NBFCs - Certain Issues and developments JB Nagar CPE Study Circle WIRC, ICAI CA Jayant Thakur 8th September 2013,

Outline of law Act Various Directions, Circulars, etc. ◦ Acceptance of deposits ◦ Prudential Norms ◦ Auditors ◦ Others Recent Reports/draft Guidelines State Laws Companies Act, 2012/SEBI Ordinance CA Jayant Thakur, 8th September

Position as on 31 st March 2010 Total NBFCs Deposit taking NBFCs 311 SI-ND taking NBFCs 295 Other ND taking NBFCs – Asset size of non-deposit accepting NBFCs grew from crores in 2006 to crores. CA Jayant Thakur, 8th September

Auditors role General and comprehensive Registration Compliance of Prudential Norms and Deposits Directions Continuity of business Manner of reporting Miscellaneous CA Jayant Thakur, 8th September

Important basic terms Definition of NBFC ◦ What constitutes NBFC ◦ 50% criteria  Financial assets Exempted companies Net owned funds Punishment for violation ◦ Non-compoundable Non-appealable CA Jayant Thakur, 8th September

Core Investment Companies (CICs) Definition and concepts ◦ Basic conditions  SI  ND  Assets composition  Public Funds  Group Benefits Obligations CA Jayant Thakur, 8th September

Mergers/takeovers of NBFCs Deposit Accepting Others Proposed changes CA Jayant Thakur, 8th September

Thorat Committee Report Overview Public funds concept NBFCs < Rs. 50 crores assets ◦ Principal business condition NBFCs < Rs crores assets ◦ Principal business condition Existing NBFCs? ◦ De-registration ◦ Re-registration/gestation period CA Jayant Thakur, 8th September

Thorat Committee Report Change of control/mergers Reduction in deposit limits for AFCs No new deposit accepting NBFCs All deposit accepting NBFCs to get rated Multiple NBFCs Captive NBFCs CA Jayant Thakur, 8th September

Thorat Committee Report Corporate governance ◦ More powers for RBI ◦ Clause 49 Mandatory disclosures CA Jayant Thakur, 8th September

Recent letters to “NBFCs” Issues raised Other NBFCs CA Jayant Thakur, 8th September

Debentures Private placement guidelines NBFCs raised 3,18,800 crores in ◦ ND-SI 2,95,000 crores Recent controversies and abuses Applies to private placements ◦ NCDs Time of completion - 6 months Gaps between 2 placements Names of subscribers CA Jayant Thakur, 8th September

Debentures Private placement guidelines Maximum number of investors 49 Minimum amounts/multiples Only secured debentures/compulsorily convertible debentures Applicability - “as may be specified” CA Jayant Thakur, 8th September

Companies Act, 2012 – some pointers Frauds in deposit acceptance Frauds generally Class actions Sahara/Saradha type of cases CA Jayant Thakur, 8th September

Securities Laws Ordinance 2013 Arrangements/pooling with corpus of more than Rs. 100 crores NBFCs? CA Jayant Thakur, 8th September

State Depositors’ Protection Laws Which States? Who are covered? What is deposits? When would there be violation? What action can be taken? Supreme Court – K. K. Baskaran, 4 th April 2011 Applicable to NBFCs? CA Jayant Thakur, 8th September

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