Appendix 62

NON‑BANKING FINANCIAL COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 1998, DATED 31‑1‑1998

[Notification No. DFC 119/DG(SPT)‑98, dated 31‑1‑1998]

Important Note

This NBFC Prudential Norms (RB) Directions, 1998 issued on 31‑1‑1998 (w.e.f. 31‑1‑1998) supersedes the earlier NBFC Prudential Norms (RB) Directions, 1998 of dated 2‑1‑1998

The Reserve Bank of India, having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to issue the directions relating to the prudential norms as set out below hereby, in exercise of the powers conferred by section 45JA of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, and in suppression of the earlier directions contained in Notification No. DFC. 115/DG(SPT)/98, dated January 2, 1998 gives to every non‑banking financial company the directions hereinafter specified:

1. Short title, commencement and applicability of the directions,‑

(1) These directions shall be known as the "Non‑Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998".

(2) These directions shall come into force with immediate effect.

(3) (i) All the provisions of these directions save as provided for in clauses (ii) and (iii) hereinafter, shall apply to

(a) a non‑banking financial company, except a mutual benefit financial company and a mutual benefit company, as defined in the Non‑ Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 (referred to in these directions as "NBFC") which is having net owned fund (referred to in these directions as "NOF") of rupees twenty‑five lakh and above and accepting/holding public deposit;

(b) a residuary non‑banking company as defined in the Residuary Non‑Banking Companies (Reserve Bank) Directions, 1987 (referred to in these directions as "RNBC").

(ii) The provisions of paragraph 10 and 12 of these directions shall not apply to

(a) a loan company;

(b) an investment company;

(d) an equipment leasing company,

which is having NOF of rupees twenty‑five lakh and above but not accepting/holding public deposit.

(iii) These directions shall not apply to an NBFC being an investment company:

Provided that, it is

(a) holding investments in the securities of its group/holding/ subsidiary companies and book value of such holding is not less than ninety per cent of its total assets and it is not trading in such securities; and

(b) not accepting/holding public deposit.

(iv) These directions shall not apply to an NBFC being a Government company as defined under section 617 of the Companies Act, 1956 (1 of 1956)

NOTES

Commencement.‑ Paragraphs 2(1)(xi), 3(3), 3(4), 6, 8(2), 10 [Explanation‑item (1)(ii)], proviso to 12(1)(iii) and part ‘D’ and part 'F' (items II and III) of the Annexure to these directions shall be deemed to have come into force with effect from 31‑1‑1998 and paragraphs 3(2) and 11A of these directions shall come into force with immediate effect.

2. Definitions.‑

(1) For the purpose of these directions, unless the context otherwise requires:

(i) "break up value" means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investee company;

(ii) "carrying cost" means book value of the assets and interest accrued thereon but not received;

(iii) "current investment" means an investment which is by its, nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made;

(iv) "doubtful asset" means

(a) a term loan, or

(b) a lease asset, or

(d) any other asset, which remains a substandard asset for a period exceeding two years;

(v) "earning value" means the value of an equity share computed by taking the average of profits after tax as reduced by the preference dividend and adjusted for extraordinary and non‑recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investee company and capitalised at the following rate:

(a) in case of predominantly manufacturing company, eight per cent;

(b) in case of predominantly trading company, ten per cent; and

Note.‑ If, an investee company is a loss making company, the earning value will be taken at zero;

(vi) "fair value" means the mean of the earning value and the break up value;

(vii) "hybrid debt" means capital instrument which possesses certain characteristics of equity as well as of debt;

(viii) "loss asset" means

(a) an asset which has been identified as loss asset by the NBFC or its internal or external auditor or by the Reserve Bank of India during the inspection of the NBFC, to the extent it is not written off by the NBFC; and

(b) an asset which is adversely affected by a potential threat of non‑recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower;

(ix) "long term investment" means an investment other than a current investment;

(x) "net asset value" means the latest declared net asset value by the concerned mutual fund in respect of that particular scheme;

(xi) "net book value" means

(a) in the case of hire purchase asset, the aggregate of overdue and future instaiments receivable as reduced by the balance of unmatured finance charges and further reduced by the provisions made as per paragraph 8(2)(i) of these directions;

(b) in the case of leased asset, aggregate of capital portion of overdue lease rentals accounted as receivable and depreciated book value of the lease asset as adjusted by the balance of lease adjustment account.

(xii) "non‑performing asset" (referred to in these directions as "NPA") means:

(a) an asset, in respect of which, interest has remained past due for six months;

(b) a term loan inclusive of unpaid interest, when the instalment is overdue for more than six months or on which interest amount remained past due for six months;

(d) the interest in respect of a debt or the income on receivables under the head 'other current assets' in the nature of short term loans/advances, which facility remained overdue for a period of six months;

(e) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months;

(f) the lease rental and hire purchase instalment, which has become overdue for a period of more than twelve months;

(g) in respect of loans, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower/beneficiary when any of the above credit facilities becomes non‑ performing asset:

Provided that in the case of lease and hire purchase transactions, an NBFC may classify each such account on the basis of its record of recovery;

(xiii) "owned fund" means paid‑up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any;

(xiv) "past due" means an amount of income or interest which remains unpaid for a period of thirty days beyond the due date;

(xv) "standard asset" means the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business;

(xvi) "sub‑standard assets" means

(a) an asset, which has been classified as non‑performing asset for a period of not exceeding two years;

(b) an asset, where the terms of the agreement regarding interest and/or principal have been renegotiated or rescheduled after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled terms;

(xvii) "subordinated debt" means a fully paid‑up capital instrument, which is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of the NBFC. The book value of such instrument shall be subjected to discounting as provided hereunder:

Remaining Maturity of the instruments	Rate of discount
(a) Upto one year	100%
(b) More than one year but upto two years	80%
(c) More than two years but upto three years	60%
(d) More than three years but upto four years	40%
(e) More than four years but upto five years	20%,

to the extent such discounted value does not exceed fifty per cent of Tier‑I capital;

(xviii) "substantial interest" means holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in the shares of a company, the amount paid‑up on which exceeds ten per cent of the paid‑up capital of the company, or the capital subscribed by all the partners of a partnership firm;

(xix) "Tier‑I Capital" means owned fund as reduced by investment in shares of other NBFCs and in shares, debentures, honds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund;

(xx) "Tier‑II capital" includes the following:

(a) preference shares other than those which are compulsorily convertible into equity;

(b) revaluation reserves at discounted rate of fifty five per cent;

(c) general provisions and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any. specific asset and are available to meet unexpected losses, to the extent of one and one fourth per cent of risk weighted assets;

(d) hybrid debt capital instruments; and

(e) subordinated debt,

to the extent the aggregate does not exceed Tier‑I capital.

(2) Other words or expressions used but not defined herein and defined in the Reserve Bank of India Act, 1934 (2 of 1934) or the Non‑Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 or the Residuary Non‑Banking Companies (Reserve Bank) Directions, 1987 shall have the same meaning as assigned to them under that Act or those Directions. Any other words or expressions not defined in that Act or those Directions, shall have the same meaning assigned to them in the Companies Act, 1956 (1 of 1956).

3. Income recognition.‑ (1) The income recognition shall be based on recognised accounting principles.

(2) Income including interest/discount or any other charges on NPA shall be recognised only when it is actually realised. Any such income recognised before the asset became non‑performing and remaining unrealised shall be reversed.

(3) In respect of hire purchase asset instalment are overdue for more than 12 months, income shall be recognised only when hire charges are actually received. Any such income taken to the credit of profit and loss account before the asset became non‑performing and remaining unrealised, shall be reversed.

(4) In respect of lease assets where lease rentals are overdue for more than 12 months, the income shall be recognised only when lease rentals are actually received. The net lease rentals taken to the credit of profit and loss account before the asset became non‑performing and remaining unrealised shall be reversed.

Explanation.‑ For the purpose of this paragraph, 'net lease rentals' mean gross lease rentals as adjusted by the lease adjustment account debited/credited to the profit and loss account and as reduced by depreciation at the rate applicable under Schedule XIV of the Companies Act, 1956 (1 of 1956).

4. Income from investments.‑ (1) Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on cash basis:

Provided that the income from dividend on shares of corporate bodies may be taken into account on accrual basis when such dividend has been declared by the corporate body in its annual general meeting and the NBFC's right to receive payment is established.

(2) Income from bonds and debentures of corporate bodies and from Government securities/bonds may be taken into account on accrual basis:

Provided that the interest rate on these instruments is pre‑determined and interest is serviced regularly and is not in arrears.

(3) Income on securities of corporate bodies or public sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government may be taken into account on accrual basis.

5. Accounting standards.‑ Accounting Standards and Guidance Notes issued by the Institute of Chartered Accountants of India (referred to in these directions as "ICAI") shall be followed insofar as they are not inconsistent with any of these directions.

(1) (2) (3)

(b) 20 per cent. of the owned fund in case of loan and investment companies". 740

17[PART J

Particulars on suit filed and decreed debts by the NBFC and against it

Item name Item code Amount

(1) (2) (3)

I.(i)Loans, advances, other credit facilities, leased assets and hire

purchase assets for which the NB17C have filed suits in any court of

law for recovery of its dues including the decreed debts 810

Pending for over 5 years 811

Pending for over 3 to 5 years 812

Pending for over 1 to 3 years 813

Pending for less than one year 814

(ii)Out of (i) above, the loans, advances, other credit facilities and hire 820

purchase assets for which decree has been obtained by the NBFC

(iii) Recoveries made in suit filed/decreed debts (including amounts 830

deposited in the court)

II. Suit filed and decreed against the company 840]

CERTIFICATE

Certified that,

(1) the data/information furnished in this statement are in accordance with the directions issued by the Reserve Bank of India relating to income recognition, accounting standards, asset classification, provisioning for bad and doubtful debts, capital adequacy and concentration of credit and investments. The statement has been compiled from the books of account and other records of the company and to the best of my knowledge and belief they are correct;

.................................................................................... (2) the Reserve Bank's classification of the company as a .................................................................................... on the basis of its

principal business as evidenced from its assets and income pattern continues/does not continue to

hold good (delete whatever is not applicable);

(3) the company has accepted public deposit and the quantum of such deposit is within the limits applicable to the company;

(4) the company has not paid interest/brokerage on deposit beyond the ceiling prescribed under the directions;

(5) the company has not defaulted in repayment of matured deposit;

..................................................................................................... (6) the credit rating for fixed deposits assigned by the credit rating agency, viz . ......................................................... (name

..................... of the agency) at (rating level) is valid;

(7) the capital adequacy as disclosed in Part C of the return after taking into account the particulars in Parts D, E and F has been correctly worked out;

(8) classification of assets as disclosed in Part F of the return has been verified and found to be correct. No rollover/rephasement of loans, lease and hire purchase transactions and bills discounted beyond due dates has been observed. The sub‑standard or doubtful or loss asset, if upgarded, has been done so, in conformity with the Non‑Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998;

(9) investments in group companies as disclosed in Part G of the return and exposures to individual s/firmslother companies exceeding the creditlinvestment concentration norms as disclosed in Part H of the half‑yearly return and classification of such assets is correct; and

17. Ins. by Notification No. DN13S 135/CGM (VSNM)‑2000, dated 13, January, 2000.

(b) In addition to item (a) above, depending upon the period for which the asset has remained doubtful, provision to the extent of 20% to 50% of the secured portion (i.e. estimated realisable value of the outstandings) shall be made on the following basis:

Period for which the asset has been considered as doubtful	% of provision
Upto one year	20
One to three years	30
More than three years	50

(iii) Sub‑standard assets an general provision of 10% of total outstandings shall be made.

(2) Lease and hire purchase assets.‑ The provisioning requirements in respect of hire purchase and leased assets shall be as under

Hire purchase assets

(i) In respect of hire purchase assets, the total dues (overdue and future instalments taken together) as reduced by,

(a) the finance charges not credited to the profit and loss account and carried forward as unmatured finance charges; and

(b) the depreciated value of the underlying asset, shall be provided for.

Explanation: For the purpose of this paragraph,

(1) the depreciated value of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation as the rate of twenty per cent. per annum on a straight line method; and

(2) in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second hand asset.

Additional provision for hire purchase and leased assets

(ii) In respect of hire purchase and leased assets, additional. provision shall be made as under:

(a) where any amounts of hire charges or lease rentals are overdue upto 12 months	Nil
Sub‑standard assets :
(b) where any amounts of hire charges or lease rentals are overdue for more than 12 months but upto 24 months	10 per cent of the net book value
Doubtful assets :
(c) where any amounts of hire charges or lease rentals are overdue for more than 24 months but upto 36 months	40 per cent of the net book value
(d) where any amounts of hire charges or lease rentals are overdue for more than 36 months but upto 48 months	70 per cent of the net book value
Loss assets :
(e) Where any amounts of hire charges or lease rentals are overdue for more than 40 months	100 per cent of the net book value

(iii) On expiry of a period of 12 months after the due date of the last instalment of hire purchase/leased asset, the entire net book value shall be fully provided for.

Notes:

1. The amount of caution money/margin money or security deposits kept by the borrower with the NBFC in pursuance of the hire purchase agreement may be deducted against the provisions stipulated under clause (i) above, if not already taken into account while arriving at the equated monthly instalments under the agreement. The value of any other security available in pursuance to the hire purchase agreement may be deducted only against the provisions stipulated under clause (ii) above.

2. The amount of security deposits kept by the borrower with the NBFC in pursuance of the lease agreement together with the value of any other security available in pursuance of the lease agreement may be deducted only against the provisions stipulated under clause (ii) above.

3. It is clarified that income recognition on and provisioning against NPAs are two different aspects of prudential norms and provisions as per the norms are required to be made on NPAs on total outstanding balances including the depreciated book value of the leased asset under reference after adjusting the balance, if any, in the lease adjustment account. The fact that income on an NPA has not been recognised cannot be taken as reason for not making provision.

4. An asset which has been renegotiated or rescheduled as referred to in paragraph (2)(xvi)(b) of these directions shall be a sub‑standard asset or continue to remain in the same category in which it was prior to its renegotiation or reschedulement as a doubtful asset or a loss asset as the case may be. Necessary provision is required to be made as applicable to such asset till it is upgraded.

5. The balance‑sheet for the year 1999‑2000 to be prepared by the NBFC may be in accordance with the provisions contained in sub‑paragraph (2) of paragraph 8.1

6. All financial leases written on or after April 1, 2001, attract the provisioning requirements as applicable to hire‑purchase assets.

9. Disclosure in the balance sheet.‑ (1) Every NBFC shall, separately disclose in its balance sheet the provisions made as per paragraph 8 above without netting them from the income or against the value of assets.

(2) The provisions shall be distinctly indicated under separate heads of accounts as under:

(i) provisions for bad and doubtful debts; and

(ii) provisions for depreciation in investments.

(3) Such provisions shall not be appropriated from the general provisions and loss reserves held, if any, by the NBFC.

(4) Such provisions for each year shall be debited to the profit and loss account. The excess of provisions, if any, held under the heads general provisions and loss reserves may be written back without making adjustment against them.

9A. Constitution of Audit Committee by NBFCs.‑ An NBFC having the assets of Rs. 50 crore and above as per its last audited balance sheet shall constitute an Audit Committee, consisting of not less than three members of its Board of directors.

Explanation I.‑ The Audit Committee constituted by an NBFC as required under section 292A of the Companies Act, 1956 (1 of 1956) shall be the Audit Committee for the purposes of this paragraph.

Explanation II.‑ The Audit Committee constituted under this paragraph shall have the same powers, functions and duties as laid down in section 292‑A of the Companies Act, 1956 (1 of 1956).

9B. Accounting year.‑ Every NBFC shall prepare its balance‑sheet and profit and loss account as on March 31, every year with effect from its accounting year ending with 31st March, 2001:

Provided that if the accounting year of any NBFC ends on any date other than 31st March, 2001 such NBFC shall prepare its balance sheet and profit and loss account for any fraction of the year ending on 31^st March, 2001.

10. Requirement as to capital adequacy.‑ (1) Every NBFC shall, maintain a minimum capital ratio consisting of Tier‑I and Tier‑II capital which shall not be less than

(i) ten per cent on or before March 31, 1998; and

(ii) twelve per cent on or before March 31, 1999 of its aggregate risk weighted assets and of risk adjusted value of off‑balance sheet items.

(2) The total of Tier‑II capital, at any point of time, shall not exceed one hundred per cent of Tier‑I capital.

Explanations:

(1) On balance sheet assets.‑ In these directions, degrees of credit risk expressed as percentage weightages have been assigned to balance sheet assets. Hence, the value of each asset/item requires to be multiplied by the relevant risk weights to arrive at risk adjusted value of assets. The aggregate shall be taken into account for reckoning the minimum capital ratio. The risk weighted asset be calculated as the weighted aggregate of funded items as detailed hereunder:

Weighted risk assets‑On‑Balance sheet items

Percentage weight

(i) Cash and bank balances including fixed deposits and certificates of deposits with banks

(ii) Investments

(a) Approved securities;

(b) Bonds of public sector banks and fixed deposits/certificates of deposits/bonds of public financial institutions

(d) Shares of all companies and debentures/bonds/ commercial papers of companies other than in (b) above/units of mutual funds other in (c) above

(iii) Current assets

(a) Stock on hire (net book value)

(b) Intercorporate loans/deposits

(d) Loans to staff

(e) Other secured loans and advances considered good

(f) Bills purchased/discounted

(g) Others (to be specified)

100

(iv) Fixed Assets (net of depreciation)

(a) Assets leased out (net book value)

(b) Premises

100

(v) Other assets

(a) Income tax deducted at source (net of provision)

(b) Advance tax paid (net of provision)

(d) Others (to be specified)

100

Notes.‑ 1. Netting may be done only in respect of assets where provisions for depreciation bad and doubtful debts have been made.

2. Assets which have been deducted from owned fund to arrive at net owned fund have a weightage of 'O'.

(2) Off‑balance sheet items.‑ In these directions, degrees of credit risk exposure attract off‑balance sheet items have been expressed as percentage of credit conversion factor. Hence, the value of each item requires to be first multiplied by the relevant conversion factor to arrive at risk adjusted value of off-balance sheet item. The aggregate shall be taken into account for reckoning the minimum capital ratio. This shall have to be again multiplied by the risk weight of 100. The risk adjusted value of the off-balance sheet items shall be calculated as per the credit conversion factors of non-funded items as detailed hereunder :-

Nature of item Credit conversion factor	Percentage
(i) Financial & other guarantees	100
(ii) Share/debentures under	50
(iii) Partly-paid shares/debentures	100
(iv) Bills discounted/rediscounted	100
(v) Lease contracts entered into but yet to be executed	100
(vi) Other contingent liabilties (to be specified)	50

Note : Cash margins/deposits shall be deducted before applying the conversion factor.

11. Loans against NBFC’s own shares prohibited.- (1) No NBFC shall lend against its own shares.

(2) Any outstanding loan granted by an NBFC against its own share on the date of commencement of these directions shall be recovered by the NBFC as per the repayment schedule.

11A. NBFC failing to repay public deposit prohibited from making‑loans,and investments.‑ An NBFC which has failed to' repay any public deposit or part thereof in accordance with the terms and conditions of such deposit, as provided in section 45QA(1) of the Reserve Bank of India Act, 1934 (2 of 1934) shall not grant any loan or other credit facility by whatever name called or make any investment or create any other asset as long as the default exists.

11B. Restrictions on investments in land and building and Unquoted shares.‑ (i) No equipment leasing company or hire purchase finance company, which is accepting public deposit, shall, invest in

(a) land or building, except for its own use, an amount exceeding ten per cent of its owned fund;

(b) unquoted shares of another company, which is not a subsidiary company or a company in the same group of the NFBC, an amount exceeding ten per cent of its owned fund.

(ii) No loan company or investment company, which is accepting public deposit, shall, invest in

(a) land or building, except for its own use, an amount exceeding ten per cent of its owned fund;

(b) unquoted shares of another company, which is not a subsidiary company or a company in the same group of the NBFC, an amount exceeding twenty per cent of its owned fund:

Provided that the land or building or unquoted shares acquired in satisfaction of its debts shall be disposed off by the NBFC within a period of three years or within such period as extended by the Bank, from the date of such acquisition if the investment in these assets together with such assets already held by the NBFC exceeds the above ceiling:

Provided further that the land or building or unquoted shares held by the company in excess of the ceiling specified hereinabove on the date of commencement of these directions, shall be disposed off so as to bring down such h1o i Iding within the said ceiling by the NBFC within three years or within such period as extended by the Bank, from the date of coming into force of these Directions.

Explanation.‑ While calculating the ceiling on investment in unquoted shares, investments in such shares of all companies shall be aggregated.

Provided further that the above ceiling on the investment in unquoted shares shall not be applicable to an equipment leasing company or a hire‑purchase finance company or a loan company or an investment company in respect of investment in the equity capital of an insurance company up to the extent specifically permitted, in writing, by the Reserve Bank of India.

12. Concentration of credit/investment.‑ (1) No. NBFC shall,

(i) lend to

(a) any single borrower exceeding fifteen per cent of its owned fund; and

(b) any single group of borrowers exceeding twenty five per cent of its owned fund,

(ii) invest in

(a) the shares of another company exceeding fifteen per cent of its owned fund; and

(b) the shares of a single group of companies exceeding twenty five per cent of its owned fund,

(iii) lend and invest (loans/investments taken together) exceeding

(a) twenty five per cent of its owned fund to a single party; and

(b) forty per cent of its owned ftind to a single group of parties.

Provided that the above ceilings on credit/investment concentration shall not be applicable to a RNBC in respect of investments in approved securities, bonds, debentures and other securities issued by a Government company or a public financial institution or a scheduled commercial bank under the provisions of paragraph 6(1)(a) and 6(1)(b) of the Residuary Non‑Banking Companies (Reserve Bank) Directions, 1987.

Provided further that the above ceiling on the investment in shares of another company shall not be applicable to an NBFC in respect of investment in the equity capital of an insurance company up to the extent specifically permitted, in writing, by the Reserve Bank of India.

(2) Any loans granted and investment made by the NBFC in excess of the ceilings specified here in above and existing on the date of commencement of these directions, shall be brought down by the NBFC as per the repayment schedule in due course.

Notes.‑ (1) For determining the above somentioned limits, off‑balance sheet exposures be converted into credit risk by applying the conversion factors explained herein above.

(2) The investments in debentures for the above purpose be treated as credit and not investment.

(3) The above ceilings on credit/investments shall be applicable to the own group of the NBFC as well as to the other group of borrowers/investee companies.

13. Submission of half yearly return.‑ NBFCs including RNBCs referred to in para 1(3)(i)(a) and (b) shall submit a half‑yearly return within three months of the expiry of the relative half‑year as on September and March every year, commencing from the half year ending March 31, 1998, in the format annexed hereto to the Regional Office of the Department of Non‑Banking Supervision of the Reserve Bank of India under whose jurisdiction the registered office of the company is located as per Second Schedule to the Non‑Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 and Schedule B to Residuary Non‑Banking Companies (Reserve Bank) Directions, 1987.

NOTES

Format of half‑yearly return referred to in paragraph 13 of the said directions, is substituted by the format NBS 2 appended hereto.

14. Exemptions.‑ The Reserve Bank of India may, if it considers it necessary for avoiding any hardship or for any other just and sufficient reason, grant extension of time to comply with or exempt any NBFC or class of NBFCs, from all or any of the provisions of these directions either generally or for any specified period, subject to such conditions as the Reserve Bank of India may impose.

15. Interpretations.‑ For the purpose of giving effect to the provisions of these directions, the Reserve Bank of India may if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these directions given by the Reserve Bank of India shall be final and binding on all the parties concerned.

ALL NBFCs AND RNBCs TO SUBMIT ANNUAL STATUTORY RETURNS ON DEPOSITS

[Press Notes/Releases No. 1999‑2000/162 dt. 2‑8‑99, issued by Press Relations Division, R.B.I.]

The Reserve Bank of India has today advised all nidhi companies, chit fund companies and nonbanking financial companies holding public deposits to submit the annual statutory return on deposits. The return should be submitted in the format of the First Schedule on or before September 30, 1999.

It has been clarified that the return is required to be submitted by every nidhi company, chit fund company and such other NBFC that held public deposits as on March 31, 1999. The Residuary Non‑Banking Companies (RNBCs) should similarly furnish the return in the format of Schedule A irrespective of whether it has been granted Certificate of Registration or its application is pending with the Reserve Bank or its application had been rejected by the Reserve Bank. The companies may use the format of the return submitted by them last year (i.e., as on March 31, 1998) or may request for a copy of the format of the return from the concerned regional office of the Department of Non‑Banking Supervision.

The Reserve Bank of India has emphasised that submission of the annual return on deposits is a statutory obligation of all the NBFCs holding public deposits, chit fund companies and RNBCs, and non‑submission of the return will be viewed seriously attracting penal provisions of the Reserve Bank of India Act. The stipulated date for receipt of the return in the regional office of the Reserve Bank of India is September 30, 1999.

Background

The annual statutory return in the First Schedule is required to be submitted by all NBFCs holding public deposits including nidhis and chit fund companies and in Schedule 'A' by Residuary Non‑Banking Companies (RNBCs) as on March 31, every year by September 30 of that year. In the past, the formats of these returns were mailed to the companies individually for ensuring their timely submission. The formats are available on RBI Website.

ANNEXURE

[Please see paragraph 13 of the Non‑banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998]

REPORTING FORMAT

FORM NBS 2

Half‑yearly statement of capital funds, risk assets/exposures and risk asset ratio, etc.,

as at the end of March/September, 20___

Name and address of the non‑banking financial company __________________________

__________________________

Company code number (as given by RBI) _____________________________

Registration number (as given by RBI) _____________________________

Classification of the company (as given by RBI) _____________________________

PART‑A

Item name	Item code	Amount
(1)	(2)	(3)
Capital Funds‑Tier‑I
(i) Paid‑up equity capital	111
(ii) Preference shares to be compulsorily convertible into equity	112
(iii) Free reserves (a) General reserves (b) Share premium (c) Capital reserves (representing surplus on sale of assets held in separate account) (d) Debenture redemption reserve (e) Capital redemption reserve (f) Credit balance in P & L account (g) Other free reserves (to be specified) Total (111 to 119)	113 114 115 116 117 118 119 110
(iv) Accumulated balance of loss	121
(v) Deferred revenue expenditure	122
(vi) Other intangible assets Total (121 to 123)	123 120
(vii) Owned funds: (110‑ 120):	130
(viii) Investment in shares of: (a) Subsidiaries (b) Companies in the same group: (c) Other non‑banking financial companies:	141 142 143
(ix) The book value of debentures, bonds, outstanding loans and advances, bills purchased and discounted (including hire purchase and lease finance) made to, and deposits with: (a) Subsidiaries (b) Companies in the same group:	144 145
(x) Total (141 to 145)	140
(xi) Amount of item 140 in excess of 10% of item 130 above	150
(xii) Tier I Capital
Net owned fund (130‑150)	151

PART‑B

Item name		Item code		Amount (Rs. in lakhs)
(1)	(2)		(3)
Capital Funds‑Tier‑II
[Para. 2(1)(xx)(b) of directions]
(i) Preference share capital other than those compulsorily convertible into equity	161
(ii) Revaluation reserves	162
(iii) General provisions and loss reserves	163
(iv) Hybrid debt capital instruments	164
(v) Subordinated debt	165
(vi) Aggregate Tier II Capital (Items 161 to 165)	160
Total capital funds (151+160) 170	170

PART‑C

Item name	Item code	Amount (Rs. in lakhs)
(1)	(2)	(3)
Risk assets and off‑balance‑sheet items (i) Adjusted value of funded risk assets, i.e., on balance‑ sheet items (totally with Part D)	181
(ii) Adjusted value of non‑funded and off‑balance‑sheet items (totally with Part E)	182
(iii) Total risk weighted assets/exposures (181 + 182)	180
(iv) Percentage of capital funds to risk weighted assets/ exposures : (a) Tier I capital (percentage of item 151 to item 180) (b) Tier II capital (percentage of item 160 to item 180) (c) Total (percentage of item 170 to item 190)	191 192 193

Item name	Item code	Book vlaue	Risk wieght	Adjusted vlaue
(1)	(2)	(3)	(4)	(5)
Weighted asets, i.e., on balance-sheet items
I. Cash and bank balances including fixed deposits and certificates of deposits II. Investments [see para 6 of the Directions] : (a) Approved securities as defined in the Reserve Bank of India Act, 1934 (b) Bonds of public sector banks and FDs/CDs/bonds of public financial institiutions : (i) Amounts deducted in part ‘A’ item (x) (item code 150) (ii) Amounts not deducted in Part ‘A’ item (x)(item code 150) Sub-total (222+223) (c) Units of Unit Trust of India (d) Shares of all companies and debentures/bonds/commercial papers of companies other than in (b) above/units of mutual funds other than in (c) above : (i) Amounts deducted in part ‘A’, item (xi)(item code 150) (ii) Amounts not deducted in part ‘A’ Sub-total (225+226) III. Current assets (a) Stock on hire (please see note 2 below) (i) Amounts deducted in Part ‘A’ [item (xi)] (item code 150) (ii) Amounts not deducted in Part ‘A’ Sub-total (231+232) (b) Intercorporate loans/deposits (i) Amounts deducted in Part ‘A’ [itme (xi)] (item code 150) (ii) Amounts not deducted in Part ‘A’ Sub-total (233+234) (c) Loans and advances fully secured by company’s own deposits (d) Loans to staff (e) Other secured loans and advances considered good (i) Amounts deducted in Part ‘A’ [item (xi) itme code 150] (ii) Amounts not deducted in Part ‘A’ Sub-total (235+236+241+242) (f) Bills purchased/discounted (i) Amounts deducted in Part 'A' [item (xi) item code 15] (ii) Amounts not deducted in Part 'A' Sub‑total (243+244) (g) Others (to be specified) IV. Fixed asets (net of depreciation): (a) Assets leased out: (i) Amounts deducted in Part 'A' [item (xi) item code 150) (ii) Amounts not deducted in Part 'A' 252 Sub‑total (251+252) Total credit exposure (ST 232+ST 234+ST 242+ST 244+245+ ST 252) (b) Premises (c) Furniture and fixtures V. Other assets : (a) Income-tax deducted at source (net of provisions) (b) Advance tax paid (net of provision) (c) Interest due on Government securities (d) Others (to be specified) Total weighted assets (items 210 to 258 please exclude item codes prefixed by “ST”)	210 221 222 223 ST 223 224 225 226 ST 226 231 232 ST 232 233 234 ST 234 235 236 241 242 ST 242 243 244 ST 244 245 251 252 ST 252 CT 20 253 254 255 256 257 258 200		0 0 0 20 20 0 100 0 100 0 100 0 0 0 100 0 100 100 0 100 100 100 0 0 0 100	0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

NOTES:

1. Netting may be done in respect of assets where provisions for depreciation or for bad and doubtful debts have been made.

2. Stock on hire should be shown net of finance charges, i.e., interest and other charges recoverable.

3. Assets which have been deducted (item code 150) from owned fund to arrive at net owned fund will have a weightage of 'O' (Zero).

PART‑E

Weighted non‑funded exposures/off‑balance‑sheet items

Item name

Item Code

Book value

Conversion factor

Equivalent value

Risk weight

Adjusted value

(1)

(2)

(3)

(4)

(5)

(6)

(7)

1. Financial and other guarantees

2. Share/debenture underwriting obligations

3. Partly paid shares/debentures

4. Bills discounted/rediscounted

5. Lease contracts entered into but yet to be executed

6. Other contingent liabilities

(to be specified)

Total non‑funded exposures

(Items 310 to 360)

310

320

330

340

350

360

300

100

Note : Cash margin/deposits shall be deducted before applying the conversion factor.

PART‑F

Asset classification

I. Aggregate of credit exposures categorised into:

Item name	Item code	Amount
(1)	(2)	(3)
(i) Standard assets:	411
(ii) Sub‑standard assets: (a) Lease and hire purchase assets (b) Other credit facilities	412 413
(iii) Doubtful assets	414
(iv) Loss assets	415
Total (411 + 415)	410

Note: Item 410 should tally with CT 200.

II. Aggregate provisioning in respect of I above as per the directions prescribed:

Item name	Item code	Provision required	Actual provision made
(1)	(2)	(3)	(4)
(A) Loans, advances and other credit facilities: (i) Sub‑standard assets: (a) entire amount taken to the credit of profit and loss account before the asset became NPA and remaining unrealised [para. 3(2) of the Directions] (b) 10 per cent. of the balance of outstanding dues (ii) Doubtful assets: (a) entire amount taken to the credit of profit and loss account before the asset became NPA and remaining unrealised [para. 3(2) of the Directions] (b) 100 per cent. to the extent not covered by realisable value of security plus 20 to 50 per cent. of the secured portion for the period the asset has remained doubtful (iii) Loss assets: (a) entire amount taken to the credit of profit and loss account before the asset became NPA and remaining unrealised [para 3(2) of the Directions] (b) 100 per cent. of the outstanding balance Total : (Item Nos. 421 to 426)	421 422 423 424 425 426 ST426
(B) Hire purchase and leased assets: (i) Sub‑standard assets: [para. 8(2) of the directions] Hire purchase assets: (a) entire amount taken to the credit of profit and loss account before the asset became NPA and remaining unrealised [para 3(3) of the Directions] (b) deficit between total dues and depreciated value [para 8(2)(i) of the Directions] (c) 10 per cent. of net book value [para 8(2)(ii) of the Directions] Leased assets: (d) net lease rentals credited to profit and loss account before the asset became NPA and remaining unrealised [para 3(4) of the Directions] (e) 10 per cent. of the net book value [para 8(2)(ii) of the Directions] (ii) Doubtful assets: Hire purchase assets: (a) entire amount taken to the credit of profit and loss account before the asset became NPA and remaining unrealised [para 3(3) of the Directions] (b) deficit between total dues and depreciated value [para 8(2)(i) of the Directions] (c) 40% of net book value [para 8(2)(ii) of the Directions] Leased assets: (d) net lease rentals credit to profit and loss account before the asset became NPA and remaining unrealised [para 3(4) of the Directions] (e) 40 per cent. of the net book value [para 8(2)(ii) of the Directions] Hire purchase assets: (f) entire amount taken to the credit of profit and loss account before the asset became NPA and remaining unrealised [para 3(3) of the Directions] (g) deficit between total dues and depreciated value [para 8(2)(i) of the Directions] (h) 70 per cent. of net book value [para 8(2)(ii) of the Directions] Leased assets: (i) net lease rentals credited to profit and loss account before the asset became NPA and remaining unrealised [para 3(4) of the Directions] (j) 70 per cent, of the net book value [para 8(2)(ii) of the Directions] (iii) Loss assets: Hire purchase assets: (a) entire amount taken to the credit of profit and loss account before the asset became NPA and remaining unrealised [para 3(3) of the Directions] (b) deficit between total dues and depreciated value [para 8(2)(i) of the Directions] (c) 100 per cent. of net book value [para 8(2)(ii) of the Directions] Leased assets: (a) net lease rentals credited to profit and loss account before the asset became NPA and remaining unrealised [para 3(4) of the Directions] (b) 100% of the net book value [para 8(2)(ii) of the Directions] Sub‑total : (Items Nos. 427 to 446) Total provisions (ST426+ST446)	427 428 429 430 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 ST446 420

III. Other provisions in respect of :

(i) Depreciation in fixed assets

(ii) Depreciation in investments

(iii) Loss/intangible assets

(iv) Provision for taxation

(v) Gratuity/provident fund

(vi) Others (to be specified)

451

452

453

454

455

456

Total

450

PART‑G

Particulars regarding investments in and advances to companies/firms in the same group and other NBFCs

Item name

Item code

Amount

(1)

(2)

(3)

(i) Book value of bonds and debentures and outstanding loans and advances to and deposits with subsidiaries and companies in the same group (details to be enclosed in appendix No. ______ )

(ii) Investments in shares of subsidiaries and companies in the same group and all non‑banking financial companies (details to be enclosed in appendix No. ________).

(iii) Investments by way of shares, debentures, loans and advances, leasing, hire purchase finance, deposits etc., in other companies, firms and proprietary concerns where directors of the company hold substantial interest (details to be enclosed in appendix No.________)

510

520

530

PART‑H

Particulars regarding concentration qf advances including off balance‑sheet exposure and investments to parties including those in Part G above

Item name

Item code

Amount

(1)

(2)

(3)

(i) Loans and advances including off‑balance‑sheet exposures, to any single party in excess of 15 per cent of owned fund of the NBFC (Details to be enclosed in appendix No. ________ )

(ii) Loans and advances including off‑balance sheet exposures, to a single group of parties in excess of 25 per cent of owned fund of the NBFC (Details to be enclosed in appendix No._______)

(iii) Investments in a single company in excess of 15 per cent of the owned fund of the NBFC (Details to be enclosed in appendix No. ________)

(iv) Investments in the shares issued by a single group of companies in excess of 25 per cent. of the owned fund of the NBFC

(v) Loans, advances to (including debentures/bonds and off‑balance-sheet exposures) and investment in the shares of single party in excess of 25 per cent. of the owned fund of the NBFC

(vi) Loans, advances to (including debentures/bonds and off‑balance sheet exposures) and investment in the shares of single group of parties in excess of 40 per cent. of the owned fund of the NBFC

610

620

630

640

650

660

Notes : (1) All these exposure limits are applicable to the NBFC's own group as well as to the borrower/investee company's group.

(2) Investment in debentures for this purpose shall be treated as credit and not investment.

PART‑I

Particulars regarding investments in premises and unquoted shares

Item name

Item code

Amount

(1)

(2)

(3)

“(i) Investments in premises, (land and buildings) except for own use (out of item code 253 in the return) held by the company in excess of 10 per cent of the owned fund

(a) Acquired by the company independently

(b) Acquired in satisfaction of its debt

(ii) Investments in unquoted shares except those held in the subsidiaries and companies in the same group (vide item codes 141 and 142) in excess of

(a) 10 per cent. of the owned fund in case of equipment leasing and hire purchase finance companies

(b) 20 per cent. Of the owned fund in case of loan and investment companies”.

710

720

730

740

Khyati – 1993

(10) net owned fund as per tier‑1 capital of the company has been correctly worked out.

Place : _________

Date : _________

For and on behalf of

(Name of the company)

Managing Director/

Chief Executive Officer

AUDITOR's REPORT

We have examined the books of account and other records maintained by __________ Limited in respect of the capital funds, risk assets/exposures and risk asset ratio etc., as on _________ 19 _____ and statements hereinabove made by the Managing Director/Chief Executive Officer of the company or his authorised representative. We report that to the best of our knowledge and according to the information and explanations given to us and as shown by the record examined by us the figures shown in Parts A, B, C, D, E, F, G and H of the statement herein above are correct.

Place : ________

Date : ________

Statutory Auditors

NBFCs Prudential Norms (Reserve Bank) Directions, 1998 ‑ Valuation of Investments to be in alignment with ICAI Accounting Standards

[Circular No. DNBS PD No. CCO6/02.01/97‑98, dated 12‑5‑1998, issued by the Department of Non‑Banking Supervision, RBI]

1. Please refer to the Notification No. DFC. 119/DG (SPT)‑98, dated January 31, 1998 in terms of which Prudential Norms Directions were issued to NBFCs and RNBCs for mandatory compliance.

2. The Institute of Chartered Accountants of India (ICAI) expressed a view that valuation of Investments should be in alignment with the Accounting Standards issued by it and that there is a need to consider the value of underlying security for the purpose of provisioning. In consultation with ICAI, it has been decided to introduce certain modifications in the norms for accounting for investments and provisioning against non‑performing assets (NPAs). The modifications are intended to bring the prudential norms in alignment with the accounting standard issued by the ICAI. The details of modifications are as under:

Income recognition norms.‑As per the earlier norms, the income recognised in respect of hire purchase/leased asset before such asset became NPA is required to be reversed/fully provided for. No such reversal of income was, however, envisaged in respect of loans, advances and other credit facilities under the earlier norms. Under the revised norms, Nl3FCs have been mandated to reverse the income, discount or any other charges in respect of loans, advances and other credit facilities also, which has been recognised and taken to the credit of profit and loss account before such assets became NPAs and remaining unrealised.

Accounting for investments. ‑The earlier bifurcation of long‑term investments into quoted and unquoted investments has been done away with. Under the modified norms, the unquoted equity shares in the nature of current investments only are required to be valued at cost or break up value. The companies also have the option to value these shares at their fair value. However, all the long terin investments including unquoted equity/preference shares and units of mutual funds shall be valued as per the Accounting Standard issued by ICAI in terms of which such investments could be carried in the books at cost, if the decline in the value of quoted investments is not permanent.

Provisioning norms for non‑performing hire purchase and leased assets.‑The earlier norms did not take into account the value of underlying asset for the purpose of provisions against hire purchase and leased assets. Accordingly, the entire amount of overdue instalinents net of the finance charges/income not taken to the credit of profit and loss account was to be fully provided for. Under the revised norms, due credit has been given to the realisable value of the underlying asset. The provisioning requirements in respect of the hire purchase and leased assets would now be as under:

(i) Hire purchase assets

(a) finance charges/income taken to the credit of profit and loss account before the asset became NPA and remaining unrealised shall be reversed;

(b) the provisions equivalent to the deficit between the total dues (overdues and future instalments taken together) and the lower of depreciated or net realisable value of the underlying assets shall be made; and

(c) additional provision shall be made at the specified rate on net book value (NBV). The NBV has been redefined to mean the aggregate of capital at risk including the sundry debtors to the extent it has not been provided tor.

(ii) Leased assets

(a) statutory depreciation on the leased asset at the rate applicable under Schedule XIV of the Companies Act, 1956 shall be charged to the profit and loss account as per extent provisions;

(b) finance income (Gross lease rentals ‑ statutory depreciation + lease adjustment account) taken to the credit of profit and loss account before the asset became NPA shall be reversed;

(c) additional provision shall be made at the specified rate on net book value (NBV). The NBV has been redefined to mean the aggregate of the depreciated book value of the underlying asset and the sundry debtors to the extent it has not been provided for.

(iii) It has also been prescribed that if any NPA remains on the books of the NBFC after the expiry of the prescribed repayment schedule, the entire book value should be provided for within a period of one year from the due date of the last instalment payable. For example, in the case of leased asset where lease rentals are to be recovered over a period of 4 years, becomes NPA in its fourth year, it could be provided for in stages within the next three years, i.e., three years beyond the recovery period. In terms of paragraph 8(2)(iii) of the directions, the book value of such an asset should be fully provided for by the end of fifth year, i.e., one year after the expiry of repayment schedule. In other words, in NPA cannot remain on the balance sheet of the NBFC beyond one year after the expiry of original repayment schedule.

Risk weights on on‑balance sheet items.‑At present, the investments by NBFCs in the bonds of scheduled commercial banks and fixed deposits (FDs)/certificates of deposits (CDs)/bonds of public financial institutions (PFIs) and other public sector undertakings (PSUs) attract 100 per cent risk weights. Some of the RNBCs which are required to make investment in these securities as per the provisions of Residuary Non‑Banking Companies (Reserve Bank) Directions, 1987 [RNBC directions] had requested us for assigning lower risk weights on such investments because of low risk factors. Considering the merit of the representations, it has been decided that the bonds of public sector banks and FDs/CDs/Bonds of PFIs shall carry 20 per cent risk weights as against 100 per cent, at present. However, the bonds issued by private sector banks and other Government companies/public sector undertakings shall continue to carry 100 per cent risk weights as hitherto, if they are not guaranteed by the Central or State Governments.

CreditlInvestment Concentration norms for RNBCs.‑In terms of the provisions of RNBC directions, the RNBCs are required to make investments of the deposit funds in the securities issued by certain specified institutions to provide security for their depositors. Considering that only select few institutions have been specified for the purpose, some of the RNBCs have represented to us that they find it difficult sometimes to adhere to the Investment Concentration Norms prescribed by us. In view of the above, it has been decided that the investment concentration norms shall not be applicable to RNBCs in respect of investments required to be made by them in approved securities, bonds, debentures and other securities issued by a Government company or a public financial institution or a public sector bank, in terms of the provisions of RNBC directions.

Default in repayment of public deposits‑NBFCs prohibited from making loans and investments.‑The Companies Act, 1956 has been amended by the Government of India prohibiting the non‑financial companies which default in repayment of deposits accepted by them under section 58A of the Companies Act from making inter‑Corporate loan s/investments under sections 370 and 372 of the Companies Act. It has been considered necessary to institute a similar provision for the non‑banking financial companies in order to further strengthen the protection of the interest of the depositors. Accordingly, the Bank has directed the NBFCs not to create any asset including by grant of loans or making investments in any manner until the default, if any, in repayment of public deposits or any part thereof which have matured and fallen due for repayment as per the terms of acceptance of deposits exists.

Commencement. ‑While the modified norms referred to in paragraphs 2(1) and 2(6) above shall come into effect immediately, those referred to in other paragraphs shall be deemed to have come into force retrospectively with effect from January 31, 1998.

[Appendix 63 to 65 Reserved]