What changed
RBI issued a consolidated notification updating the NBFC Auditor's Report Directions 2008 to include all amendments up to June 30, 2013. The key change is that auditors must now verify and report on whether an NBFC's asset/income pattern as of March 31 qualifies it to continue holding its Certificate of Registration. This applies to both deposit-taking and non-deposit-taking NBFCs, with specific prudential norm references.
What it means for you
For NBFCs, this means auditors will scrutinize asset and income composition more closely to ensure ongoing eligibility for registration. Banks lending to NBFCs should expect more rigorous audit reports that flag any registration or compliance issues, potentially affecting credit risk assessments. Lenders must review these auditor reports to identify early warning signs of regulatory non-compliance.
What you must do
- Review your NBFC borrowers' latest auditor reports for any qualifications on registration or asset/income patterns.
- Update credit risk assessment frameworks to incorporate findings from the mandatory auditor report under these directions.
- Ensure internal audit teams are aware of the specific reporting requirements for NBFCs, especially regarding CoR eligibility.
- Coordinate with NBFC clients to obtain the separate auditor report to the board as required by paragraph 2 of the directions.
Who it affects
All NBFCs (except residuary and miscellaneous non-banking companies), Auditors of NBFCs, Banks and financial institutions lending to NBFCs, RBI's Department of Non-Banking Supervision
What is the main purpose of the updated NBFC Auditor's Report Directions?
The directions require auditors to submit a separate report to the NBFC's board covering specific regulatory compliance matters, including whether the company holds a valid Certificate of Registration and whether its asset/income pattern as of March 31 allows it to continue holding that registration.
Do these directions apply to all NBFCs?
They apply to every auditor of a non-banking financial company as defined in the RBI Act, but exclude residuary non-banking companies and miscellaneous non-banking companies as per the circular's address list.
How does this affect banks that lend to NBFCs?
Banks should review the auditor's report for any unfavorable or qualified statements regarding registration or prudential norms, as these could signal higher credit risk or regulatory issues with the NBFC borrower.