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RBI to audit 9,500 NBFCs to check on levels of compliance

January 04, 2023

RBI to audit 9,500 NBFCs to check on levels of compliance
The Reserve Bank of India (RBI) is likely to engage the services of external auditors to audit majority of the 9,500-odd non-banking finance companies (NBFCs) to delve into their operations and check whether their registered office is at the place mentioned in their application for registration, among others.

Failure of certain NBFCs due to idiosyncratic factors and several digital lenders violating extant regulations and guidelines on outsourcing and Fair Practices Code may be the trigger the aforementioned audit, according to industry sources. 

The RBI cancelled the certificate of registration (CoR) of 3,110 NBFCs between FY15 and FY22, with the largest number of cancellations (1,851) being in FY19. As on October 1, 2022, the CoRs of 5,451 NBFCs were cancelled by the central bank.

The proposed audit exercise could lead to cancellation of CoRs of more NBFCs in FY24.

There are 9,500-odd NBFCs but the RBI’s supervisory staff strength is only about 1,500. So, besides perusing offsite returns submitted by NBFCs, RBI may want to engage the services of external auditors to get in-depth assessment of the operations of the small and medium NBFCs, the sources said.

“The pandemic led to a mushrooming of digital lenders as customers increasingly resorted to digital platforms for quick short-term loans. Several such NBFCs violated extant regulations and guidelines on outsourcing and Fair Practices Code (FPC) and faced cancellation of license,” according to RBI’s Report on Trend and Progress of Banking in India 2021-22.

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