RBI Master Circular No: RBI/2014-15/632 (03-Jun-15) Master Circular â Non-Banking Financial Companies â Corporate Governance (Reserve Bank) Directions, 2015
DNBR (PD) CC No.040/03.01.001/2014-15
To
All Non-Banking Financial Companies (NBFCs),
Dear Sirs,
As you are aware, in order to have all current instructions on the subject at one place, the Reserve Bank of India issues updated circulars/notifications. The instructions contained in the Notification No. DNBR. 019/CGM (CDS)-2015 dated April 10, 2015 updated till the date as indicated above are reproduced below. The updated notification has also been placed on the RBI web-site (http://rbi.org.in/).
Yours faithfully,
C.D.Srinivasan
Chief General Manager
Table of Contents
| Sr. No. | Particulars |
| 1 | Short title and commencement of the Directions |
| 2 | Extent of the Directions |
| 3 | Constitution of Committees of the Board |
| 4 | Fit and Proper Criteria |
| 5 | Disclosure and transparency |
| 6 | Rotation of partners of the Statutory Auditors Audit Firm |
| 7 | Framing of Internal Guidelines |
Notification No.DNBR.019/CGM (CDS)-2015 dated April 10, 2015
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 Corporate Governance as set out below, in exercise of the powers conferred by Sections 45-L, 45-M and 45-MA of the Reserve Bank of India Act, 1934 (2 of 1934), and of all the powers enabling it in this behalf, hereby gives the Directions hereinafter specified.
1. Short title and commencement of the Directions
i. These Directions shall be known as the Non-Banking Financial Companies -- Corporate Governance (Reserve Bank) Directions, 2015.
ii. These Directions shall come into force with immediate effect.
i. These Directions shall apply to every non-deposit accepting Non-Banking Financial Company with asset size of Rs.500 crore and above (NBFCs-ND-SI), as per its last audited balance sheet, and all deposit accepting Non-Banking Financial Companies (NBFCs-D), henceforth called as Applicable NBFCs.
ii. The provisions of these Directions shall not apply to a Systemically Important Core Investment Company as defined in the Core Investment Companies (Reserve Bank) Directions, 2011.
3. Constitution of Committees of the Board
(1) Audit Committee
i. All Applicable NBFCs shall constitute an Audit Committee, consisting of not less than three members of its Board of Directors.
Explanation I: The Audit Committee constituted by a non-banking financial company as required under Section 177 of the Companies Act, 2013 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 177 of the Companies Act, 2013.
ii. The Audit Committee must ensure that an Information System Audit of the internal systems and processes is conducted at least once in two years to assess operational risks faced by the NBFCs.
(2) Nomination Committee
All Applicable NBFCs shall form a Nomination Committee to ensure 'fit and proper' status of proposed/ existing directors.
Explanation I: The Nomination Committee constituted under this paragraph shall have the same powers, functions and duties as laid down in Section 178 of the Companies Act, 2013.
(3) Risk Management Committee
To manage the integrated risk, all Applicable NBFCs shall form a Risk Management Committee, besides the Asset Liability Management Committee.
(1) All Applicable NBFCs shall
i. ensure that a policy is put in place with the approval of the Board of Directors for ascertaining the fit and proper criteria of the directors at the time of appointment, and on a continuing basis. The policy on the fit and proper criteria shall be on the lines of the Guidelines contained in Annex 1;
ii. obtain a declaration and undertaking from the directors giving additional information on the directors. The declaration and undertaking shall be on the lines of the format given in Annex 2;
iii. obtain a Deed of Covenant signed by the directors, which shall be in the format as given in Annex 3;
iv. furnish to the Reserve Bank a quarterly statement on change of directors, and a certificate from the Managing Director of the NBFC that fit and proper criteria in selection of the directors has been followed. The statement must reach the Regional Office of the Reserve Bank within 15 days of the close of the respective quarter. The statement submitted by NBFCs for the quarter ending March 31, should be certified by the auditors.
Provided that the Bank, if it deems fit and in public interest, reserves the right to examine the fit and proper criteria of directors of any non-banking financial company irrespective of the asset size of such non-banking financial company.
5. Disclosure and transparency
(1) All Applicable NBFCs shall put up to the Board of Directors, at regular intervals, as may be prescribed by the Board in this regard, the following:
i. the progress made in putting in place a progressive risk management system and risk management policy and strategy followed by the NBFC;
ii. conformity with corporate governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.
(2) All Applicable NBFCs shall also disclose the following in their Annual Financial Statements, with effect from March 31, 2015:
i. registration/ licence/ authorisation, by whatever name called, obtained from other financial sector regulators;
ii. ratings assigned by credit rating agencies and migration of ratings during the year;
iii. penalties, if any, levied by any regulator;
iv. information namely, area, country of operation and joint venture partners with regard to Joint ventures and overseas subsidiaries and
v. Asset-Liability profile, extent of financing of parent company products, NPAs and movement of NPAs, details of all off-balance sheet exposures, structured products issued by them as also securitization/ assignment transactions and other disclosures, as given in Annex 4.
6. Rotation of partners of the Statutory Auditors Audit Firm
All Applicable NBFCs shall rotate the partner/s of the Chartered Accountant firm conducting the audit, every three years so that same partner does not conduct audit of the company continuously for more than a period of three years. However, the partner so rotated will be eligible for conducting the audit of the NBFC after an interval of three years, if the NBFC, so decides. NBFCs shall incorporate appropriate terms in the letter of appointment of the firm of auditors and ensure its compliance.
7. Framing of Internal Guidelines
All applicable NBFCs shall frame their internal guidelines on corporate governance with the approval of the Board of Directors, enhancing the scope of the guidelines without sacrificing the spirit underlying the above guidelines and it shall be published on the company's web-site, if any, for the information of various stakeholders.
C D Srinivasan
Chief General Manager
''Fit and Proper'' Criteria for directors of NBFCs
Reserve Bank had issued a Directive in June 2004 to banks on undertaking due diligence on the persons before appointing them on the Boards of banks based on the ''Report of the Consultative Group of directors of Banks / Financial Institutions''. Specific ''fit and proper'' criteria to be fulfilled by the directors were also advised.
2. The importance of due diligence of directors to ascertain suitability for the post by way of qualifications, technical expertise, track record, integrity, etc. needs no emphasis for any financial institution. It is proposed to follow the same guidelines mutatis mutandis in case of NBFCs also. While the Reserve Bank does carry out due diligence on directors before issuing Certificate of Registration to an NBFC, it is necessary that NBFCs put in place an internal supervisory process on a continuing basis. Further, in order to streamline and bring in uniformity in the process of due diligence, while appointing directors, NBFCs are advised to ensure that the procedures mentioned below are followed and minimum criteria fulfilled by the persons before they are appointed on the Boards:
(a) NBFCs should undertake a process of due diligence to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other ''fit and proper'' criteria. NBFCs should obtain necessary information and declaration from the proposed / existing directors for the purpose in the format given at Annex- 2.
(b) The process of due diligence should be undertaken by the NBFCs at the time of appointment / renewal of appointment.
(c) The boards of the NBFCs should constitute Nomination Committees to scrutinize the declarations.
(d) Based on the information provided in the signed declaration, Nomination Committees should decide on the acceptance or otherwise of the directors, where considered necessary.
(e) NBFCs should obtain annually as on 31st March a simple declaration from the directors that the information already provided has not undergone change and where there is any change, requisite details are furnished by them forthwith.
(f) The Board of the NBFC must ensure in public interest that the nominated/ elected directors execute the deeds of covenants in the format given in Annex-3.
Name of NBFC: ________________________
| Declaration and Undertaking by Director (with enclosures as appropriate as on) |
|||
| |
|||
| I. | Personal details of director | |
|
| | a. | Full name | |
| | b. | Date of Birth | |
| | c. | Educational Qualifications | |
| | d. | Relevant Background and Experience | |
To continue reading
Request your trial