Base Layer of NBFCs

The Base Layer of NBFCs includes:

1. Non-deposit taking NBFCs with an asset size below ₹1,000 crore.

2. NBFCs engaged in specific activities, including:
o NBFC-Peer to Peer Lending Platform (NBFC-P2P)
o NBFC-Account Aggregator (NBFC-AA)
o Non-Operative Financial Holding Company (NOFHC)
o NBFCs that do not avail public funds and have no customer interface

6. Checklist for Audit – Net Owned Fund

(NOF) Requirement for NBFCs
1. General Compliance

✅ Verify the classification of the NBFC (NBFC-ICC, NBFC-MFI, NBFC-Factor, NBFC-P2P,

NBFC-AA, NBFC-IFC, IDF-NBFC, etc.).
✅ Confirm the NOF requirement applicable to the specific NBFC category as per RBI guidelines.
✅ Check the Certificate of Registration (CoR) validity and compliance status with NOF norms.

2. Net Owned Fund (NOF) Calculation

✅ Verify NOF computation methodology as per RBI norms.

✅ Check the latest audited financial statements to validate the NOF reported.
✅ Ensure the NOF includes paid-up equity capital, free reserves, and excludes revaluation
reserves, intangible assets, and accumulated losses.
✅ Validate compliance with the following NOF thresholds:

By March 31,
NBFC Type Current NOF By March 31, 2025
2027

NBFC-ICC ₹2 crore ₹5 crore ₹10 crore

₹5 crore (₹2 crore in ₹7 crore (₹5 crore in

NBFC-MFI ₹10 crore
NE Region) NE Region)

NBFC-Factor ₹5 crore ₹7 crore ₹10 crore

NBFC-P2P, NBFC-AA, NBFC without public

₹2 crore No Change No Change
funds & customer interface

NBFC-IFC, IDF-NBFC ₹300 crore No Change No Change

 By March 31,
NBFC Type Current NOF By March 31, 2025
2027

3. Compliance with Transition Requirements

✅ Confirm the NOF level as of the current financial year.

✅ Verify whether the NBFC has achieved the prescribed NOF threshold as per the glide path.
✅ If the NOF is below the required threshold, assess the action plan for meeting compliance
within the stipulated period.

4. Regulatory Reporting & Disclosure

✅ Verify timely submission of NOF-related reports to RBI.

✅ Ensure correct NOF disclosures in financial statements and regulatory filings.
✅ Check board meeting minutes for discussions on NOF compliance.

5. Consequences of Non-Compliance

✅ Confirm that the NBFC is aware of the penalty for non-compliance (revocation of CoR).
✅ Assess risk mitigation measures in case of potential non-compliance.
✅ Verify contingency plans for capital infusion if required.

7. Checklist for Audit – Calculation of NOF

Considering Investments via Alternative
Investment Funds (AIFs)
1. General Compliance

✅ Verify the classification of the NBFC under RBI regulations.

✅ Check the Certificate of Registration (CoR) and confirm the NBFC's compliance with NOF
norms.
✅ Review the NBFC’s financial statements and regulatory filings for NOF disclosures.

2. NOF Calculation as per RBI Guidelines

✅ Verify the computation of NOF as per Section 45IA of the RBI Act, 1934.
✅ Ensure that investments/loans/exposures to subsidiaries, group companies, and other NBFCs
exceeding 10% of the aggregate of paid-up equity capital and free reserves are deducted
from NOF.

3. Investment Through Alternative Investment Funds (AIFs)

✅ Identify NBFC investments made directly or indirectly through AIFs.
✅ Determine whether the AIF is structured as a company or a trust:

 If AIF is in company form → Check if 50% or more of the funds in the AIF have come from the
NBFC.
 If AIF is in trust form → Verify if the NBFC is the beneficial owner and whether 50% or more of
the funds in the trust have come from the NBFC.

✅ If the above conditions are met, ensure the investment is deducted from NOF in the
calculation.
✅ Confirm that "substance over form" is applied while determining beneficial ownership and
control over AIF investments.

4. Regulatory Reporting & Disclosures

✅ Check if the NBFC has disclosed investments in AIFs in financial statements.

✅ Ensure that NOF-related regulatory reports submitted to the RBI include adjustments for AIF
investments.
✅ Verify the documentation supporting NBFC’s beneficial ownership and influence over AIFs.

5. Risk Assessment & Compliance Monitoring

✅ Assess the impact of AIF investments on the NOF position.

✅ Check if the NBFC has a compliance monitoring mechanism to track AIF investments and
their impact on NOF.
✅ Review board meeting minutes for discussions on AIF investments and NOF compliance.

8. Checklist for Audit – Investment from FATF

Non-Compliant Jurisdictions
1. General Compliance

✅ Verify the NBFC’s adherence to RBI regulations concerning investments from FATF non-
compliant jurisdictions.
✅ Check if the NBFC has policies in place to screen investors based on their jurisdiction of
origin.
✅ Ensure the NBFC maintains a list of FATF non-compliant jurisdictions for reference.

2. Screening of New Investors

✅ Identify any new investors (direct or indirect) from FATF non-compliant jurisdictions.
✅ Verify that new investors do not acquire ‘significant influence’ in the NBFC as per applicable
accounting standards.
✅ Ensure that new investors’ aggregate investment (directly or indirectly) remains below 20% of
the voting power (including potential voting power).
✅ Review the shareholding pattern and voting rights structure to check compliance.

3. Existing Investments from FATF Non-Compliant Jurisdictions

✅ Identify existing investors who held stakes before the jurisdiction was classified as FATF non-
compliant.
✅ Verify that these investors continue to hold their investments without violating new
restrictions.
✅ Ensure that any additional investments from existing investors comply with extant RBI
regulations.

4. Due Diligence and KYC Compliance

✅ Review investor KYC and due diligence documentation to determine the origin of funds.
✅ Confirm that the NBFC has conducted enhanced due diligence for investors from high-risk
jurisdictions.
✅ Check whether the NBFC has reported any suspicious transactions related to investments from
FATF non-compliant jurisdictions.

5. Regulatory Reporting & Disclosures

✅ Verify if the NBFC has properly disclosed its foreign investments in regulatory filings and
financial statements.
✅ Check if the NBFC has informed the RBI of any investments from FATF non-compliant
jurisdictions, if required.
✅ Ensure compliance with FEMA (Foreign Exchange Management Act) and RBI reporting
guidelines for foreign investments.

6. Risk Management & Internal Controls

✅ Assess the NBFC’s internal control framework for monitoring foreign investments.
✅ Verify board meeting minutes for discussions on investments from FATF non-compliant
jurisdictions.
✅ Check if any corrective action is planned or required to ensure continued compliance.

9. Checklist for Audit – Investment from FATF

Non-Compliant Jurisdictions
1. General Compliance

✅ Verify the NBFC’s adherence to RBI regulations concerning investments from FATF non-
compliant jurisdictions.
✅ Check if the NBFC has policies in place to screen investors based on their jurisdiction of
origin.
✅ Ensure the NBFC maintains a list of FATF non-compliant jurisdictions for reference.

2. Screening of New Investors

✅ Identify any new investors (direct or indirect) from FATF non-compliant jurisdictions.
✅ Verify that new investors do not acquire ‘significant influence’ in the NBFC as per applicable
accounting standards.
✅ Ensure that new investors’ aggregate investment (directly or indirectly) remains below 20% of
the voting power (including potential voting power).
✅ Review the shareholding pattern and voting rights structure to check compliance.

3. Existing Investments from FATF Non-Compliant Jurisdictions

✅ Identify existing investors who held stakes before the jurisdiction was classified as FATF non-
compliant.
✅ Verify that these investors continue to hold their investments without violating new
restrictions.
✅ Ensure that any additional investments from existing investors comply with extant RBI
regulations.

4. Due Diligence and KYC Compliance

✅ Review investor KYC and due diligence documentation to determine the origin of funds.
✅ Confirm that the NBFC has conducted enhanced due diligence for investors from high-risk
jurisdictions.
✅ Check whether the NBFC has reported any suspicious transactions related to investments from
FATF non-compliant jurisdictions.

5. Regulatory Reporting & Disclosures

✅ Verify if the NBFC has properly disclosed its foreign investments in regulatory filings and
financial statements.
✅ Check if the NBFC has informed the RBI of any investments from FATF non-compliant
jurisdictions, if required.
✅ Ensure compliance with FEMA (Foreign Exchange Management Act) and RBI reporting
guidelines for foreign investments.

6. Risk Management & Internal Controls

✅ Assess the NBFC’s internal control framework for monitoring foreign investments.
✅ Verify board meeting minutes for discussions on investments from FATF non-compliant
jurisdictions.
✅ Check if any corrective action is planned or required to ensure continued compliance.
10. Checklist for Audit – Compliance with
Accounting Standards for NBFCs
1. General Compliance

✅ Determine whether the NBFC is required to follow Indian Accounting Standards (Ind AS)
or Accounting Standards (AS) based on the Companies (Indian Accounting Standards) Rules,
2015.
✅ Verify that the financial statements are prepared in accordance with the applicable standards.
✅ Check if the NBFC has complied with Annex II of RBI Directions for Ind AS
implementation.

2. Financial Statements Preparation & Compliance

✅ Review whether the NBFC has correctly applied Ind AS or AS while preparing financial
statements.
✅ Ensure that financial statements include:

 Balance Sheet
 Profit & Loss Statement
 Cash Flow Statement
 Notes to Accounts
✅ Verify that the NBFC follows the presentation and disclosure requirements specified in RBI
guidelines.

3. Disclosure Requirements in Notes to Accounts

✅ Check that all disclosures required by RBI Directions and applicable accounting standards
are included.
✅ Review compliance with RBI-specific disclosures, including:

 Classification and provisioning for NPAs

 Liquidity risk management framework
 Related party transactions
 Segment reporting (if applicable)
 Fair value measurement disclosures (for Ind AS NBFCs)

4. Implementation of Ind AS (If Applicable)

✅ Verify compliance with Ind AS requirements, including:

 Ind AS 109 (Financial Instruments) – Classification, measurement, and impairment of financial

assets
 Ind AS 32 & Ind AS 107 – Financial liabilities and financial instruments disclosures
  Ind AS 115 (Revenue Recognition) – Proper revenue recognition for interest income, fees, and
commissions
 Ind AS 116 (Leases) – Proper accounting of lease transactions
✅ Ensure the Expected Credit Loss (ECL) model is followed for impairment provisioning as per
Ind AS 109.
✅ Check if the NBFC has reconciled differences between Ind AS and regulatory requirements, as
required by RBI.

5. Compliance for Non-Ind AS NBFCs (AS Framework)

✅ Ensure that the NBFC follows Accounting Standards (AS) notified under the Companies Act,
2013.
✅ Check whether any inconsistency exists between AS and RBI Directions, and ensure priority is
given to RBI compliance.

6. Internal Controls & Governance

✅ Verify board/management oversight on Ind AS/AS compliance.

✅ Review whether the NBFC has a system in place for regular updates on changes in accounting
standards.
✅ Assess whether the NBFC’s auditors have highlighted any material non-compliance in audit
reports.

7. Regulatory Reporting & Compliance

✅ Check if the NBFC has submitted required regulatory returns and financial statements to RBI
in the prescribed format.
✅ Verify if any deviations in accounting treatment have been disclosed and justified in the audit
report.

11. Checklist for Audit – Accounting for

Investments in NBFCs
1. General Compliance

✅ Verify that the NBFC follows RBI’s investment classification and valuation guidelines.
✅ Ensure investments are categorized correctly as current investments or long-term
investments based on their intent and holding period.
✅ Confirm that quoted and unquoted investments are classified as per the RBI's prescribed
categories.
2. Valuation of Quoted Current Investments

✅ Check whether investments are grouped into the following categories:

 Equity shares
 Preference shares
 Debentures and bonds
 Government securities (including treasury bills)
 Units of mutual funds
 Others

✅ Verify that quoted current investments are valued at cost or market value, whichever is
lower.
✅ Ensure that depreciation is provided for if the aggregate market value of a category is lower
than the aggregate cost.
✅ Confirm that appreciation is ignored if market value exceeds cost.
✅ Check that depreciation in one category is not set off against appreciation in another
category.

3. Valuation of Unquoted Current Investments

✅ Unquoted equity shares:

 Valued at cost or breakup value, whichever is lower.

 If necessary, verify if fair value is substituted for breakup value.
 If the balance sheet of the investee company is unavailable for two years, shares should be
valued at ₹1 per share.

✅ Unquoted preference shares:

 Valued at cost or face value, whichever is lower.

✅ Unquoted Government securities/Government-guaranteed bonds:

 Valued at carrying cost.

✅ Unquoted mutual fund units:

 Valued at the Net Asset Value (NAV) declared by the mutual fund.

✅ Commercial papers:

 Valued at carrying cost.

4. Valuation of Long-Term Investments

✅ Verify that long-term investments are valued in accordance with applicable Accounting
Standards (Ind AS or AS).
✅ Ensure proper impairment testing is conducted if there is a permanent decline in value.

5. Treatment of Unquoted Debentures

✅ Check if unquoted debentures are classified as:

 Term loans (if tenure is long-term)

 Other credit facilities (if applicable)

✅ Verify that income recognition and asset classification for unquoted debentures follow RBI
guidelines.

6. Disclosure & Reporting Compliance

✅ Ensure that investment details are properly disclosed in financial statements.

✅ Review whether the NBFC has followed proper income recognition norms for investment
income.
✅ Check if valuation methods and assumptions are documented and consistently applied.
✅ Verify if any deviations from RBI guidelines are disclosed in Notes to Accounts.

7. Internal Controls & Risk Management

✅ Assess whether the NBFC has investment policies and internal controls to ensure proper
classification and valuation.
✅ Check board/committee minutes for discussions on investment decisions.
✅ Ensure periodic review of investment valuation and provisioning.

12. Checklist for Audit – Income Recognition

in NBFCs
1. General Compliance

✅ Verify that the NBFC follows recognized accounting principles for income recognition.
✅ Ensure compliance with RBI's income recognition guidelines and applicable Accounting
Standards (Ind AS/AS).
2. Income Recognition for NPAs

✅ Confirm that income (interest, discount, hire charges, lease rentals, or other charges) on Non-
Performing Assets (NPAs) is recognized only when actually realized.
✅ Check if the NBFC has reversed any income that was:

 Recognized before the asset became an NPA.

 Remained unrealized after the asset was classified as an NPA.

3. Income Recognition for Standard Loans with Moratorium

✅ Identify loans where moratorium on interest repayment has been granted.

✅ Verify that interest income is recognized on accrual basis only for accounts classified as
‘Standard’.
✅ For NBFC-ML (Middle Layer) and NBFC-UL (Upper Layer):

 Evaluate whether the moratorium qualifies as ‘restructuring’ under RBI’s Prudential Framework
for Resolution of Stressed Assets (June 7, 2019).
 Ensure compliance with restructuring guidelines, if applicable.

4. Capitalized Interest for Loans Becoming NPA After Moratorium

✅ Check whether loans with an approved moratorium period have later turned into NPAs.
✅ Ensure that the capitalized interest accrued during the moratorium period is not reversed,
as per RBI guidelines.
✅ Verify whether proper documentation exists for such cases, ensuring that the moratorium was
granted at the time of loan sanction.

5. Interest and Other Income Recognition Practices

✅ Review NBFC’s interest income recognition policies and compare them with RBI and
accounting standard requirements.
✅ Verify recognition of:

 Processing fees
 Prepayment charges
 Late payment penalties
 Other ancillary charges
✅ Check whether fees and other charges are amortized properly where required under Ind AS
109 (for Ind AS NBFCs).

6. Internal Controls & Documentation

✅ Assess whether the NBFC has an automated system for income recognition and NPA
classification.
✅ Verify that interest accruals and reversals are properly documented in accounting records.
✅ Ensure that board/committee meeting minutes include discussions on income recognition
policies.
✅ Check if external auditors have flagged any issues regarding income recognition in previous
audit reports.

7. Regulatory Reporting & Disclosures

✅ Verify whether the NBFC has correctly disclosed interest income and NPA-related reversals in
financial statements and regulatory returns.
✅ Ensure that all deviations or policy changes are adequately disclosed in Notes to Accounts.

13. Income from Investments

1. Income from Dividend on Shares & Mutual Funds

✅ Verify that dividend income from shares of corporate bodies and mutual funds is
recognized on a cash basis.
✅ Ensure dividend income from corporate bodies is recognized on an accrual basis only when:

 The dividend has been declared at the AGM.

 The NBFC’s right to receive payment is established.

2. Income from Bonds & Debentures

✅ Confirm that income from bonds and debentures of corporate bodies and Government
securities/bonds is recognized on an accrual basis.
✅ Ensure that:

 The interest rate on these instruments is pre-determined.

 Interest is regularly serviced and not in arrears.

3. Income from Government-Guaranteed Securities

✅ Verify that income from securities of corporate bodies or PSUs, where:

  Interest & principal repayment are guaranteed by the Central or State Government,
 Is taken into account on an accrual basis.

14. Asset Classification Norms

✅ Verify that applicable NBFCs classify assets into:

 Standard Assets
 Sub-standard Assets
 Doubtful Assets
 Loss Assets

✅ Ensure that assets are not upgraded merely due to rescheduling unless conditions for
upgradation are met.

2. NPA Classification & Glide Path Compliance

✅ Confirm that NPA classification follows the revised norms:

 >150 days overdue by March 31, 2024

 >120 days overdue by March 31, 2025
 >90 days overdue by March 31, 2026

✅ Check that NBFCs already following 90-day NPA norm are complying.

3. Overdue & Special Mention Account (SMA) Classification

✅ Verify overdue amounts are flagged as per due dates in the loan agreement.
✅ Ensure that NBFCs classify SMA accounts based on delay periods:

 SMA-0: Up to 30 days overdue

 SMA-1: 31-60 days overdue
 SMA-2: 61-180 days overdue (subject to glide path)

✅ Confirm that SMA classification applies to all loans, including retail loans.
✅ Ensure borrower accounts are flagged as overdue during day-end processes on the due date.

4. NPA Upgradation Criteria

✅ Verify that loan accounts classified as NPAs are only upgraded to Standard Asset if:

 Entire arrears of interest and principal are paid for all credit facilities of the borrower.
 If classified as NPA due to restructuring, ensure upgradation follows specific guidelines.
5. Consumer Education on SMA/NPA

✅ Confirm that NBFCs have consumer education literature on their websites explaining:

 Overdue date
 SMA/NPA classification process
 Upgradation process with examples

✅ Check if educational material is displayed at NBFC branches through:

 Posters
 Other appropriate media

✅ Ensure front-line officers educate borrowers about SMA/NPA concepts during:

 Loan sanction
 Disbursal
 Renewal

15. Checklist for– Provisioning Requirements

for NBFCs
This checklist will help auditors verify compliance with RBI’s provisioning norms for different
categories of assets in an NBFC.

1. General Compliance

✅ Ensure that the NBFC follows RBI’s provisioning norms as per the latest directions.
✅ Verify whether the provisioning policy is documented and aligned with RBI guidelines.
✅ Check whether provisioning is reviewed periodically by management and the board.
✅ Confirm that provisioning is calculated based on the aging of overdue amounts and the
realisable value of security.
✅ Ensure that provisioning is not affected by income recognition policies (i.e., income may not
be recognized on NPAs, but provisions must still be made).

2. Loans, Advances, and Credit Facilities

A. Loss Assets

✅ Verify that 100% of the outstanding amount is provided for in loss assets.
✅ If the asset is retained in books, ensure the entire amount is provided.
B. Doubtful Assets

✅ Check if the unsecured portion of doubtful assets has a 100% provision.

✅ Ensure additional provisioning on the secured portion based on the period classified as
doubtful:

 Up to 1 year: 20% provision

 1 to 3 years: 30% provision
 More than 3 years: 50% provision

C. Sub-standard Assets

✅ Verify that 10% general provision is made for all sub-standard assets.

3. Hire Purchase & Leased Assets

A. Hire Purchase Assets

✅ Ensure that provisions are made for total dues (overdue + future installments) less:

 Unmatured finance charges not credited to the P&L.

 Depreciated value of the asset (20% straight-line depreciation per annum).
✅ For second-hand assets, check if depreciation is calculated based on actual cost.

B. Additional Provisions for Overdue Hire Purchase & Lease Rentals

✅ Verify provisioning based on overdue period:

 Up to 12 months: No provision
 12-24 months: 10% of net book value
 24-36 months: 40% of net book value
 36-48 months: 70% of net book value
 More than 48 months: 100% of net book value

✅ Ensure full provisioning of the net book value after 12 months from the last due
installment.

✅ Check if caution money/margin money or security deposits have been deducted correctly
from provisions as per RBI rules.
4. Restructured / Rescheduled Assets

✅ Verify that renegotiated or rescheduled assets are classified as sub-standard or remain in

their previous category (doubtful/loss).
✅ Ensure that necessary provisions continue to be made until the asset is upgraded.

5. Compliance with Financial Lease Provisioning (Post-April 1, 2001)

✅ Confirm that all financial leases written on or after April 1, 2001 follow hire purchase
provisioning norms.
✅ Verify that the balance sheet reflects these provisions correctly, as per paragraph 27.1.2 of RBI
Directions.

6. Regulatory Reporting & Disclosures

✅ Ensure that the provisions made are correctly disclosed in the financial statements.
✅ Check if provisioning details are included in Notes to Accounts as per Ind AS/AS.
✅ Verify that management has reported provisioning adequacy to the board and regulators.

16. Checklist for Audit – Standard Asset

Provisioning (NBFC-BL)
This checklist ensures compliance with RBI’s standard asset provisioning norms for NBFC-BL
(Base Layer NBFCs).

1. General Compliance

✅ Verify that the NBFC follows RBI’s latest directions on standard asset provisioning.
✅ Ensure that the provisioning policy is documented and approved by the board.
✅ Check whether provisioning calculations are based on outstanding loan amounts and applied
at the prescribed rate.

2. Standard Asset Provisioning

✅ Ensure that a 0.25% provision is made on total outstanding standard assets.

✅ Verify that the provision amount is not deducted from gross advances while calculating net
NPAs.
✅ Check that the provision is classified separately as ‘Contingent Provisions against Standard
Assets’ in the balance sheet.
✅ Ensure that provisions are calculated correctly and consistently across all standard loans.

3. Regulatory Reporting & Disclosures

✅ Confirm that provisioning details are clearly disclosed in the financial statements as per Ind
AS/AS requirements.
✅ Ensure that the provision is reported correctly in Notes to Accounts and in regulatory filings.
✅ Verify if the auditors and management review quarterly and annual provisioning adequacy.

17. Checklist for Audit – Projects Under

Implementation
This checklist ensures compliance with RBI’s guidelines for NBFCs regarding projects under
implementation, including deferment of Date of Commencement of Commercial Operations
(DCCO).

1. General Compliance

✅ Verify that the NBFC follows RBI’s guidelines on projects under implementation as per
Annex III.
✅ Ensure that internal policies and procedures align with RBI’s framework.
✅ Check whether NBFC management has proper documentation and a monitoring mechanism
for projects under implementation.

2. Classification & Asset Recognition

✅ Verify that loans granted for projects under implementation are classified correctly as per RBI
norms.
✅ Ensure that income recognition, asset classification, and provisioning (IRACP) norms are
applied correctly.
✅ Check if DCCO deferment is allowed only as per RBI’s guidelines for the Commercial Real
Estate (CRE) sector.

3. DCCO Deferment Guidelines

✅ Verify that DCCO extensions are granted only under RBI-permitted circumstances.
✅ Ensure that deferments do not exceed:
  One year for CRE projects
 Two years for other infrastructure projects
✅ Check if revised DCCO is approved by a competent authority and is properly documented.

4. Provisioning Requirements

✅ Confirm that provisioning is done as per RBI’s asset classification norms.

✅ Ensure that if a project is restructured, provisioning is made as per Prudential Norms on
Income Recognition and Asset Classification.

5. Monitoring & Reporting

✅ Check if there is regular monitoring of project progress against the revised DCCO.
✅ Ensure that proper disclosures are made in the financial statements and regulatory filings.
✅ Verify that auditors and compliance teams review the classification and provisioning status
periodically.

18. Checklist for Audit – Prudential

Framework for Resolution of Stressed Assets
This checklist ensures compliance with RBI’s Prudential Framework for Resolution of
Stressed Assets, applicable to NBFCs-D and non-deposit taking NBFCs with an asset size of
₹500 crore and above.

1. General Compliance

✅ Verify that the NBFC has implemented the Prudential Framework for Resolution of
Stressed Assets (June 7, 2019) and any subsequent amendments.
✅ Ensure that policies and procedures for stressed asset resolution are documented and
approved by the board.
✅ Check that the NBFC’s risk management framework incorporates RBI guidelines on
stressed asset management.

2. Identification & Classification of Stressed Assets

✅ Ensure that assets are classified correctly under Special Mention Accounts (SMA) as per
paragraph 87.2.2:
  SMA-0: Principal/interest overdue for 1-30 days
 SMA-1: Principal/interest overdue for 31-60 days
 SMA-2: Principal/interest overdue for 61-90 days
✅ Verify that the classification of SMA assets is accurate and updated regularly.

3. Resolution Plan (RP) Implementation

✅ Check if the NBFC has a structured Resolution Plan (RP) framework in place.
✅ Ensure that resolution plans are formulated within 30 days of an asset being classified as
SMA-2.
✅ Verify if the RP includes viable restructuring measures, such as:

 Modification in payment terms

 Conversion of debt into equity
 Fresh funding infusion
✅ Confirm that RPs are implemented within the 180-day timeline from the review period.

4. Board Oversight & Credit Monitoring

✅ Ensure that the Board of Directors and senior management regularly review stressed asset
reports.
✅ Verify that an independent credit monitoring system exists to track SMA and NPA accounts.
✅ Check if there is a mechanism for borrower engagement to assess stress indicators early.

5. Provisioning & Reporting

✅ Confirm that provisioning is done as per RBI’s IRACP norms for stressed assets.
✅ Ensure that proper disclosures are made in financial statements regarding stressed assets
and resolution measures.
✅ Check if RBI’s regulatory reporting requirements on stressed assets are timely and
accurate.

19. Internal Audit Checklist – Compromise

Settlements and Technical Write-offs
(As per RBI Circular dated June 08, 2023, applicable to all NBFCs)
This internal audit checklist ensures that the NBFC follows RBI guidelines for compromise
settlements and technical write-offs effectively and in compliance with regulatory
requirements.

1. Governance & Policy Compliance

✅ Check if the NBFC has a board-approved policy on compromise settlements and technical
write-offs.
✅ Verify that the policy covers:

 Eligibility criteria for settlement/write-offs.

 Approval hierarchy and delegation of authority.
 Criteria for assessing financial viability of settlements.
✅ Ensure that policy reviews and updates are conducted periodically.

2. Compromise Settlements Review

✅ Check if compromise settlements are executed only for genuine cases where full recovery is
not feasible.
✅ Verify that settlements are:

 Not granted to willful defaulters or fraud accounts unless approved by the Board.
 Properly documented, including financial assessment and justification for the settlement.
✅ Review whether all settlements are:
 Approved by the designated authority as per policy.
 Legally vetted and formally executed through agreements.
 Compliant with RBI’s regulatory reporting requirements.

3. Technical Write-offs Review

✅ Verify that write-offs are:

 Based on ageing analysis and recovery potential.

 Notified to the Board of Directors periodically.
✅ Check if written-off accounts are still subject to recovery efforts and tracked for potential
recoveries.
✅ Ensure that write-offs do not impact provisioning requirements under RBI norms.
4. Approvals & Authority Check

✅ Ensure that all settlements and write-offs follow the NBFC’s delegation of authority
framework.
✅ Verify that approval documents (Board/committee approvals) are available for audit.

5. Monitoring & Post-Settlement Compliance

✅ Confirm that settlements are being honored as per agreed terms (i.e., payments received as
per the settlement agreement).
✅ Check if the NBFC has a monitoring system for settled accounts to track compliance.
✅ Ensure that settlement failures are escalated for further action.

6. Internal Audit & Reporting

✅ Verify that the internal audit team periodically reviews settlements and write-offs.
✅ Ensure that exceptions, deviations, or potential violations are reported to the Board/Audit
Committee.
✅ Check if MIS reports on settlements/write-offs are generated and analyzed for trends.

7. Regulatory & Financial Disclosures

✅ Ensure compliance with RBI’s reporting requirements regarding:

 Disclosure of write-offs in financial statements.

 Regulatory reporting of settlements, if required.
✅ Verify that all necessary disclosures are accurate and filed on time.

This checklist helps internal auditors assess whether the NBFC’s settlement and write-off
processes are transparent, well-governed, and compliant with RBI norms.

20. Internal Audit Checklist – Relief Measures

by NBFCs in Areas Affected by Natural
Calamities
(As per RBI Master Direction – October 17, 2018, applicable mutatis mutandis to NBFCs)
This internal audit checklist ensures that the NBFC adheres to RBI’s guidelines for providing
relief measures in areas affected by natural calamities, ensuring compliance with regulatory
norms and efficient implementation.

1. Governance & Policy Compliance

✅ Verify if the NBFC has a board-approved policy for providing relief measures in calamity-
affected areas.
✅ Ensure the policy aligns with RBI Master Directions and includes:

 Eligibility criteria for relief.

 Loan restructuring guidelines.
 Timeline for implementation of relief measures.
✅ Confirm that the policy is reviewed and updated periodically.

2. Identification of Affected Areas

✅ Check if the NBFC follows the official identification of affected areas by:

 District Consultative Committees (DCC).

 State Level Bankers' Committees (SLBC).
✅ Ensure that relief measures are implemented only in designated calamity-affected areas.

3. Relief Measures Implementation

✅ Verify whether the NBFC has extended the following relief measures:

 Rescheduling of loan repayments for affected borrowers.

 Fresh loans/credit facilities for rebuilding livelihood and businesses.
 Reduction in interest rates or other concessions as per regulatory directions.
✅ Ensure that loan restructuring is done without asset classification downgrade for eligible
borrowers.
✅ Check if the NBFC communicates relief measures to affected customers clearly and
transparently.

4. Documentation & Approvals

✅ Verify that all relief measures are properly documented and approved by the designated
authority.
✅ Ensure that loan restructuring cases have:
  Clear justification for restructuring.
 Assessment of borrower’s repayment capacity post-calamity.
 Board/Audit Committee approvals for large-scale restructuring.

5. Monitoring & Follow-up

✅ Confirm that restructured loans are monitored separately to track repayment compliance.
✅ Ensure that a mechanism is in place to review relief effectiveness and escalate any non-
compliance.

6. Internal Audit & Reporting

✅ Verify if an internal audit review of relief measures is conducted periodically.

✅ Check if the NBFC submits regulatory reports on relief measures to:

 Reserve Bank of India (RBI).

 State/District-level banking committees (SLBC/DCC).
✅ Ensure that relief measures are disclosed appropriately in financial statements, if applicable.

7. Customer Communication & Awareness

✅ Ensure that affected borrowers are informed about available relief measures.
✅ Verify that NBFC branches in affected areas have:

 Displayed information about relief measures.

 Provided assistance in loan restructuring applications.

8. Compliance with RBI Guidelines

✅ Cross-check whether relief measures are aligned with RBI’s Master Direction and
subsequent amendments.
✅ Ensure that no ineligible borrower has availed of the relief measures.

This checklist helps auditors ensure that NBFCs provide timely, transparent, and compliant
relief measures to customers affected by natural calamities.
21. Internal Audit Checklist – Non-
Cooperative Borrowers
(As per RBI guidelines under Paragraph 21 of the NBFC Prudential Norms)

This internal audit checklist ensures that NBFCs identify, classify, and report non-cooperative
borrowers as per RBI regulations while maintaining adequate provisioning and compliance.

1. Identification of Non-Cooperative Borrowers

✅ Verify whether the NBFC has a defined policy for identifying non-cooperative borrowers.
✅ Ensure that the policy is aligned with RBI guidelines and includes:

 Criteria for classification as a non-cooperative borrower.

 Approval process for classification.
 Provisioning requirements.
✅ Check if borrowers are classified as non-cooperative only after:
 Failure to provide financial information after two reminders.
 Denial of access to pledged securities as per the loan agreement.
 Non-compliance with loan terms within the stipulated period.
 Hostile or vexatious behavior, including legal tactics to delay recovery.

2. Borrower Notification & Documentation

✅ Verify that the NBFC provides a 30-day notice period to borrowers before final classification.
✅ Check if proper documentation exists for:

 Correspondence with the borrower.

 Any responses or justifications provided.
 Final decision rationale for classification.

3. Reporting to CRILC & Regulatory Compliance

✅ Ensure that Notified NBFCs (NBFC-Factors, NBFC-D, and NBFCs with ₹500 crore+ asset
size) report non-cooperative borrowers to the Central Repository of Information on Large
Credits (CRILC).
✅ Check whether timely reporting is done in line with CRILC guidelines.
✅ Verify compliance with RBI circular [Link].20/21.04.048/2023-24 dated June 08,
2023 regarding classification and reporting of non-cooperative borrowers.
4. Enhanced/Accelerated Provisioning

✅ Confirm that a higher provisioning rate (5%) is applied to standard accounts of non-
cooperative borrowers.
✅ Ensure that accelerated provisioning is applied to NPAs involving non-cooperative
borrowers.
✅ Verify if new loans/exposures to:

 Non-cooperative borrowers
 Companies promoted by such borrowers
 Companies where such promoters/directors are on the board
are subjected to higher provisioning as per Annex IV of RBI guidelines.

5. Loan Recovery & Resolution Efforts

✅ Ensure that the NBFC has documented efforts to engage with borrowers before classifying
them as non-cooperative.
✅ Verify if a resolution mechanism exists to reclassify borrowers if they resume cooperation
and meet repayment obligations.
✅ Check if all legal proceedings and recovery actions are in line with NBFC’s recovery policy
and RBI norms.

6. Internal Controls & Audit Compliance

✅ Confirm that an independent internal audit team reviews non-cooperative borrower

classifications regularly.
✅ Ensure that the classification process is reviewed by senior management or the audit
committee.
✅ Verify if an annual report is prepared on non-cooperative borrowers for internal control and
regulatory compliance purposes.

7. Customer Communication & Transparency

✅ Ensure that borrowers receive proper intimation before and after classification.
✅ Verify if the NBFC has a grievance redressal mechanism for borrowers disputing their
classification.
8. Compliance with RBI Guidelines

✅ Cross-check whether all classifications, reporting, and provisioning measures comply with
RBI regulations.
✅ Ensure that periodic reviews and audits track any policy deviations or gaps in
implementation.

This checklist ensures that the NBFC maintains regulatory compliance, proper
documentation, and adequate provisioning for non-cooperative borrowers, mitigating risks
and improving financial stability.

22. Internal Audit Checklist – Restructuring of

Advances
(For Non-Deposit Taking NBFCs with Asset Size Less Than ₹500 Crore)

This checklist ensures compliance with RBI’s Annex III & Annex V regarding restructuring
and flexible structuring of advances by NBFCs.

1. Restructuring of Advances
A. Policy & Eligibility Check

✅ Verify whether the NBFC has a documented policy for restructuring advances, aligned with
RBI norms.
✅ Ensure that restructuring is approved by the Board and applicable only to eligible
borrowers.
✅ Confirm that restructuring is done only for accounts where:

 The borrower is facing genuine financial difficulty.

 The restructuring is expected to restore repayment ability.
 The restructuring does not conceal loan losses.

B. Classification & Asset Categorization

✅ Check if restructured advances are classified as per RBI norms:

 Standard Account (if restructured before becoming NPA).

 Sub-standard/Doubtful Asset (if already an NPA).
✅ Ensure that necessary provisioning is done based on the classification.
C. Documentation & Approvals

✅ Verify if proper documentation is maintained, including:

 Borrower’s request for restructuring.

 Justification for restructuring.
 Revised loan agreement & repayment schedule.
 Board/Committee approval.
✅ Ensure that all regulatory approvals (if required) are obtained.

D. Reporting & Monitoring

✅ Check if the restructured account is reviewed periodically to ensure repayment compliance.

✅ Confirm that restructured advances are reported as per RBI guidelines.

23. Flexible Structuring of Long-Term Project

Loans
. Flexible Structuring of Long-Term Project Loans (Infrastructure & Core
Industries)
A. Eligibility Criteria & Loan Assessment

✅ Verify that flexible structuring is only applicable to Infrastructure & Core Industry
projects.
✅ Check if the original loan tenor is 25 years or less with periodic refinancing options.
✅ Ensure that the loan is structured with proper financial viability assessments, including:

 Project cash flow projections.

 Economic feasibility reports.
 Risk assessment & mitigation strategies.

B. Loan Structuring & Repayment Terms

✅ Confirm that the loan structuring includes:

 Staggered repayment schedules.

 Refinancing provisions at regular intervals.
 No excessive reliance on restructuring to hide NPAs.
✅ Ensure that interest rates are market-linked and do not result in undue risk exposure.
C. Risk Management & Provisioning

✅ Check whether provisioning is done as per RBI prudential norms.

✅ Ensure that stress testing & scenario analysis are performed to assess the impact of flexible
structuring.

D. Monitoring & Reporting

✅ Verify that the NBFC continuously monitors project performance and repayment ability.
✅ Ensure that any deviation from the original structuring plan is documented and approved by
senior management.
✅ Check that reporting to RBI and regulatory authorities is done as required under Annex V.

24. Internal Audit Checklist – Refinancing of

Project Loans
(For Non-Deposit Taking NBFCs with Asset Size Less Than ₹500 Crore)

This checklist ensures compliance with RBI guidelines for refinancing infrastructure and
project loans under paragraph 24 of the directions.

1. Policy & Eligibility Check

✅ Verify if the NBFC has an internal policy for refinancing project loans, approved by the
Board.
✅ Confirm that refinancing is only applicable to eligible project loans:

 Infrastructure projects.
 Other long-term project loans.
✅ Ensure that refinancing is not classified as restructuring, provided it meets RBI’s criteria.

2. Refinancing Without Pre-Determined Agreement (For General

Infrastructure & Project Loans)
A. Loan Status & Compliance

✅ Verify that the loan is classified as ‘standard’ in the books of the existing lenders.
✅ Ensure that the loan has not been restructured previously.
B. Take-Out Financing Conditions

✅ Check if the NBFC is taking over more than 50% of the outstanding loan value.
✅ Verify that the new repayment period is fixed based on:

 Project life cycle

 Expected cash flows from the project

3. Refinancing of Large Project Loans (Exposure ₹1,000 crore & above)

A. Project Qualification

✅ Confirm that the project has commenced commercial operations (post-DCCO).

✅ Ensure the new repayment period:

 Is based on the project’s cash flow and economic life.

 Does not exceed 85% of the initial economic life/concession period (for PPP projects).

B. Loan Takeover & Debt Structuring

✅ Verify that the loan is standard in the books of the existing lender.
✅ If it is a partial take-out financing, check that at least 25% of the outstanding loan value is
taken over by a new lender.
✅ Confirm that the promoters have infused additional equity, if required, to:

 Maintain acceptable Debt-Equity Ratio.

 Ensure a satisfactory Debt Service Coverage Ratio (DSCR).

4. Treatment of Working Capital Lenders

✅ If an NBFC providing working capital finance participates in take-out financing, confirm that
it is treated as a new lender under RBI guidelines.

5. Limitations & Restrictions

✅ Verify that the refinancing facility is availed only once during the life of the project loan.
✅ Ensure that no loan restructuring is disguised under refinancing.
6. Documentation & Approvals

✅ Check if proper documentation is maintained, including:

 Loan takeover agreement.

 Board approvals from both existing and new lenders.
 Justification for refinancing & project viability assessment.
 Revised loan repayment schedule.

7. Monitoring & Reporting

✅ Ensure that NBFC periodically reviews refinanced loans for performance & risk assessment.
✅ Verify that the NBFC reports refinanced loans in regulatory filings as per RBI norms.

25. Internal Audit Checklist – Framework for

Revitalizing Distressed Assets
(For Non-Deposit Taking NBFCs with Asset Size Less Than ₹500 Crore)

This checklist ensures compliance with RBI’s Framework for Revitalizing Distressed Assets,
including Joint Lenders’ Forum (JLF), Corrective Action Plan (CAP), and Strategic Debt
Restructuring (SDR) schemes.

1. Early Recognition of Financial Distress

✅ Verify if the NBFC has an internal policy for identifying early signs of financial distress.
✅ Check if an Early Warning System (EWS) is in place to track:

 Delays in repayment
 Deteriorating financial health of borrowers
 Credit rating downgrades
 Market intelligence reports on borrower distress

✅ Ensure Special Mention Account (SMA) categories are followed as per paragraph 87.2.2 of
RBI directions.
2. Prompt Steps for Resolution
A. Joint Lenders’ Forum (JLF) Participation

✅ If NBFC is part of a consortium lending arrangement, verify:

 Participation in JLF meetings as per RBI’s guidelines.

 Submission of borrower details to Central Repository of Information on Large Credits (CRILC).
 Timely decision-making for Corrective Action Plans (CAP).

B. Corrective Action Plan (CAP)

✅ Verify that the NBFC initiates one of the following CAP measures:

 Rectification of financial issues without restructuring.

 Restructuring the loan (if viable).
 Recovery through change in ownership or legal actions.

✅ Ensure that CAP decisions are taken within 30 days of financial distress identification.

3. Strategic Debt Restructuring (SDR) Scheme

✅ Check if SDR provisions are followed for:

 Change in management/control to a new promoter.

 Conversion of loan into equity to facilitate takeover by a new investor.
 Exit plan for lenders within the prescribed time frame.

✅ Ensure NBFC records equity conversion properly and follows fair valuation norms.

4. Classification & Reporting of Non-Cooperative Borrowers

✅ Check whether NBFC:

 Classifies non-cooperative borrowers as per December 22, 2014, circular.

 Reports such borrowers to CRILC.
 Applies higher provisioning (5%) for new loans to such borrowers.

5. Prudential Guidelines on Stressed Assets

✅ Ensure compliance with:

  October 21, 2014 & September 24, 2015 circulars on JLF & CAP.
 June 8, 2015 circular on SDR.
 February 25, 2016 circular on Prudential Guidelines for Stressed Assets.

✅ Verify that loan restructuring does not mask asset quality deterioration.

6. Documentation & Approvals

✅ Verify that necessary approvals are obtained for:

 JLF decisions.
 CAP measures.
 SDR execution.
 Loan restructuring cases.

✅ Ensure proper documentation of:

 Minutes of JLF meetings.

 Financial projections justifying restructuring.
 Borrower’s revised repayment schedule.

7. Monitoring & Follow-Up

✅ Check that the NBFC periodically monitors restructured assets for slippage into NPAs.
✅ Ensure reporting of stressed assets in regulatory returns.
✅ Verify that audit trails are maintained for all decisions under the revitalization framework.

26. Internal Audit Checklist – Liquidity Risk

Management Framework
(Applicable to NBFCs with Asset Size of ₹100 Crore and Above, Except Type I NBFCs,
NOFHCs, and SPDs)

This checklist ensures compliance with RBI’s Liquidity Risk Management (LRM)
Framework as per Annex VI of the Directions.
1. Governance & Oversight

✅ Verify that the Board of Directors has approved a Liquidity Risk Management (LRM)
Policy.
✅ Ensure that a Risk Management Committee (RMC) is in place to oversee liquidity risk.
✅ Check if an Asset-Liability Management Committee (ALCO) is established and meets
regularly.
✅ Verify that liquidity risk management is included in internal control & audit frameworks.

2. Liquidity Risk Measurement & Reporting

A. Liquidity Coverage & Stress Testing

✅ Check if the NBFC:

 Maintains an adequate liquidity buffer to cover net cash outflows for 30 days.
 Conducts periodic liquidity stress testing using different scenarios.

B. Liquidity Risk Monitoring Tools

✅ Ensure that the following reports are prepared and reviewed regularly:

 Structural Liquidity Statement (SLS) – Maturity profile of assets & liabilities.

 Liquidity Risk Tolerance Limits – Limits on cash flow mismatches.
 Contingency Funding Plan (CFP) – Strategy for handling liquidity crises.
 Stock of High-Quality Liquid Assets (HQLA) – Ensure sufficient liquid assets are maintained.
 Early Warning Indicators (EWI) – Regular monitoring of funding costs, credit spreads, and
market indicators.

✅ Verify that the NBFC submits regulatory liquidity reports to RBI as per prescribed formats.

3. Asset-Liability Management (ALM) Framework

✅ Check if an ALM Policy exists and covers:

 Gap limits for different time buckets (1-30 days, 1-2 months, etc.).
 Monitoring of cumulative mismatches in different maturity buckets.
 Review frequency and reporting structure.

✅ Verify that ALCO reviews are documented and action points are tracked.
4. Funding & Market Access

✅ Ensure that the NBFC:

 Has diversified funding sources (bank borrowings, bonds, deposits, etc.).

 Maintains contingency lines of credit for liquidity emergencies.
 Conducts periodic assessment of market conditions affecting liquidity risk.

5. Intra-Group Liquidity Risk

✅ Check if the NBFC has exposure to group entities and monitors:

 Inter-company lending and borrowings.

 Shared funding pools and liquidity support agreements.
 Risk concentrations within group entities.

6. Internal Controls & Compliance

✅ Verify that liquidity risk controls are tested as part of internal audit procedures.
✅ Ensure that deviations from liquidity risk limits are reported to the Board.
✅ Check if compliance with RBI guidelines is reviewed at least annually.
✅ Verify whether external audit or RBI inspections have raised any concerns about liquidity
risk management.

Conclusion

This checklist ensures that NBFCs comply with RBI’s Liquidity Risk Management
Framework, enhancing financial stability and resilience to liquidity shocks.

27. Internal Audit Checklist – Disclosures in

Financial Statements (Notes to Accounts)
(Applicable to all NBFCs as per RBI Directions & Annex VII)

This checklist ensures compliance with RBI’s disclosure requirements in financial statements
as per regulatory directions, accounting standards, and other applicable laws.
1. General Disclosure Requirements

✅ Verify that disclosures are made in financial statements as per RBI Directions and
applicable accounting standards.
✅ Ensure that disclosures are provided in addition to other regulatory requirements (e.g.,
Companies Act, 2013, Ind AS/IGAAP, SEBI regulations, etc.).
✅ Check whether detailed, transparent, and explanatory disclosures are provided to enhance
understanding of financial performance and position.

2. Provisions & Reserves Reporting

✅ Ensure that provisions are separately disclosed in the balance sheet without netting from
income or asset values.
✅ Verify that provisions are categorized under:

 Provisions for bad and doubtful debts

 Provisions for depreciation in investments
✅ Confirm that provisions are not adjusted against general provisions and loss reserves.
✅ Check that provisions for each year are debited to the Profit & Loss (P&L) account.
✅ Ensure that any excess provisions under general provisions/loss reserves are written back
without adjustments.

3. Specific Disclosures as per Annex VII

✅ Verify that all additional disclosure requirements in Annex VII are incorporated in the
financial statements.
✅ Check that disclosures applicable to lower layers of NBFCs are also included for higher-
layer NBFCs.
✅ Ensure that the disclosures are implemented from March 31, 2023, onwards as per RBI’s
timeline.

4. Classification & Layer-Specific Requirements

✅ Verify that NBFCs have identified their regulatory classification (NBFC-BL, NBFC-ML,
NBFC-UL) and disclosed accordingly.
✅ Ensure that disclosures comply with layer-wise applicability as outlined in Annex VII.
✅ Confirm that higher-layer NBFCs comply with all lower-layer disclosure requirements plus
additional ones as per Annex VII.
5. Compliance with Accounting Standards & Regulations

✅ Verify that disclosures align with:

 Ind AS/IGAAP accounting requirements.

 Companies Act, 2013 provisions for financial reporting.
 SEBI (if listed NBFC) requirements for listed entities.
✅ Ensure that auditors have checked, validated, and confirmed all disclosures.

6. Additional & Voluntary Disclosures

✅ Check whether the NBFC provides detailed and voluntary disclosures beyond the minimum
requirements, especially if they:

 Improve transparency.
 Aid in better understanding of financial health and performance.

7. Internal Controls & Compliance Review

✅ Verify that the Board/Audit Committee reviews the adequacy of disclosures in financial
statements.
✅ Ensure that disclosures are cross-checked with supporting documents (e.g., loan provisions,
investment impairment reports, ALM reports).
✅ Check whether any non-compliance issues were flagged by auditors or RBI inspections,
and corrective action was taken.

Conclusion: This checklist ensures that NBFCs comply with RBI’s financial disclosure requirements in a
structured and transparent manner.

28. Internal Audit Checklist – Policy on

Demand/Call Loans
(Applicable to NBFCs granting demand/call loans as per RBI Directions)

This checklist ensures that NBFCs granting demand/call loans comply with RBI’s policy
framework, governance, and risk management requirements.
1. Board-Approved Policy Compliance

✅ Verify whether the Board of Directors has formulated and approved a policy on
demand/call loans.
✅ Ensure that the policy is documented, implemented, and reviewed periodically.
✅ Check if the policy includes all RBI-mandated parameters for granting and managing such
loans.

2. Cut-off Date for Loan Repayment

✅ Ensure that the policy specifies a cut-off date within which repayment of demand or call loans
shall be demanded or called up.
✅ If the cut-off date exceeds one year from the sanction date, check whether specific reasons
are recorded in writing by the sanctioning authority.

3. Interest Rate & Payment Terms

✅ Verify that the policy defines the interest rate applicable on demand/call loans.
✅ Ensure that interest is payable on a monthly or quarterly basis as per the policy.
✅ If no interest is stipulated or a moratorium is granted, confirm that the sanctioning
authority has recorded specific reasons in writing.

4. Periodic Review of Loans

✅ Ensure that a cut-off date for reviewing loan performance is defined (not exceeding six
months from the date of sanction).
✅ Check that the loan renewal process includes a periodic review of performance and
compliance with sanction terms.
✅ Confirm that loans are not renewed unless a review demonstrates satisfactory compliance.

5. Documentation & Record-Keeping

✅ Verify that all demand/call loan approvals have written documentation justifying:

 Cut-off date for repayment (if beyond one year).

 Interest rate & moratorium (if applicable).
 Loan performance reviews (every six months).
✅ Ensure that records of loan approvals, renewals, and reviews are properly maintained and
available for audit.
6. Internal Controls & Compliance Review

✅ Verify that the Board/Audit Committee periodically reviews demand/call loans.

✅ Ensure that all loans comply with the approved policy, RBI guidelines, and internal
governance frameworks.
✅ Check whether past audit observations (if any) related to demand/call loans have been
addressed.

Conclusion

This checklist ensures NBFCs manage demand/call loans prudently, comply with RBI norms,
and maintain proper documentation.

29. Internal Audit Checklist – Investment

Policy
(Applicable to NBFCs as per RBI Directions)

This checklist ensures that NBFCs comply with RBI regulations on investment policy, proper
classification, inter-class transfers, and Board oversight.

1. Board-Approved Investment Policy

✅ Verify whether the Board of Directors has framed and approved a comprehensive
investment policy.
✅ Ensure that the policy is documented, implemented, and reviewed periodically.
✅ Check whether the criteria for classifying investments into current and long-term are
clearly defined in the policy.

2. Investment Classification

✅ Verify that all investments in securities are classified as either current or long-term at the
time of investment.
✅ Check whether classification criteria align with Board policy and RBI norms.
3. Inter-Class Transfers (Current to Long-Term & Vice Versa)

✅ Ensure that no ad-hoc transfers between current and long-term categories are taking place.
✅ Verify that inter-class transfers occur only at the beginning of each half-year (i.e., April 1 or
October 1) with Board approval.
✅ Check that transfers are done scrip-wise and not in bulk.
✅ Confirm that transfers are made at book value or market value, whichever is lower.

4. Depreciation & Appreciation Treatment

✅ Verify that any depreciation in transferred investments is fully provided for.

✅ Ensure that appreciation, if any, is ignored and not accounted for as unrealized gains.
✅ Confirm that depreciation in one scrip is not set off against appreciation in another, even if
they belong to the same investment category.

5. Record-Keeping & Documentation

✅ Check that investment transactions, classification, and transfers are properly documented.
✅ Verify that Board approval for inter-class transfers is recorded in meeting minutes.
✅ Ensure proper accounting entries are maintained in financial records as per investment
classification norms.

6. Internal Controls & Compliance Review

✅ Ensure that the Board/Audit Committee periodically reviews investment transactions.

✅ Verify compliance with RBI guidelines, the company’s investment policy, and accounting
standards.
✅ Check whether previous audit observations related to investments have been addressed.

30. Internal Audit Checklist – Accounting Year

Compliance
1. Balance Sheet & P&L Preparation
✔ Ensure financial statements are prepared as of March 31 each year and finalized within 3
months.
2. Extension of Balance Sheet Date
✔ Verify RBI approval was obtained before requesting an extension from the Registrar of
Companies (ROC).

3. Proforma Balance Sheet Submission (if extended)

✔ Confirm submission of unaudited proforma balance sheet and statutory returns to RBI by
March 31.

4. Compliance with Companies Act & Regulatory Reporting

✔ Ensure adherence to Companies Act, 2013, and timely statutory filings.

5. Internal Controls & Audit Review

✔ Check that financial statements are Board-approved and previous audit observations are
addressed.

31. Internal Audit Checklist – Schedule to the

Balance Sheet Compliance
✔ Inclusion of Prescribed Schedule

 Ensure that the schedule as set out in Annex VIII is appended to the balance sheet as required.

✔ Compliance with the Companies Act, 2013

 Verify that the format and disclosures are in line with the Companies Act, 2013.

✔ Accuracy & Completeness of Disclosures

 Cross-check financial data for completeness, accuracy, and consistency with other financial
statements.

✔ Regulatory & Statutory Requirements

 Ensure all mandatory financial details are included as per RBI guidelines.

✔ Board Approval & Filing

 Confirm that the balance sheet and its annexures have been approved by the Board and filed as
per due process.

Chapter V
 Regulatory Restrictions and Limits

32. Audit Checklist – Credit/Investment

Concentration Norms for NBFCs
✔ Prohibited Exposures Compliance

 Verify that the NBFC does not have any exposure (credit/investment) to:
o Promoters/Promoter Group entities
o Individuals associated with the Promoter Group or the NOFHC

✔ Investment Restrictions

 Ensure that the NBFC has not invested in:

o Equity/debt capital instruments of financial entities under NOFHC
o Equity instruments of other NOFHCs

✔ Regulatory Definitions Alignment

 Confirm that the definition of Promoter/Promoter Group is aligned with Annex I of the RBI's
Licensing Guidelines (Feb 22, 2013).

✔ Review of Financial Statements & Transactions

 Check investment registers, loan books, and disclosures to identify any non-compliant
exposures.

✔ Board & Compliance Oversight

 Ensure policies and internal controls are in place to prevent violations of these norms.

Audit Checklist – Declaration of Dividends by

NBFCs
✔ Board Considerations for Dividend Declaration

 Verify that the Board considers the following before approving dividends:
o Supervisory findings from the RBI on NPA classification/provisioning.
o Auditor’s report qualifications, if any, to the financial statements.
o Long-term growth plans of the NBFC.

✔ Eligibility Criteria for Dividend Declaration

 Check if the NBFC meets the following minimum prudential requirements:

 o Minimum capital requirements (including leverage ratio where applicable) for the last
three financial years.
o Net NPA ratio <6% for the last three financial years.
o Compliance with Section 45-IC of the RBI Act, 1934.
o No explicit RBI restrictions on dividend declaration.

✔ Dividend Payout Ratio Compliance

 Verify the maximum allowable dividend payout ratio:

o 50% cap for eligible NBFCs meeting prudential norms.
o No cap for NBFCs that do not accept public funds and have no customer interface.
o 10% cap for NBFCs that did not meet capital/net NPA criteria in the last three years but
meet them in the current year (Net NPA <4%).

✔ Regulatory Compliance & Reporting

 Ensure that the declared dividend does not exceed prescribed ceilings.
 Confirm that the NBFC submits the required report on dividend declaration to the RBI’s
Regional Office (as per Annex IX) within 15 days of declaration.

✔ Documentation & Approval Review

 Review Board meeting minutes and approvals for dividend declaration.

 Check that supporting financial statements justify the declared dividend.

34. Audit Checklist – Ceiling on IPO Funding

by NBFCs
1. Policy & Governance

✔ Verify if the NBFC has an internal policy for IPO financing.

✔ Check if the Board of Directors has approved the policy.
✔ Confirm whether the NBFC has set a more conservative limit than ₹1 crore, if applicable.

2. Loan Sanction & Documentation

✔ Ensure that funding per borrower does not exceed ₹1 crore.

✔ Verify that the purpose of the loan is explicitly mentioned as IPO financing in the loan
agreement.
✔ Check if proper KYC and due diligence have been conducted on the borrower.
✔ Ensure that necessary margin requirements are met as per internal policies.

3. Risk Management & Monitoring

✔ Confirm that there is a system in place to track exposure to IPO financing.
✔ Check if the borrower has adequate repayment capacity.
✔ Ensure monitoring to prevent misuse of funds (e.g., multiple IPO applications using different
accounts).

4. Compliance & Reporting

✔ Verify that the NBFC is complying with RBI’s ₹1 crore ceiling.

✔ Ensure that proper record-keeping is maintained for all IPO financing transactions.
✔ Check if there are any regulatory reports required to be submitted to the RBI or other
authorities.

35. Audit Checklist for Loans Against NBFC’s

Own Shares
✔ Policy Compliance: Ensure the NBFC has a policy prohibiting lending against its own shares,
approved by the Board.
✔ Loan Review: Verify that no loans have been sanctioned using NBFC’s own shares as
collateral.
✔ Risk Controls: Check for internal controls, system alerts, and monitoring mechanisms to
prevent violations.
✔ Regulatory Compliance: Confirm adherence to RBI regulations, internal audits, and absence
of regulatory breaches.

36. Audit Checklist – Loans Against Security

of Shares
1. Loan-to-Value (LTV) Compliance

✅ Verify that the NBFC maintains an LTV ratio of 50% for loans against listed shares.
✅ Ensure that LTV is monitored continuously, and any shortfall due to price fluctuations is
rectified within 7 working days.

2. Collateral and Security Review

✅ Confirm that for loans above ₹5 lakh, only Group 1 securities (as per SEBI guidelines) are
accepted as collateral.
✅ Ensure proper documentation of pledged shares and agreements.

3. Regulatory and Reporting Requirements

✅ Check if the NBFC reports pledged shares on a quarterly basis to stock exchanges.
✅ Validate the accuracy and timeliness of online reports as per Annex X format.
✅ Ensure compliance with SEBI & RBI guidelines for lending against shares.

4. Risk and Internal Control Measures

✅ Assess whether the NBFC has adequate risk management controls to prevent breaches of
LTV limits.
✅ Verify that loan sanctioning policies align with regulatory requirements.

37. Audit Checklist – Loans Against Gold

Jewellery
1. Loan-to-Value (LTV) Compliance

✅ Ensure the LTV ratio does not exceed 75% for loans against gold jewellery.
✅ Verify that the valuation considers only the intrinsic gold value, excluding making charges
and other costs.

2. Prohibited Advances

✅ Confirm that no loans are granted against bullion, primary gold, or gold coins.
✅ Check that no advances are sanctioned for gold purchases in any form, including ETFs and
mutual fund units.

3. Ownership Verification

✅ Ensure ownership verification is conducted for gold pledged above 20 grams.

✅ Confirm that ownership verification records are maintained per the NBFC’s board-approved
policy.

4. Standardization of Gold Valuation

✅ Check that valuation is based on the preceding 30-day average closing price of 22-carat
gold from the Bombay Bullion Association (BBA) or an RBI-approved commodity exchange.
✅ Ensure lower-purity gold is converted to 22-carat equivalent for valuation.
✅ Verify that borrowers receive a certificate stating purity and weight of pledged gold.

5. Auction Procedures

✅ Confirm that auctions take place in the same town/taluka where the loan was granted (or
within the district if pooling is required).
✅ Ensure a reserve price of at least 85% of the 30-day average price of 22-carat gold is
maintained.
✅ Verify that auction proceeds exceeding loan dues are refunded to the borrower.
✅ Check for annual report disclosures on auctions, including loan accounts, outstanding
amounts, and fetched values.

6. Safety & Security Measures

✅ Ensure secure vaults and security systems are in place at all branches dealing with gold
loans.
✅ Verify that new branches are not opened without proper storage and security
arrangements.

7. Regulatory Approvals for Branch Expansion

✅ Confirm that NBFCs with 1,000+ branches have RBI approval for further expansion.
✅ Ensure no new branches are opened without proper storage and security for pledged gold.

START FORM CHAPTER 6 PG 41

CHAPTER VI

38. Audit Checklist: Board Experience in

NBFCs
1. Board Qualifications – Ensure at least one director has relevant bank/NBFC experience.
2. Documentation – Verify resumes, appointment letters, and board meeting minutes.
3. Regulatory Compliance – Check adherence to RBI/SEBI guidelines and past regulatory records.
4. Training & Monitoring – Assess ongoing training and professional development of directors.
5. Governance & Risk Management – Ensure experienced directors contribute to financial
oversight and decision-making.

39. Audit Checklist: Risk Management Committee

(RMC) in NBFCs
1. Committee Formation – Verify RMC is constituted at Board/executive level with defined roles.
2. Documentation & Governance – Review RMC charter, meeting minutes, and reporting to the
Board.
3. Risk Assessment – Ensure evaluation of liquidity, credit, operational, and market risks.
4. Regulatory Compliance – Check adherence to RBI/SEBI guidelines and risk reporting.
 5. Monitoring & Oversight – Assess risk exposure tracking, internal audits, and implementation of
RMC recommendations.

[Link] Checklist: Loans to Directors &

Related Parties in NBFCs
1. Board Policy – Ensure a Board-approved policy exists with thresholds for reporting.
2. Loan Approvals – Verify documentation, due diligence, and Board reporting for high-value
loans.
3. Regulatory Compliance – Check adherence to RBI guidelines and disclosure in Annex XI format.
4. Reporting & Transparency – Review Board discussions and ensure financial statement
disclosures.
5. Monitoring & Oversight – Assess periodic reviews, independent audits, and risk controls.

41. Audit Checklist: Appointment of Statutory

Auditors in NBFCs
1. Regulatory Compliance – Ensure adherence to RBI guidelines and asset size criteria.
2. Auditor Eligibility – Verify qualification, independence, and regulatory compliance.
3. Appointment Process – Review Board approvals, engagement terms, and RBI communication.
4. Tenure & Rotation – Check compliance with rotation norms and tenure limits.
5. Reporting & Disclosure – Ensure timely submission of audit reports and financial statement
disclosures.
6. Audit Quality Review – Assess auditor effectiveness and resolution of audit concerns.

42. Audit Checklist: Acquisition/ Transfer of

Control of NBFCs
1. Regulatory Approvals & Notifications
✅ Verify prior written approval from RBI for takeover, acquisition of control, or major
shareholding changes (26% or more).
✅ Ensure changes in management (30% or more directors) are reported to RBI.
2. Application & Documentation
✅ Confirm submission of required documents to RBI, including Annex XII details, source
of funds, declarations, and banker’s reports.
✅ Verify application submission to the appropriate RBI Regional Office.
3. Public Notice Requirement
✅ Check if a 30-day public notice was published before a sale or transfer of
ownership/control.
✅ Ensure publication in one national and one local vernacular newspaper.
 4. FATF Compliance
✅ Verify compliance with investment restrictions from FATF non-compliant
jurisdictions.

43. Audit Checklist: Public Notice Before

Closure of Branch/Office by NBFC
1. Notice Period Compliance
✅ Verify that at least three months' public notice was given before branch/office closure.
2. Publication Requirement
✅ Ensure the notice was published in one leading national and one leading local
vernacular newspaper.
3. Content of Notice
✅ Check if the notice includes the purpose of closure and arrangements for servicing
depositors.
4. Regulatory Compliance
✅ Confirm adherence to RBI guidelines and internal policies regarding branch closures.
5. Stakeholder Communication
✅ Verify if customers, employees, and relevant stakeholders were informed in advance.

44. Audit Checklist: Submission of

Information on Changes in NBFC Details
1. Timely Communication
✅ Verify that any changes are reported to the RBI within one month of occurrence.
2. Changes in Company Details
✅ Ensure updates on postal address, telephone, and fax numbers are submitted.
3. Changes in Key Personnel
✅ Confirm reporting of changes in directors, principal officers, and their addresses.
4. Auditor Updates
✅ Check if changes in auditors and their office addresses are communicated.
5. Authorized Signatories
✅ Verify submission of updated specimen signatures of authorized officers.

Chapter VII

Fair Practices Code

45. NBFC Fair Practices Code - Audit Checklist

1. Loan Applications & Processing
✅ Are loan application forms available in vernacular or borrower’s understood language?
✅ Do loan applications include all necessary information for informed decision-making?
✅ Is a list of required documents provided with the loan application?
✅ Is there an acknowledgment system for loan applications?
✅ Is the loan application disposal time frame communicated?

2. Loan Appraisal & Terms/Conditions

✅ Is the loan sanction letter provided in vernacular or borrower’s understood language?

✅ Are the loan terms, annualized interest rate, and penalty charges clearly mentioned?
✅ Are penalties for late repayment highlighted in bold?
✅ Is a copy of the loan agreement and enclosures provided to borrowers?

3. Penal Charges Compliance

✅ Are penal charges applied separately and not as additional interest?

✅ Is there a Board-approved policy on penal charges?
✅ Are penal charges reasonable and non-discriminatory?
✅ Are penal charges for individual borrowers (non-business) not higher than non-individual
borrowers?
✅ Are penal charges clearly disclosed in loan agreements and on the NBFC website?
✅ Are customers informed when penal charges are applied?

4. Loan Disbursement & Terms Modifications

✅ Are changes in loan terms communicated in vernacular or borrower’s understood language?

✅ Are interest rate changes applied only prospectively?
✅ Is a notice provided before recalling or accelerating payment?
✅ Are securities released promptly after full loan repayment?

5. Property Documents Release

✅ Are original property documents released within 30 days of loan closure?

✅ Do borrowers have an option to collect property documents from their preferred NBFC office?
✅ Is there a documented process for property document release in case of the borrower’s demise?
✅ Is compensation provided for delays beyond 30 days?
✅ In case of lost/damaged property documents, is assistance provided for obtaining duplicates?

6. Floating Interest Rate Reset (EMI-based Loans)

✅ Is the impact of interest rate changes explained at loan sanction?

✅ Are borrowers notified of any increase in EMI or loan tenure?
✅ Are borrowers given the option to switch from floating to fixed rates?
✅ Are prepayment options without penalty available?
✅ Is a quarterly loan statement provided to borrowers?
7. Customer Grievance Redressal & Responsible Lending

✅ Is there a Board-approved grievance redressal mechanism?

✅ Are loan recovery practices ethical and non-coercive?
✅ Are borrowers given a response within 21 days for loan transfer requests?
✅ Are NBFC staff trained to handle customers professionally?

8. Interest Rate & Transparency

✅ Is there a Board-approved interest rate model considering cost, margin, and risk premium?
✅ Is the interest rate and risk gradation disclosed in the application and sanction letter?
✅ Is the interest rate displayed on the website and updated when changed?
✅ Are borrowers provided with annualized interest rates (APR) for clarity?

9. Vehicle Repossession Compliance

✅ Is there a legally enforceable repossession clause in the loan agreement?

✅ Are terms related to repossession (notice period, final repayment chance, auction process)
clearly stated?
✅ Are borrowers provided with a copy of the repossession terms?

10. Gold Loan Lending Practices

✅ Is there a Board-approved policy for lending against gold?

✅ Is KYC compliance ensured for gold loan borrowers?
✅ Is gold properly assayed and ownership verified?
✅ Is adequate insurance coverage provided for pledged gold?
✅ Is there a transparent auction process in case of default?
✅ Are gold auctions publicly announced in at least two newspapers?

Chapter VIII

Miscellaneous Instructions

46. Opening of Branch/Subsidiary/Joint

Venture/Representative Office or Undertaking
Investment Abroad by NBFCs
General Conditions Compliance

✅ Prior Approval from RBI – Ensure written approval has been obtained from the RBI.
✅ Permissible Sectors – Verify that investment is only in financial service sectors regulated by a
financial regulator in the host jurisdiction.
✅ Prohibited Activities – Ensure no investments are made in non-financial service sectors,
sectoral funds, or activities prohibited under FEMA.
✅ Investment Limits – Confirm:

 Total overseas investment does not exceed 100% of NOF.

 Investment in a single entity (including step-down subsidiaries) does not exceed 15% of the
NBFC’s owned funds.
✅ Corporate Structure – Ensure no multi-layered, cross-jurisdictional structures; only a single
intermediate holding entity is permitted.
✅ Financial Soundness – Confirm:
 Post-investment CRAR/leverage is within regulatory limits.
 NOF remains at the required level after investment.
 Net NPA is below 5% of net advances.
 The NBFC has earned profits in the last three years.
✅ Regulatory Compliance – Verify:
 Compliance with FEMA, 1999 regulations.
 Compliance with KYC norms.
 Satisfactory servicing of public deposits, if applicable.
✅ Statutory Audit Certification – Ensure submission of an annual certificate to the RBI’s Regional
Office confirming compliance.
✅ Withdrawal Clause – Note that approval can be withdrawn if adverse features are found.

Specific Conditions Compliance

Opening of Branch Abroad

✅ Existing Branches – Confirm that existing branches comply with RBI’s conditions.
✅ New Branches – Ensure no new branch is opened abroad unless explicitly permitted.

Opening of Subsidiary Abroad

✅ No Guarantee or Comfort Letter – Ensure the parent NBFC does not provide explicit or
implicit guarantees or comfort letters for the subsidiary.
✅ Restricted Liability – Confirm that liability is limited to equity or fund-based commitments
only.
✅ No Shell Company – Ensure the subsidiary is not a shell company (i.e., has significant assets
and operations).
✅ No Fund Diversion – Verify that the overseas subsidiary is not used to raise resources for
Indian operations.
✅ Regulatory Compliance – Ensure the subsidiary complies with host country regulations.
✅ Periodic Reporting – Confirm submission of business and audit reports to RBI.
✅ Balance Sheet Disclosure – Ensure the subsidiary's Balance Sheet states that the parent
entity’s liability is restricted to its investment.
✅ Non-Active Subsidiary – If the subsidiary has not undertaken activities or reporting is not
forthcoming, approval should be reviewed/recalled.
Joint Ventures Abroad

✅ Same Conditions as Subsidiaries – Ensure compliance with all guidelines applicable to

subsidiaries.

Opening of Representative Office Abroad

✅ Permissible Activities – Confirm that only liaison work, market study, and research are
undertaken (no fund outlays).
✅ Host Country Regulation – Ensure the representative office is subject to host country
regulations.
✅ No Credit Line Extension – Verify that no line of credit has been extended to the
representative office.
✅ Periodic Reporting – Confirm that business activity reports are submitted regularly.
✅ Inactive Office – If the office is inactive or does not report, approval should be
reviewed/recalled.

47. Expansion of Activities of NBFCs through

Automatic Route
✅ FDI Compliance – Ensure NBFC has FDI under the automatic route and undertakes only
permitted activities.
✅ Prior Approval for Diversification – Verify FIPB/DPIIT approval for diversification beyond
the automatic route.
✅ Capitalization Norms – Confirm compliance with minimum capitalization requirements for
NBFC activities.
✅ Regulatory Approvals & Compliance – Check adherence to RBI NBFC regulations, FEMA,
and reporting requirements (FC-GPR, FC-TRS, etc.).
✅ Statutory Audits & Disclosures – Ensure financial statements disclose FDI details and
comply with audit requirements.

48. Audit Checklist – Outsourcing of Financial

Services by NBFCs
✅ Self-Assessment & Governance – Ensure outsourcing arrangements align with Annex XIII
and are approved by the Board.
✅ Risk & Compliance – Verify risk assessment, regulatory adherence, and confidentiality
measures in outsourcing agreements.
✅ Third-Party Due Diligence – Check financial soundness, competence, and ethical compliance
of service providers.
✅ Operational Controls – Ensure customer grievance mechanisms, business continuity plans,
and data security measures are in place.
✅ Monitoring & Reporting – Confirm regular audits, performance reviews, and regulatory
reporting on outsourcing risks.
49. Digital Lending Compliance
✅ Follow RBI’s Digital Lending Guidelines (Sept 2, 2022, and updates).
✅ Ensure fair practices, transparency, and borrower consent.
✅ Protect customer data and maintain strict privacy measures.
✅ Disburse loans only to borrower accounts; ensure ethical recovery.
✅ Verify compliance of Loan Service Providers (LSPs) and Digital Lending Apps (DLAs).
✅ Maintain monitoring, reporting, and grievance redressal mechanisms.

50. Audit Checklist – Default Loss Guarantee

(DLG) Compliance
✅ Follow RBI’s DLG Guidelines (June 8, 2023, and updates).
✅ Ensure DLG is only between Regulated Entities (REs) and permitted entities.
✅ Verify DLG coverage does not exceed 5% of the loan portfolio.
✅ Check agreements for clear roles, obligations, and financial limits.
✅ Ensure transparency—no misleading claims to borrowers.
✅ Proper accounting, reporting, and disclosures as per RBI norms.
✅ Monitor risk and conduct periodic audits.

51. Audit Checklist – Compliance with Fair

Practices Code & Outsourcing Guidelines in
Digital Lending
1. Regulatory Compliance & Transparency

✅ Adherence to Fair Practices Code – Ensure NBFC follows RBI’s Fair Practices Code in
digital lending.
✅ Outsourcing Compliance – Verify adherence to outsourcing guidelines, ensuring NBFC
remains responsible for outsourced activities.
✅ Disclosure of NBFC Name – Confirm digital lending platforms clearly disclose the NBFC’s
name when dealing with customers.

2. Loan Sanction & Documentation

✅ Sanction Letter on NBFC Letterhead – Verify that a sanction letter is issued before the
loan agreement execution.
✅ Loan Agreement & Documentation – Ensure customers receive a copy of the loan
agreement and all enclosures at sanction/disbursement.

3. Digital Lending Platform Engagement

✅ List of Digital Lending Platforms (DLPs) – Confirm the NBFC’s website discloses the
names of all engaged DLPs.
✅ Monitoring & Oversight – Check if NBFC has effective oversight mechanisms for digital
lending platforms.
✅ Borrower Awareness – Ensure NBFC makes efforts to educate borrowers about the
grievance redressal mechanism.

4. Customer Protection & Compliance Monitoring

✅ Interest Rate & Charges Transparency – Verify that interest rates and charges are
disclosed clearly without hidden costs.
✅ Data Privacy & Security – Ensure customer data is protected and not misused by digital
lending platforms.
✅ Recovery Practices – Confirm that NBFCs and their agents follow ethical recovery
practices without coercion.

5. Reporting & Accountability

✅ Periodic Audits – Check that NBFC conducts regular audits of digital lending operations.
✅ Regulatory Compliance Reporting – Ensure any violations are identified, reported, and
addressed promptly.

52. Compliance with Credit Default Swaps

(CDS) Guidelines for NBFCs
1. Regulatory Compliance

✅ Participation as Users Only – Ensure NBFC only buys CDS for hedging credit risk on
corporate bonds.
✅ No Selling of Protection – Confirm that NBFC does not sell CDS protection or take short
positions.

2. Transaction & Exit Compliance

✅ CDS Used for Hedging Only – Verify that CDS is used exclusively to hedge credit risk on
corporate bonds held by the NBFC.
✅ Proper Exit Strategy – Ensure NBFC exits CDS positions only by unwinding with the
original counterparty or assigning them to the bond buyer.

3. Operational & Risk Management Controls

✅ Adherence to Annex XIV – Verify compliance with all operational requirements for CDS
transactions as per RBI guidelines.
✅ Risk Management & Monitoring – Ensure robust internal controls, risk assessment, and
oversight of CDS transactions.
4. Reporting & Documentation

✅ Regulatory Reporting – Confirm proper record-keeping, documentation, and reporting of

CDS transactions.
✅ Compliance Review – Ensure periodic audit and review of CDS activities for adherence to
RBI norms.

53. Audit Checklist – Compliance with

Currency Futures Guidelines for NBFCs
1. Regulatory Compliance

✅ Participation as Clients Only – Ensure NBFCs participate only as clients in SEBI-

recognized currency futures exchanges.
✅ Hedging Purpose Only – Verify that currency futures transactions are conducted strictly for
hedging underlying forex exposures.
✅ Compliance with RBI & SEBI Guidelines – Confirm adherence to guidelines issued by RBI
(Foreign Exchange Department) and SEBI.

2. Transaction & Risk Management

✅ Underlying Forex Exposure – Ensure all currency futures contracts are linked to actual
forex exposures.
✅ Risk Monitoring – Verify that internal controls and risk management frameworks are in
place to monitor currency futures exposure.

3. Reporting & Disclosures

✅ Balance Sheet Disclosures – Confirm that currency futures transactions are properly
disclosed in the NBFC’s balance sheet as per SEBI guidelines.
✅ Regulatory Reporting – Ensure timely reporting of currency futures activities to regulatory
authorities as required.

4. Internal Audit & Compliance Monitoring

✅ Periodic Audits & Reviews – Verify that NBFC conducts regular internal audits to ensure
compliance with forex hedging regulations.
✅ Documentation & Record-Keeping – Ensure proper record maintenance of currency
futures contracts and related transactions.

54. Interest Rate Futures (IRF) for NBFCs

✅ Participate only as clients in SEBI-recognized IRF exchanges.
✅ Use IRFs strictly for hedging underlying interest rate exposures.
✅ Comply with RBI’s Rupee Interest Rate Derivatives Directions, 2019, and updates.
✅ Ensure IRF contracts are linked to genuine exposures.
✅ Maintain risk management systems to monitor IRF activities.
✅ Submit half-yearly reports to RBI within one month of the period’s end.
✅ Disclose IRF transactions properly in financial statements.
✅ Conduct internal audits and maintain proper records.

55. Transactions in Government Securities

for NBFCs
✅ Use only permitted accounts (Gilt account, Demat account, or other RBI-approved accounts).
✅ Ensure compliance with RBI guidelines on Government securities transactions.
✅ Maintain proper records of all transactions for audit and regulatory review.
✅ Verify reconciliation of Government securities holdings with statements.
✅ Conduct periodic internal audits to ensure compliance and accuracy.

56. Government Securities Transactions for

NBFCs
✅ Adhere to RBI circulars on Government Securities transactions (2004, 2005, 2018, and
updates).
✅ Use only permitted accounts (Gilt, Demat, or RBI-approved accounts).
✅ Ensure T+1 settlement compliance for transactions.
✅ Follow repo transaction guidelines as per RBI’s 2018 directions.
✅ Maintain proper records and reconcile holdings regularly.
✅ Conduct periodic internal audits for compliance and risk management.

57. Reporting Platform for Corporate Bond

Transactions
✅ Timely Trade Reporting – Ensure all secondary market OTC trades in corporate bonds are
reported within 15 minutes on NSE, BSE, or MCX-SX.

✅ Compliance with FIMMDA Circular – Adhere to FIMMDA’s Trade Reporting and

Confirmation Platform for OTC Transactions in Corporate Bonds and Securitized Debt
Instruments (Feb 24, 2014) and subsequent amendments.

✅ Verification of Reporting System – Check that NBFC has systems in place for automatic
and accurate reporting of trades.

✅ Record Maintenance – Ensure proper documentation and reconciliation of reported trades

with exchange records.
✅ Internal Audits & Compliance Checks – Conduct regular internal reviews to confirm
timely and accurate reporting.

58. Private Placement of NCDs by NBFCs

✅ Follow RBI guidelines in Annex XV.
✅ Comply with the Companies Act, 2013 (unless contradictory to RBI rules).
✅ Maintain proper documentation (Board approvals, offer letters, investor details).
✅ Ensure timely regulatory filings (RBI, ROC, etc.).
✅ Verify investor eligibility & placement limits.
✅ Ensure timely interest & principal payments.
✅ Conduct internal audits for compliance & risk management.

59. NBFCs Entering Insurance Business

✅ Apply to RBI with auditor-certified details (if required).
✅ Follow Annex XVI guidelines for compliance.
✅ Undertake insurance agency business only on a fee basis without risk participation.
✅ Meet eligibility conditions (capital adequacy, NOF, profitability).
✅ Maintain proper documentation of approvals and transactions.
✅ Ensure disclosures in financial statements.
✅ Conduct periodic audits for compliance and risk checks.

60. Co-branded Credit Cards by NBFCs

✅ Obtain RBI approval before issuing co-branded credit cards.
✅ Partner only with scheduled commercial banks and ensure no risk sharing.
✅ Approval valid for two years, with a review thereafter.
✅ Meet eligibility criteria as per Annex XVII.
✅ Maintain proper documentation (RBI approval, agreements with banks).
✅ Ensure disclosures & internal audits for compliance.

61. Mutual Fund Distribution by NBFCs

✅ Ensure RBI registration before distributing mutual fund products.
✅ Comply with SEBI guidelines, including the code of conduct.
✅ Follow Annex XVIII guidelines for mutual fund distribution.
✅ Avoid conflicts of interest and misleading sales practices.
✅ Maintain proper documentation (agreements with AMCs, commission details).
✅ Disclose fees/commissions transparently to customers.
✅ Conduct internal audits to monitor compliance.
62,63,64. NBFCs Acting as Sub-Agents under MTSS,
PoP Services for NPS & Safe Deposit Lockers
1. Acting as Sub-Agents under MTSS

✅ Ensure NBFC is Non-Deposit Accepting – Deposit-accepting NBFCs cannot act as sub-

agents.
✅ No Prior RBI Approval Required – Verify that NBFC follows MTSS guidelines.
✅ Compliance with MTSS Regulations – Ensure adherence to rules set by the RBI and the
authorized Money Transfer Operator.
✅ Maintain Proper Records – Agreements, transaction logs, customer KYC, and AML
compliance documentation.

2. Point of Presence (PoP) Services under NPS

✅ Confirm NBFC Type – Ensure NBFC-Base Layer (NBFC-BL) does not undertake PoP
services for National Pension System (NPS).
✅ Verify No Engagement in PoP Activities – NBFC must not act as a PoP for Pension Fund
Regulatory and Development Authority (PFRDA).

3. Safe Deposit Locker Facility

✅ Confirm Locker Service is Fee-Based – Ensure it is treated as a non-financial business

activity.
✅ Customer Disclosure – Clearly inform customers that safe deposit locker service is NOT
regulated by RBI.
✅ Proper Agreements & Security Measures – Maintain detailed contracts with customers and
ensure secure operations.

65. Legal Entity Identifier (LEI) for Borrowers

1. LEI Requirement Compliance

✅ Verify Borrower’s Exposure – Ensure non-individual borrowers with exposure of ₹5 crore

and above comply with LEI requirements.
✅ Check Compliance Timeline – Confirm borrowers have obtained LEI as per the following
deadlines:

 Above ₹25 crore → By April 30, 2023

 Above ₹10 crore to ₹25 crore → By April 30, 2024
 ₹5 crore to ₹10 crore → By April 30, 2025
✅ Definition of Exposure – Confirm exposure includes fund-based & non-fund-based (credit &
investment) exposure.

2. LEI Issuance & Renewal

✅ Ensure Borrowers Obtain LEI – From Legal Entity Identifier India Ltd. (LEIIL) or other
accredited LOUs recognized by GLEIF.
✅ Verify LEI Renewal – Ensure borrowers renew LEI codes as per GLEIF guidelines.

3. Borrowers Without LEI

✅ Check for Non-Compliance – No new exposure, renewal, or enhancement for borrowers

failing to obtain LEI.
✅ Confirm Exemptions – Verify that Central & State Government Departments/Agencies
are exempted.

4. LEI for Group Entities

✅ Encourage LEI for Parent & Subsidiaries – Ensure borrowers obtain LEI for parent
entity, subsidiaries, and associates.

66. Submission of Data to Credit Information

Companies (CICs)
1. Membership with CICs

✅ Verify Membership – Ensure the NBFC (except purely investment-focused ones without
customer interaction) is a member of all CICs.
✅ Confirm Data Submission – Check if the NBFC submits data (including historical data) to
all CICs.

2. Compliance with Credit Information Companies (Regulation) Act, 2005

✅ Ensure Data Submission – Verify if the NBFC submits credit information as required by
CICs under Section 17(1) & (2).

3. Data Accuracy and Timeliness

✅ Monthly Data Updates – Confirm that the NBFC updates credit information monthly (or
as per the agreed shorter interval).
✅ Data Quality Check – Ensure credit information is accurate, complete, and up-to-date as
per Regulation 10(a)(ii) of CIC Regulations, 2006.
✅ Verify Correction Mechanism – Check if the NBFC has a process to rectify errors in credit
reports, if any.

67. Data Format for Furnishing Credit

Information to CICs & Regulatory Measures
1. Compliance with RBI Circulars and Directives
✅ Verify Adherence to RBI Circulars – Ensure compliance with:

 [Link].127/20.16.056/2013-14 (June 27, 2014)

 [Link].59/20.16.056/2014-15 (January 15, 2015)
 [Link].48/20.16.003/2023-24 (October 26, 2023)
 [Link].49/20.16.003/2023-24 (October 26, 2023)

2. Credit Information Awareness & Usage

✅ Check Awareness Initiatives – Verify if the NBFC educates customers on Credit

Information Reports (CIRs).
✅ Review CIR Usage – Ensure CIR is used in all lending decisions and account opening.

3. Data Submission & Standardization

✅ Verify Data Submission – Ensure commercial data records are populated in all CIC
databases.
✅ Confirm Standardized Format – Check if data format follows RBI-prescribed standards.
✅ Technical Working Group Compliance – Verify if the NBFC follows RBI guidelines
regarding the Technical Working Group for data handling.

4. Data Quality & Rectification Process

✅ Process for Rejected Data – Confirm that a rectification process exists for rejected data.
✅ Data Quality Index – Verify if the NBFC calculates and maintains a Data Quality Index.
✅ Credit Score Calibration – Ensure compliance with credit score calibration and
standardization of CIR format.

5. Customer Service & Compensation for Delayed Updates

✅ Verify Compensation Mechanism – Ensure the NBFC has a compensation framework for
delayed updation/rectification of credit information.
✅ Review Customer Service Guidelines – Confirm adherence to guidelines on customer
service improvement in coordination with CICs.

68 & 69 Filing of Mortgage Records &

SARFAESI Compliance
1. Mortgage Records Filing:
o NBFCs must register all equitable mortgages created on or after March 31, 2011, with
CERSAI.
o All types of mortgages (immovable, movable, and intangible assets) must be registered
as per the RBI circular (December 27, 2018).
o Mortgages must be registered at the time of creation in favor of the NBFC.
 2. SARFAESI Compliance:
o NBFCs qualifying as secured creditors under SARFAESI Act, 2002, must display
borrower details whose secured assets have been taken into possession.
o The information must be uploaded on the NBFC’s website in the prescribed format
(Annex XIX).
o The first list must be uploaded within six months from September 25, 2023, with
monthly updates thereafter.

70. Technical Specifications for Account Aggregator (AA)

Ecosystem
✅ Ensure compliance with Master Direction – NBFC-AA (2016).
✅ Verify adoption of technical specifications published by ReBIT.
✅ Confirm regular updates and alignment with the latest ReBIT standards.
✅ Check if the NBFC acts as a Financial Information Provider (FIP) or Financial
Information User (FIU) and adheres to data security protocols.

71. Finance for Housing Projects

✅ Verify that loan agreements include the disclosure requirement for mortgage details in
brochures/pamphlets.
✅ Ensure the builder/developer commits to providing an NOC for property sales if required.
✅ Confirm that funds are not released until these conditions are met.

72. Prohibition on NBFCs as Partners in Firms

✅ Check if the NBFC has not contributed capital to a partnership firm, LLP, or Association
of Persons.
✅ If previously involved, confirm steps taken for early retirement from such entities.

73. Ratings of Financial Products

✅ Verify if the NBFC has an asset size of ₹100 crore or more.
✅ Check for timely reporting (within 15 days) of rating upgrades or downgrades of financial
products to the Regional Office of RBI.

74. Non-Reckoning of Fixed Deposits as Financial Assets

✅ Verify that investments in fixed deposits are not classified as financial assets.
✅ Ensure that interest income from fixed deposits is not treated as income from financial
assets.
✅ Confirm that fixed deposits are used only for temporary parking of idle funds or for
fulfilling NOF (Net Owned Fund) requirements until NBFC business commencement.
75. Use of Electronic Payment Systems
✅ Check if NBFC is actively promoting electronic payment methods.
✅ Ensure steps are taken to eliminate post-dated cheques (PDCs).
✅ Verify plans for a gradual phase-out of cheques in daily transactions.

76. Migration to NACH (Debit) for EMI & PDC Payments

✅ Confirm that NBFCs do not accept fresh/additional post-dated cheques (PDCs) or EMI
cheques from customers where NACH is available.
✅ Ensure that in locations where NACH is unavailable, only CTS-2010 standard format
cheques are obtained.

77. Compliance with National Do Not Call (NDNC) Registry

✅ Ensure that NBFCs do not engage unregistered Telemarketers (DSAs/DMAs).
✅ Verify that NBFCs engage only TRAI-registered telemarketers for promotional activities.
✅ Check if the list of telemarketers (DSAs/DMAs) and their registered phone numbers is
submitted to TRAI.
✅ Confirm that all agents (DSAs/DMAs) are registered with DoT as telemarketers.

78. Fraud Prevention Related to Fake Bank Guarantees

✅ Verify if NBFC has due diligence procedures for handling Bank Guarantees (BGs).
✅ Ensure BGs are verified with issuing banks before acceptance.
✅ Check for any discrepancies in format, serial numbers, or signatures on BGs.
✅ Confirm that the NBFC has guidelines for detecting and reporting fraudulent BGs.

79. Disbursal of Loan Amount in Cash

✅ Verify that NBFCs comply with Sections 269SS and 269T of the Income Tax Act, 1961
regarding cash transactions.
✅ Ensure that loans are not disbursed in cash beyond the prescribed limits under the Income
Tax Act.
✅ Check whether all loan disbursements are routed through banking channels (NEFT,
RTGS, IMPS, or Cheques).
✅ Confirm that NBFCs do not accept or repay loans in cash beyond the prescribed threshold.
✅ Review internal policies and training programs ensuring employees adhere to these
guidelines.

80. Rounding Off Transactions to the Nearest Rupee

✅ Check that all transactions, including interest on deposits and loans, are rounded off as
per RBI guidelines.
✅ Verify that fractions of 50 paise and above are rounded up, while fractions below 50 paise
are ignored.
✅ Ensure that cheques/drafts issued by clients containing fractions of a rupee are not
rejected.
✅ Review accounting software and systems to ensure automated compliance with rounding-off
rules.