NBFC Due Diligence Compliance- An Overview
NBFC due diligence compliance is a process that ensures the entity is fully compliant with mandatory Indian regulations and rules. The procedure is conducted by expert professionals, including lawyers, Chartered Accountants (CAs), company secretaries (CS), and regulatory compliance specialists.
Shift your energy into increasing your entity’s profit generation. Leave all the tedious paperwork to DrNBFC’s expert team, consisting of over 200 due diligence experts with more than a decade of experience. Get our services and save thousands in penalties.
At DrNBFC, we’ll help you review your annual financial submissions, tax returns, RBI compliance, IT infrastructure assessment, pending legal disputes, agreements, NDA reviews, and foreign direct investment.
Trust DrNBFC’s 200+ Experts for NBFC Due Diligence
Get your service-specific brochure here
What are the Benefits of NBFC Due Diligence in India?
Explore the benefits of NBFC due diligence in India as described below:
- Helps Avoid Penalties- With proper NBFC due diligence, you can keep track of all your mandatory filing deadlines, including monthly, quarterly, and annual ones, thereby avoiding penalties and fines.
- Compliance With the RBI- By obtaining a non-banking financial company due diligence service provider, you can always remain on top of every RBI-related compliance. It is one of the benefits of NBFC due diligence in India.
- Playbook for Investors- Investors and stakeholders make sound decisions if they’ve up-to-date data. Their investment in NBFCs solely lies on the NBFC’s balance sheets, compliance logs, and assets.
- Business Expansion- The NBFC entity can expand its operations through joint ventures, mergers & acquisitions, or partnerships with Fintech after understanding the true position of their organization.
- Brand Reputation- A corporation that is completely transparent and compliant with regulatory laws is perceived as more reliable and trustworthy by customers and investors as compared to ones that lack a proper legal framework.
- Financial Security- With due diligence compliance, investors can examine a non-banking financial company’s financial record to decide whether or not they want to invest in the said NBFC.
- Enhanced IT Infrastructure- The non-banking financial company due diligence includes a complete review of the company’s IT systems, data security, cybersecurity protocols, web policies, firewalls, and encryption.
Legal Compliance for NBFC Due Diligence
Find out the main type of legal compliance for NBFC due diligence compliance as per the RBI guidelines, as explained below:
- Creation of Reserve- As per Section 45-IC of the Reserve Bank of India Act of 1934, every non-banking financial entity must create a statutory reserve fund with 20% of its net profit before distributing dividends.
- Enrolment in the KYC Portal- The NBFC must be registered with the Know Your Customer (KYC) portal and provide all the mandatory information as per applicable laws.
- Registration With the Financial Intelligence Unit (FIU-Ind)- As per the Prevention of Money Laundering Act of 2002, all banks and non-banking financial institutions must share their client information through FIU-India registration.
- Appointment of Counsels- In accordance with Sections 13 and 14 of the SARFAESI Act, NBFCs must appoint nominated counsels in their jurisdictional High Court of India. Once the nomination is finalized, the details will be shared with the Central Registry of Securitization, Asset Reconstruction, and Security Interest (CERSAI) on your behalf.
- Obtain the Credit Information Company (CIC) Membership- As per RBI regulations, every NBFC must join one of the four Credit Information Companies to ensure compliance and seamless credit data reporting.
- Audit Compliance- As per the Reserve Bank of India, due diligence must include an audited financial statement along with a separate certificate by a statutory auditor, ensuring the company’s compliance with regulatory requirements. We have a network of 100+ statutory auditors who can simplify this process on your behalf.
Trust DrNBFC’s 200+ Experts for
NBFC Due Diligence
Are you having trouble completing your compliance requirements? With over 200 experts, DrNBFC can help you fulfil your NBFC due diligence obligations with ease.
From financial health analysis to regulatory check-up, DrNBFC is an all-rounder cure for all your non-banking financial due diligence needs.
Commercial Compliance for NBFC Due Diligence
In order to verify if the non-banking financial institution is working as per its business plan, an operational/commercial compliance for NBFC due diligence compliance is carried out as described below:
- Comparative Study of Competitive Edge- Our market research analysts will assist you in conducting a study to identify your NBFC’s position in the market compared to competitors.
- Evaluation of Customer Relations- Customers impact a business more than anything else. We will evaluate all customer complaints and feedback to gain a better understanding of consumer relations with your NBFC.
- Brand Recognition- We will compare your NBFC’s brand strategy, check if you have obtained any Intellectual Property Rights (IPR) to protect your distinct brand identity, and assess your position in the market through advertising and promotional activities.
- Examination of Sales & Marketing Strategies- Our marketing specialists will conduct a thorough evaluation of your sales and marketing strategies to boost profits and expand your business reach.
- Business Plan Review- A complete review of your NBFC’s business model will be carried out to assess its long-term goals and objectives.
Financial Compliance for NBFC Due Diligence
Deep dive into the financial compliance for NBFC due diligence, including the examination of assets & liabilities, balance sheets, and cash flow statements.
- Accurate Record Documentation- All financial documents must be accurate and updated in accordance with the RBI’s regulatory requirements.
- Creditworthiness- All NBFCs must have a CAR ratio between 10% and 15% as per their structure type. By maintaining transparency at every level regarding its debts and settlement records, an NBFC can assure investors that they are worthy of their trust and worth.
- Risk Mitigation Protocol- We’ll help you implement a risk-management plan to protect your entity against financial risks.
Fulfill NBFC Due Diligence with DrNBFC
NBFC due diligence compliance is a complex process, but it is pertinent for all non-banking financial companies if they want to thrive in the competitive industry. The process includes legal, financial, operational (commercial), and RBI due diligence.
If you’re an NBFC looking for a merger with a Fintech or related company, then you’re at the right place because together we can make this possible. Contact us now and get ready to expand your business.
How to Meet NBFC Due Diligence Needs Via DrNBFC?
Understand how to meet your NBFC due diligence needs via DrNBFC as described below:
-
Step 1: Explain Business Requirements
Connect with our consultants and explain your non-banking financial company due diligence requirements.
-
Step 2: Preparation of Checklist
After the successful signup and payment of the service fee, we’ll assign an individual case manager according to the type of due diligence, including legal, regulatory, commercial, or financial.
-
Step 3: Identification of Sources
We’ll require your financial records, a list of pending disputes, NBFC’s incorporation documents, tax filing receipts, and RBI-specific license approvals.
-
Step 4: Review and Evaluation
Our auditors will investigate the above-mentioned documents to find any discrepancies or non-compliant elements.
-
Step 5: Completion of the Due Diligence
Once we’ve identified the problem areas, we’ll take effective measures to fix them, closing the due diligence compliance process.
Features of NBFC Due Diligence in India
Check out the features of NBFC due diligence in India, including financial, regulatory, legal, and operational, as mentioned below:
- A detailed analysis is done to verify the audited financial statements.
- As part of the due diligence, loans and investments are scrutinized to identify performing and non-performing accounts (loan defaulters).
- Review of the NBFC’s annual balance sheet, profit & loss accounts, and expense reports to identify fraudulent and illegal transactions.
- A complete review of the entity’s policy is carried out, including KYC/AML, credit, recovery, privacy, and risk mitigation.
- Compliance with the Reserve Bank of India (RBI) regulations, capital adequacy ratios, and related rules.
- The company’s initial incorporation documents are verified as per MCA regulations.
- All pending legal disputes are reviewed.
- A verification and renewal of all types of the company's intellectual properties (IPR) is done as part and parcel of due diligence compliance.
- All tax payment and return filing receipts are reviewed for compliance with the Indian tax authorities.
- Evaluation of all general and annual board member meetings.
- All real estate properties and lease agreements are examined by the compliance team.
Features of NBFC Due Diligence in India
Check out the features of NBFC due diligence in India, including financial, regulatory, legal, and operational, as mentioned below:
- A detailed analysis is done to verify the audited financial statements.
- As part of the due diligence, loans and investments are scrutinized to identify performing and non-performing accounts (loan defaulters).
- Review of the NBFC’s annual balance sheet, profit & loss accounts, and expense reports to identify fraudulent and illegal transactions.
- A complete review of the entity’s policy is carried out, including KYC/AML, credit, recovery, privacy, and risk mitigation.
- Compliance with the Reserve Bank of India (RBI) regulations, capital adequacy ratios, and related rules.
- The company’s initial incorporation documents are verified as per MCA regulations.
- All pending legal disputes are reviewed.
- A verification and renewal of all types of the company's intellectual properties (IPR) is done as part and parcel of due diligence compliance.
- All tax payment and return filing receipts are reviewed for compliance with the Indian tax authorities.
- Evaluation of all general and annual board member meetings.
- All real estate properties and lease agreements are examined by the compliance team.
Requirements of NBFC Due Diligence Compliance
The basic criteria and requirements of the NBFC due diligence compliance are as follows:
- A proof of registration via RBI in the relevant category.
- The applicant must submit the company's bylaws agreement and charter.
- A board resolution for conducting the due diligence.
- The NBFC must comply with RBI’s master directions, fair practices code, AML-CFT & KYC directives.
- The NBFC must have a valid incorporation certificate issued by the MCA.
- A valid GST and corporate tax registration to verify the filing receipts.
- A copy of relevant RBI NBFC approvals, including AA license, ICC, factor, or MFI.
- The director must submit the last three years’ audited financial statements.
- A statement on the Net Owned Funds (NOFs).
- A detailed report on all types of assets, including non-performing ones.
- Details of all borrowings, security obtained against granted loans, and investments.
- A declaration of capital to analyze the capital adequacy ratio (CAR).
- A list of all clients and types of loans.
- Copies of loan, collateral, security, and third-party agreements.
- Non-disclosure agreements with fintech/partners.
- Credit and recovery policies for review and compliance with RBI.
- IT systems, privacy policy, data security regulations, and complete infrastructure.
- A copy of ongoing legal disputes, including civil cases, tax proceedings, and consumer complaints.
- KYC of directors with DINs and declaration of “fit and proper criteria” as per the RBI.
- A copy of the risk mitigation structure, internal governance, and grievance redressal.
- All copies of RBI return declarations and the statutory auditor’s certificate.
- Minutes of annual and quarterly meetings as mandated by the competent authorities.
- Complete material on AML and KYC policies in accordance with RBI directions.
- Details on onboarded customers.
Documents Required for NBFC Due Diligence
The documents required for NBFC due diligence are as follows:
- KYC of the applicant, directors, and shareholders.
- Memorandum of Association.
- Articles of Association.
- CA-certified audited financial statements.
- Bank account statement of the entity.
- Details of the company’s clients and third-party vendors.
- Information on the NBFC’s workforce.
- Complete details of all the customers.
- Tax and GST return filing receipts.
- NBFC’s business model and plan.
- Agreements on intellectual properties of the entity.
- Net-worth as certified by a chartered accountant.
Top Focus Areas of NBFC Due Diligence Compliance
Discover the major focus areas of NBFC due diligence compliance process as mentioned below:
Corporate
Evaluation of business incorporation documentation and organizational structure.
Foreign Direct Investments (FDI)
Review of FDIs and their sources to ensure full compliance with AML-CFT protocols.
Financial
Examination and audit of financial documents, including balance sheets, income statements, and expense reports.
Real Estate
Comprehensive assessment of the NBFC’s real estate and commercial properties, including rental spaces and leases.
Employee Engagement
Evaluation of human resources for NBFC due diligence, including ongoing training modules and compliance with labor laws.
Intellectual Properties (IPRs)
Timely renewal of all types of IPRs, including trademarks, patents, copyrights, and design registrations.
RBI Compliance
Review of the NBFC’s policies to ensure alignment with the Reserve Bank of India’s rules and regulations.
Records of Meetings
Auditing recorded minutes of all meetings—monthly, quarterly, and annual—to strengthen the company’s internal governance.
Pending Legal Disputes
Identification and review of all pending lawsuits for or against the company, including complaints filed in consumer forums.
Review of Major Agreements
Thorough review of all major agreements, including borrower contracts, third-party vendor agreements, non-disclosure agreements, and lease documents to prevent legal and operational loopholes.
Taxation Compliance
Examination of all monthly, quarterly, and annual Income Tax, GST, and TDS filings to ensure full compliance with applicable tax laws.
Why Trust DrNBFC for NBFC Due Diligence Compliance?
With a network of 500+ lawyers and fintech experts, we’re India’s No. 1 compliance service provider for NBFC due diligence compliance. Take a look at the following points to understand why you must partner with us for fulfilling your legal obligations after NBFC registration:
- Monitor compliance easily – avoid penalties and license cancellation.
- Get started with us from anywhere in India.
- 100% transparent pricing structure for NBFC due diligence.
- Complete remote process – you won’t have to visit any regulatory authority.
- Lifetime free consultation once you schedule a meeting with us.
- Avail our services – anywhere, anytime via our EMI facility.
- Annual filing made easy, error-free, and stress-free.
- Live tracking available – get real-time updates on your service requests.
- Monitor compliance easily through our standard due diligence report format for NBFC.
Frequently Asked Questions on NBFC Due Diligence Compliance
A non-banking financial company's due diligence is a process that involves examination and evaluation of various departments, such as regulatory, secretarial, legal, financial, and corporate governance.
The list of common focus areas of NBFC due diligence is as follows:
- Legal
- Reserve Bank of India Compliance
- Real Estate
- Financial
- Secretarial
- Commercial
- Human Resources
- Intellectual Properties of the NBFC
- All agreements entered into by the entity
- Insurance and tax claims
Go through the following reasons to conduct non-banking financial company due diligence:
- A proper examination of the system can help reveal the NBFC’s major financial and legal inaccuracies and deficiencies.
- Being aligned with regulatory compliance assists the entities in staying protected against credit risks and uncertainties.
- Proper scrutiny of the financial transactions and loan accounts prevents and puts a stop to any potential financial terrorism and fraud.
- A compliant and registered organization is attractive to investors looking to enter the NBFC segment.
Check out the list below of natural and artificial persons that are eligible to conduct an audit:
- Legal Services Providers
- Compliance and Advisory Firms
- Chartered Accountants (CAs)
- Company Secretaries (CS)
- Investment and Asset Management Firms
- Licensed Advocates
The list of documentation requirements for a non-banking financial company due diligence is as follows:
- Certificate of registration by the RBI
- KYC of the company’s directors, CEOs, managing directors, and key shareholders
- GST of the company
- PAN of the NBFC and key personnel
- Company registration certificate as issued by the MCA
- Memorandum of Association
- Articles of Association
- Company’s charter
- A copy of the business plan
- Audited financial statements of the last three years
- Statutory certificate of audit
- A CA-certified net worth of the company
- The board member’s resolution authorizing the due diligence
- All types of agreements, namely IPR, licensing, loan recovery, lease, and third-party vendors
NBFC due diligence Compliance is needed when the NBFC:
- Enters into a partnership with a fintech.
- Wants to improve its IT infrastructure and risk-management system.
- When a company wants to merge with an existing NBFC, and vice versa.
- Mandatory in accordance with the RBI and other competent authorities.
- If there are suspicions of fraud and illegal funding.
The process takes up to 3 to 6 months, depending on the size and type of the non-banking financial company.
While a statutory audit is mandated by law, a compliance for an NBFC is more of a voluntary process that helps to curb the wasteful practices, saving costs and attracting investors.
The common errors and findings are as follows:
- Non-performing assets (loan accounts that have defaulted).
- Outdated IT systems and weak web protocols.
- Pending lawsuits and unresolved consumer complaints.
- Fraud and unsecured loan disbursals.
- Unpaid tax returns and late filings.
The list of compliance requirements is as follows:
- 20% of profits as a statutory reserve.
- KYC registration.
- Registration and client information sharing with the Financial Intelligence Unit.
- Appointment of nominated counsels.
- Membership with any one of the four credit information companies.
- Constant compliance with the RBI's newest developments.
The following are the key points to remember while conducting a review of IT infrastructure:
- Evaluation of the credit, privacy, and recovery policies.
- Review of vendor-risk policy.
- Complete overhaul of the data security system, including servers, networks, and firewalls.
- Authentication of all security tools, threat detection systems, and audit trails.
- Examination of the NBFC’s API and security integration system.
