non-deposit taking NBFCs with asset size below ₹1000 Mortgage Guarantee Companies (NBFC-MGC) can be placed
crore. in any layer based on regulatory framework parameters.
●​ Includes (Always)
○​ NBFC-Peer to Peer Lending Platform (NBFC-P2P), Government-owned NBFCs will be in Base or Middle Layer but
○​ NBFC-Account Aggregator (NBFC-AA), not in the Upper Layer until further notice.
○​ Non-Operative Financial Holding Company
(NOFHC), and Standalone Primary Dealers (SPDs) are specialized Non-Banking

○​ NBFCs without public funds or customer interface.​ Financial Companies (NBFCs) that deal exclusively in government

securities (G-Secs) to promote the development of the

●​ NBFC-P2P (Peer to Peer Lending Platform)

government securities market and enhance liquidity. ​
○​ Acts as an intermediary between lenders & borrowers

via an online platform. Upper Layer (NBFC-UL)

○​ Does not lend its own funds or accept deposits. ●​ Identified by RBI for enhanced regulatory requirements.
●​ NBFC-AA (Account Aggregator)
●​ Top 10 NBFCs by asset size are always included.​
○​ Provides a digital platform to share financial data with

institutions.
Top Layer (NBFC-TL)
○​ Works only with customer consent, does not store

financial data.
●​ Ideally it remains empty.
○​ Helps users manage financial information in one place. ●​ RBI may move NBFCs from the Upper Layer if they pose
●​ NOFHC (Non-Operative Financial Holding Company) systemic risk.
○​ Holds & controls financial subsidiaries

○​ Does not conduct lending or deposit-taking directly. Systemic Risk refers to the potential for a collapse or crisis in

●​ NBFCs Without Public Funds or Customer Interface the entire financial system due to the failure of a single large

○​ Do not accept public deposits or borrow from the public. financial institution or a group of interconnected institutions. It

○​ No direct dealings with customers. can lead to widespread disruptions in financial markets, affecting

○​ Typically involved in investments, advisory, or financial banks, NBFCs, investors, and the economy as a whole.

management. ​
Categorisation of NBFCs carrying out specific activity -

Middle Layer (NBFC-ML) Exam Question.

●​ All deposit-taking NBFCs, regardless of size. As the regulatory structure envisages scale based as well as

●​ Non-deposit taking NBFCs with asset size ₹1000 crore & activity-based regulation, the following prescriptions shall

above. apply in respect of the NBFCs

●​ NBFC-P2P, NBFC-AA, NOFHC and NBFCs without public

●​ Includes
funds and customer interface will always remain in the
○​ Standalone Primary Dealers (SPDs), Base Layer of the regulatory structure.

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 CA Final Class Notes

●​ NBFC-D, CIC, IFC and HFC will be included in the Middle

Layer or the Upper Layer (and not in the Base layer), as

the case may be. SPD and IDF-NBFC will always remain in

the Middle Layer.

●​ The remaining NBFCs, viz., Investment and Credit

Companies (NBFC-ICC), Micro Finance Institution

(NBFC-MFI), NBFC-Factors and Mortgage Guarantee

Companies (NBFC-MGC) could lie in any of the layers of

the regulatory structure depending on the parameters

of the scale based regulatory framework.

●​ Government owned NBFCs shall be placed in the Base

Layer or Middle Layer, as the case may be. They will not

be placed in the Upper Layer till further notice.

🤔 Hybrid debt combines features of both debt and equity.

Acts like debt (fixed interest payments) but can convert into

equity under certain conditions. Used by NBFCs to raise

capital while keeping debt obligations flexible

🤔 Subordinated Debt

Long-term borrowings that rank lower than other debts in

case of bankruptcy. Repaid after senior debt (e.g., bank

loans) but before equity holders.

What are Risk-Weighted Assets (RWA)?

●​ Capital requirement is calculated w.r.t RWAs

●​ Every asset carries different risks.
●​ Higher the risk higher the risk weight is assigned to that
asset.
●​ Example of risk weights:
○​ Cash & Government Bonds: 0% risk weight (safe, no
capital needed).
○​ Credit Card Receivables - 125%.

Risk Weight “0” - ZERO Percentage Weight

●​ Cash and bank balances including fixed deposits and

certificates of deposits with banks
●​ Approved securities
●​ Loans and advances fully secured against deposits held.

🤔 Perpetual Debt Instruments (PDI) are a type of debt that

●​ Loans to staff
●​ Income tax deducted at source (net of provision)
does not have a fixed maturity date and can be used as
●​ Advance tax (net of provision)
●​ Interest due on Govt security
capital by NBFCs

●​ Fund based claims on CG

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 CA Final Class Notes

●​ Direct loan / credit / overdraft exposure and Asset classification and Provisioning

investment in State Government securities Every NBFC shall, after taking into account the degree of
●​ CG Guaranteed claims well-defined credit weaknesses and extent of dependence on
collateral security for realisation, classify its credit into the
Risk Weight 20% - Twenty Percentage Weight following classes, namely:
●​ Bonds of public sector banks ●​ Standard assets;
●​ State Government guaranteed claims, which have not ●​ Sub-standard assets;
remained in default / which are in default for a period ●​ Doubtful assets; and
not more than 90 days. ●​ Loss assets.

Risk weight 50% Rescheduling does not upgrade assets unless conditions are
All assets covering PPP and Post Commercial operation date met.
infrastructure projects in existence over a year of
commercial operations. Standar No default in repayment of principal or payment

😎 ABC NBFC Ltd. gives a loan of ₹ 200 crore to a highway

project under PPP. The project has been operating for more
d Asset of interest is perceived and which does not
disclose any problem or carry more than normal
than a year and is generating stable toll revenue. Since it
risk attached to the business;
qualifies for 50% risk weight, the risk-weighted asset (RWA)

will be ₹100 crore (i.e., 50% of ₹ 200 crore). Provision

Now, for capital requirement calculations: NBFC-ML - 0.40%
●​ Minimum Capital Requirement = 15% of RWA = 15% of NBFC-BL - 0.25%
₹ 100 crore = ₹ 15 crore.

●​ Without the 50% risk weight benefit, the required capital NPA More than 180 days overdue for interest,
would have been ₹ 30 crore. principal, or other dues.

Risk Weight - 100% - Others

However, as per the glide path, this limit is being
reduced to 90 days as follows:
Risk Weight - 125%
●​ More than 150 days overdue → By March 31,
●​ Consumer credit exposure (outstanding as well as new)
2024
categorised as retail loans, excluding housing loans,
●​ More than 120 days overdue → By March 31,
educational loans, vehicle loans, loans against gold
2025
jewellery and microfinance/ Self-Help Group - SHG loans
●​ More than 90 days overdue → By March 31,
●​ Credit Card Receivables
2026.
Income Recognition
From April 1, 2026, any loan overdue for more
●​ The income recognition shall be based on recognised
than 90 days will be immediately classified as an
accounting principles.
NPA
●​ Income including interest/ discount/ hire charges/ lease
rentals or any other charges on NPA shall be recognised
If a borrower has multiple credit facilities from
only when it is actually realised.
an NBFC, and any one of those facilities turns
●​ Any such income recognised before the asset became
into an NPA, then all other outstanding credit
non-performing and remaining unrealised shall be
facilities provided to that borrower also get
reversed.
classified as NPAs.​
​

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 CA Final Class Notes

Exception - Unlike normal loans, where one

defaulting loan makes all loans NPA, lease and
hire purchase accounts are classified

independently based on their own repayment

history.

Sub-Sta NPA for ≤18 months (except NBFC-ML & above).

ndard NPA for ≤12 months (for NBFC-ML & above).
Asset Renegotiated, rescheduled, or restructured
assets until one year of satisfactory
performance.
Provision - 10% NOTES
●​ The provision towards standard assets need not be
Doubtful NBFC BL
netted from gross advances but shall be shown
Asset Remains a sub-standard asset for a period > 18
separately as 'Contingent Provisions against Standard
months'
Assets' in the balance sheet.
​
●​ The asset classification norms shall apply to every
NBFC ML & above
applicable NBFC (except NBFC-MFIs)
Remains a sub-standard asset for a period > 12
months' AUDIT PROCEDURES w.r.t NBFC

The following are the necessary steps involved

Provision ​
Unsecured - 100% Ascertaining the Business of the Company

Secured Auditors should

○​ Doubtful upto 1 year - 20% ●​ examine the Memorandum and Articles of Association,
○​ Above 1 year up to 3 year - 30% ●​ minutes of meetings, and
○​ More than 3 years - 50% ●​ business strategy to identify the principal business
activities.
Loss Identified as loss asset by the NBFC or its
This helps determine NBFC classification and compliance
asset internal or external auditor or during the
with public deposit limits.
inspection of the applicable NBFC.
Evaluation of Internal Control System
An asset which is adversely affected by a ●​ Auditors should understand the NBFCs accounting
potential threat of non-recoverability - due to system and controls.
either erosion in the value of security or - ●​ Auditor must evaluate the effectiveness of the recovery
non-availability of security or - due to any system.

fraudulent act or omission on the part of the ●​ Check if NBFC has a periodic review system for
borrower advances.

●​ Lack of a review system may increase NPAs.

Provision - 100%
Registration with the RBI and NOF Requirement

Auditors should verify compliance with Section 45-IA,

including valid registration certificate and minimum net
owned fund (NOF) of ₹10 crore or other limits as discussed
earlier. If NBFC holds Public Deposits, required to invest

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 CA Final Class Notes

specified %age in liquid assets as per RBI. Quarterly returns 4.​ Confirm if the NBFC's investments in approved liquid
filed as per RBI norms. assets are safely stored with a scheduled bank, as per

RBI's directions.
NBFC Acceptance of Public Deposit Directions (Non-Banking 5.​ Check whether the NBFC has filed its prescribed returns
Financial Companies Acceptance of Public Deposits (Reserve in a timely manner.
Bank) Directions, 2016)
6.​ Verify if NBFCs not accepting public deposits have a
The ceiling on the quantum of public deposits has been board resolution confirming they won't accept any such
linked to its credit rating as given by an approved credit deposits during the year.
rating agency. 7.​ For Group Holding Investment Companies, check whether
the NBFC has passed a board resolution that the
In the event of upgrading/downgrading of credit rating, the company has invested or would invest in shares and
NBFC will have to increase/reduce its public deposits in securities of group companies and would not trade in
accordance with the revised credit rating within the specified such shares/securities and has neither accepted nor
time frame. would accept any public deposits.

In event of downgrading of credit rating below minimum NBFC Prudential Norms

1.​ Verify compliance with Prudential norms: income

specified investment grade, the NBFC shall:
recognition, income from investments, accounting
(a) stop accepting fresh public deposits and renewing
standards, asset classification, provisioning for bad and
existing deposits;
doubtful debts, capital adequacy norms, prohibition on
(b) all existing deposits shall run off to maturity; and
loans against own shares, concentration of
(c) report the position within 15 working days to the credit/investments.
concerned Regional Office of the RBI. 2.​ Ensure that the Board of Directors of every NBFC
granting demand/call loans shall frame and implement a
CA Nadar is conducting the statutory audit of RHL Ltd., a
policy.
3.​ Assess compliance with prudential norms. Verify
non-banking financial company. It has branches in various parts

of India. The company with a focus on housing finance, has

outstanding non convertible debentures worth ₹ 150 Crores. The

advance properly classified as std, sub std, doubtful &
company reportedly missed interest payments of ₹ 15 Crores on loss assets & proper provisions made
its debts because of inadequate liquidity. As a result, RHL Ltd. 4.​ For Non-Performing Assets, check whether the
faced a series of downgrades by rating agencies on its debts over unrealised income has not been taken to the Profit &
the past two months. Rating was cut to D from A4 implying that
Loss Account on an accrual basis. Income from NPAs
should be accounted for on a realisation basis only.
the company was in default or expected to be in default soon.

What aspects CA Nadar should look into in relation to the activity

of mobilization of public deposits (particularly in relation to

5.​ Earlier NPAs remain NPAs unless the account becomes
downgrading of credit facilities) by RHL Ltd? regular per Directions.
(SA, Nov 2020, 5 marks) (MTP1, May 2022, 5 marks) (MTP2, May

2023, 5 marks) CLASSIFICATION OF FRAUDS BY NBFC

In order to have uniformity in reporting, frauds have been

Other points classified as under based mainly on the provisions of the
1.​ Test check interest, brokerage, and calculations for Indian Penal Code
compliance. a.​ Misappropriation and criminal breach of trust.
2.​ Ensure deposits are accepted/renewed only via written b.​ Fraudulent encashment through forged instruments,
application form manipulation of books of account or through fictitious
3.​ Ensure the NBFCs deposit register is accurate and accounts and conversion of property.
payments are timely, noting any delays or defaults. c.​ Unauthorised credit facilities extended for reward or
for illegal gratification.

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 CA Final Class Notes

d.​ Negligence and cash shortages. 11.​ Lending/Investment Limits – Confirm NBFC has not
e.​ Cheating and forgery. exceeded lending/investment limits for a single
f.​ Irregularities in foreign exchange transactions. borrower/group.
g.​ Any other type of fraud not coming under the specific
heads as above. Note: Checklist is illustrative; audit procedures vary based
on NBFC size and nature.
Negligence & foreign exchange irregularities reported as
fraud if intent to cheat is suspected/proven. AUDITOR’S DUTY to Report to Board of Directors under RBI

Directions

Cases where fraudulent intention is not suspected/proved

will be treated as fraud:
Separate report to BOD

In addition to the auditor’s report under Section 143 of the

●​ Cash shortages >₹10,000.
Companies Act, 2013, a separate report must be submitted
●​ Cash shortages >₹5,000 if detected by
to the Board of Directors.
management/auditor but unreported by the persons
handling cash Material to be included in the Auditor's report to the Board

of Directors

NBFCs with overseas branches must report frauds to RBI as The auditor's report on the accounts of a non-banking
per guidelines. financial company shall include a statement on the following
matters, namely-
Audit Check-List for NBFCs

1.​ Loan Appraisal & Recovery – Verify NBFCs loan In the case of all non-banking financial companies:

appraisal, follow-up system, and recovery trend to 1.​ Whether the company has obtained a Certificate of
assess NPAs. Registration (CoR) from RBI.
2.​ Loan Sanctioning – Check if loans/advances are 2.​ If holding CoR, whether it meets the Principal Business
properly sanctioned with required conditions (limits, Criteria (Financial asset/income pattern) as of March
security, interest, repayment terms). 31.
3.​ Loan Classification – Verify loan classification 3.​ Compliance with Net Owned Fund requirement as per
(standard, sub-standard, doubtful, loss assets). RBI directions
4.​ Provision for Bad Debts – Ensure provision for bad &
doubtful debts as per Prudential Norms. Statutory Auditor Certificate Submission for NBFCs:

5.​ Balance Confirmations – Obtain balance confirmations ●​ Every NBFC must obtain a certificate from its Statutory
from concerned parties. Auditor confirming
6.​ Security & Agreements – Verify security obtained, ○​ It is engaged in NBFC business requiring CoR
agreements, borrower/guarantor net worth, and ○​ It is eligible to hold CoR
realizability. ●​ Must be submitted to the Regional Office of the
7.​ Physical Verification of Securities – Physically verify Department of Non-Banking Supervision within
shares & securities; check bank/institution certificates. ○​ 5 working days from the Auditor’s Report signing.
8.​ Loans Against Own Shares – Ensure no loans are ○​ Not later than December 31st of the same year.
advanced against NBFCs own shares. ●​ Certificate refers to the company’s position as of March
9.​ Investment Valuation – Check investment valuation per 31st. Format issued under RBI Master Direction (Filing of
NBFC Prudential Norms and provision for market value Supervisory Returns) 2024.
decline.
10.​ Board Minutes Review – Review Board Minutes for
investment transactions; classify investments as
current/long-term.

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 CA Final Class Notes

In the case of a non-banking financial companies 4.​ Check the following

accepting/holding public deposits a.​ Whether the capital adequacy ratio as disclosed in
1.​ Ensure public deposits and other borrowings (including the return submitted to the RBI in form NBS -7,
unsecured NCDs/bonds & shareholder loans) comply has been correctly arrived at and whether such
with RBI limits. ratio is in compliance with the minimum CRAR
2.​ Verify if excess public deposits are regularized as per prescribed by the RBI;
RBI Directions. b.​ Whether the company has furnished to the RBI the
3.​ Whether NBFC is accepting "public deposit” without annual statement of capital funds, risk

minimum investment grade credit rating

assets/exposures and risk asset ratio (NBS-7)

4.​ Confirm if the Capital adequacy ratio is correctly within the stipulated period.
determined and check compliance with minimum CRAR 5.​ Whether the NBFC is correctly classified as an
as per RBI Directions. NBFC-MFI (Micro Finance Institution) per Reserve
5.​ Whether there are any violations of public deposit Bank's Directions.
acceptance rules per NBFC Acceptance of Public

Deposits Directions, 2016. In the case of a company engaged in the business of

6.​ Verify if the company has defaulted on interest or non-banking financial institution not required to hold CoR

principal payments to depositors. subject to certain conditions

7.​ Ensure adherence to income recognition, accounting Ensure that a company, advised not to hold CoR by RBI, is
standards, asset classification, provisioning for bad complying with stipulated conditions.
debts, and credit/investment concentration norms.
8.​ Confirm compliance with liquid assets requirement as Reasons to be stated for unfavourable or qualified

prescribed by RBI. statements

9.​ Whether the company has furnished to the RBI within In case of an unfavourable or qualified statement in the
the stipulated period DNBS 01 Return auditor's report, reasons must be provided; if an opinion
10.​ Whether the company has furnished to the RBI within cannot be formed on any item, this fact and the reasons
the stipulated period the quarterly return on prudential must be stated.
norms as per Reserve Bank of India (Filing of

Supervisory Returns) Directions - 2024; Obligation of auditor to submit an exception report to the

11.​ Check if the company follows RBI NBFC Public Deposits

RBI

●​ Required if statement regarding any of the items

Directions, 2016 for
referred to above is unfavorable or qualified
a.​ Opening new branches/offices for deposit
●​ Required if the company has not complied with:
collection.
○​ Chapter III B of RBI Act, 1934.
b.​ Closing existing branches/offices.
○​ NBFC Acceptance of Public Deposits (Reserve Bank)
c.​ Appointing agents.
Directions, 2016
In the case of a non-banking financial company not
○​ RBI Master Direction (Scale-Based Regulation),
accepting public deposits 2023.

1.​ Whether the Board of Directors has passed a resolution ●​ Report to the Regional Office of RBI's Department of
for non-acceptance of any public deposits; Non-Banking Supervision based on the company’s

2.​ Whether the company has accepted any public deposits registered office location.
during the relevant period/year; ●​ Report only violations of the RBI Act, 1934, related
3.​ Whether the company has complied with the prudential Directions, Guidelines, and Instructions.

norms relating to income recognition, accounting ●​ No need to confirm compliance—only report

standards, asset classification and provisioning for bad non-compliance.

and doubtful debts as applicable to it;

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 CA Final Class Notes

Applicability of Indian Accounting Standards (Ind AS) on

NBFCs

All NBFCs are required to comply with Ind AS

Differences between Division II (Ind- AS- Other than NBFCs)

and Division III (Ind- AS- NBFCs) of Schedule III

The presentation requirements under Division Ill for NBCs

are similar to Division II (Non NBFC) to a large extent
except for the following:
●​ Balance Sheet: NBFCs present items in order of
liquidity, unlike Division II companies.
●​ Other Income/Expenditure:
○​ NBFCs disclose items exceeding 1% of total income.
○​ Division II requires disclosure for items exceeding
1% of revenue from operations or ₹10 lakhs, Para 3(xvi) - Registration with RBI

whichever is higher. a.​ whether the company is required to be registered under

●​ Receivables Disclosure - NBFCs must disclose debts due section 45-IA of the Reserve Bank of India Act, 1934 (2

from an LLP where its director is a partner/member. of 1934) and if so, whether the registration has been
●​ Statement of Profit & Loss - NBFCs disclose ‘Revenue obtained;

from Operations’ & ‘Other Comprehensive Income’ on b.​ whether the company has conducted any Non-Banking
the face of the statement, not just in notes. Financial or Housing Finance activities without a valid
●​ Trade Receivables - Separate disclosure for receivables Certificate of Registration (CoR) from the Reserve Bank

with significant credit risk increase & credit impairment. of India as per the Reserve Bank of India Act, 1934;
●​ Statutory Reserves - Restrictions on distribution must c.​ whether the company is a Core Investment Company
be separately disclosed in notes. (CIC) as defined in the regulations made by the Reserve
Bank of India, if so, whether it continues to fulfil the
criteria of a CIC, and in case the company is an
Compliance with CARO 2020

Para 3(iii) - Investment / Guarantee / Security / Loans and

exempted or unregistered CIC, whether it continues to
fulfil such criteria; (CIC? CIC Criteria? Exemption?
Advances

Exemption Criteria?)
d.​ Whether the Group has more than one CIC as part of the
Group, if yes, indicate the number of CICs which are part
of the Group;

Core Investment Companies

●​ Core Investment Companies (CICs) are specialised Non-Banking

Financial Companies (NBFCs).

●​ A Core Investment Company registered with the RBI has an asset size

of above Rs 100 crore.

●​ Their main business is acquisition of shares and securities with certain

conditions.

Abhimanyu Finance Ltd. is a Non-Banking Finance Company and

has been in the business of accepting public deposits and giving

loans since 2015. The company was having net owned funds of ₹
1,50,00,000/-(one crore fifty lakhs) and was not having

registration certificate from RBI and applied for it on 30th March

2024. The company appointed Mr. Kabra as its statutory auditors

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 CA Final Class Notes

for the year 2023-24. Advise the auditor with reference to auditor

procedures to be taken and reporting requirements on the same

in view of CARO 2020? (ICAI Study Material - Test Your

Knowledge) (MTP1, May 2019, 6 marks) (MTP1, Nov 2021, 5

marks) (MTP2, Nov 2024, 5 marks)

Audit Procedures and Reporting

i)​ The auditor should examine the transactions of the

company with relation to the activities covered under
the RBI Act and directions related to NBFC
ii)​ The financial statements should be examined to
ascertain whether a company's financial assets
constitute more than 50% of the total assets and
income from financial assets constitute more than
50% of the gross income.
iii)​ Whether the company has net owned funds as
required for the registration as NBFC.
iv)​ Whether the company has obtained the registration
as NBFC, if not, the reasons should be sought from
the management and documented.
v)​ The auditor should report incorporating the
following:-
1)​ Whether the registration is required under
section 45-IA of the RBI Act, 1934.
2)​ If so, whether it has obtained the registration.
3)​ If the registration not obtained, reasons
thereof

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