What changed
RBI issued a master circular consolidating all existing corporate governance instructions for NBFCs as of June 30, 2009. It recommended that NBFCs with public deposits/deposits of ₹50 crore or more rotate audit firm partners every three years, with an interval of three years before the same partner can return. It also recommended that deposit-taking NBFCs with deposits of ₹20 crore or more and systemically important non-deposit-taking NBFCs (NBFC-ND-SI) with assets of ₹100 crore or more form Nomination Committees to ensure directors are 'fit and proper'.
What it means for you
NBFCs are advised to adopt audit partner rotation to enhance audit independence and governance. Larger NBFCs are recommended to set up Nomination Committees to vet director appointments, reducing regulatory risk. These measures align NBFC governance with global best practices, potentially increasing investor and depositor confidence but also adding compliance overhead.
What you must do
- Review your NBFC's deposit/asset size to determine applicable governance recommendations.
- If deposits are ₹50 crore or more, consider amending audit appointment letters to mandate partner rotation every 3 years with a 3-year interval before the same partner can return.
- For NBFC-D with deposits ≥₹20 crore or NBFC-ND-SI with assets ≥₹100 crore, form a Nomination Committee to assess 'fit and proper' status of directors.
- Ensure Audit Committee is already in place if assets are ₹50 crore or more; consider forming one if deposits are ₹20 crore or more.
- Document compliance with these governance guidelines for regulatory inspections.
Who it affects
All deposit-taking NBFCs (NBFC-D) with public deposits of ₹50 crore or more, All deposit-taking NBFCs with deposit size of ₹20 crore and above, All systemically important non-deposit-taking NBFCs (NBFC-ND-SI) with asset size of ₹100 crore and above, Audit firms and partners serving NBFCs
What is the audit partner rotation requirement for NBFCs?
NBFCs with public deposits/deposits of ₹50 crore or more are advised to rotate the audit partner every three years. The same partner should not audit the NBFC for more than three consecutive years, and after rotation, they can only return after a three-year interval.