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moreDear Sir / Madam,
Non-Banking Finance Companies (NBFCs) in India play a key role in contributing towards the country’s economic growth, especially in the underbanked expanses. Over the past decade, NBFCs have risen significantly in number, magnitude and intricacies within the country’s financial sector. As per the Reserve Bank of India (RBI), the total Assets Under Management (AUM) of Non-Banking Financial Companies (NBFCs) stood at approximately Rs. 32 trillion as of March 2025.
Some of the challenges that NBFCs face include, dynamic regulatory environment, the RBI has been closely monitoring developments in upper-layer and middle-layer NBFCs, constantly evolving asset quality, geo-economic developments and risk exposure to affected customers and interest rate risk. The Indian Accounting Standards1 (Ind AS) were introduced in India in a phased manner. As per the RBI’s roadmap, listed NBFCs and NBFCs with a net worth of Rs. 500 crores or more migrated to Ind AS since 1 April 2018 (financial year ended 31 March 2019). Subsequently, with effect from accounting periods beginning 1 April 2019 (financial year ending 31 March 2020), NBFCs with net worth exceeding Rs. 250 crores were required to transition to Ind AS. The holding, subsidiary, associate and joint venture companies of the covered NBFCs also have to transition to Ind AS in the same year. The RBI has deferred Ind AS transition for banks, due to the necessary legislative amendments, to make the format of financial statements, prescribed in the Third Schedule to the Banking Regulation Act, 1949, compatible with accounts under Ind AS. This is still under consideration.
Over the past few years, several large NBFCs have issued their financial statements under Ind AS. Several key financial reporting areas have emerged due to the differences between the Indian GAAP2 read with the guidelines issued by the RBI, and Ind AS. Indian GAAP is driven by “form” in a number of areas rather than “substance,” which is the focus under Ind AS.
A. Certain key areas that have had a transformational impact on NBFCs have been summarized and covered in this whitepaper:
a) Measurement of Investment in debt instrument
b) Measurement of Investment in equity instruments
c) Debt Vs. Equity classification of instruments issue
d) Effective interest rate and revenue recognition under Ind AS 115
e) Impairment of financial assets
f) Interest and dividend income
g) Securitisation or assignment transactions
h) Derivatives and Hedge Accounting
B. Key Audit Matters reported by auditors of NBFCs, which are covered in this whitepaper include:
a) Impairment of carrying value of loans and advances
b) Valuation of Investments
c) Revenue recognition on loans and advances
d) Information technology and general controls
C. Key Recent Regulations that have bearing on Financial Reporting:
a) Scale-Based Regulations
b) Digital Lending Regulations
c) Information Technology Governance, Risk, Controls and Assurance Practices
d) Investments in Alternative Investment Funds (AIFs)