NBFC Statutory Audit Checklist — Registration, NOF, IRACP, ALM

Q: How does RBI's Scale Based Regulation (SBR) classify NBFCs?

The RBI (Non-Banking Financial Company – Scale Based Regulation) Directions 2023 (notified 19 October 2023, effective from the SBR framework introduced 22 October 2021) sort NBFCs into four layers by size, activity and risk: Base Layer — non-deposit-taking NBFCs with assets below ₹1,000 crore, plus NBFC-P2P, NBFC-AA, NOFHCs and NBFCs with no public funds and no customer interface, regardless of size; Middle Layer — all deposit-taking NBFCs regardless of size, plus non-deposit-taking NBFCs not otherwise in the Base, Upper or Top Layer; Upper Layer — NBFCs RBI identifies by asset size and a supplementary scoring methodology (RBI publishes the list; once classified NBFC-UL, enhanced regulatory requirements apply for a minimum of 5 years even if the entity later falls below the criteria); Top Layer — reserved for NBFCs RBI assesses as posing exceptional systemic risk (currently empty). Higher layers carry progressively stricter capital, governance and disclosure requirements. Always verify an entity's current layer on the RBI website at the time of the audit.

Q: How is Net Owned Fund (NOF) computed for NBFC registration purposes?

NOF (Sec 45-IA, RBI Act 1934) = paid-up equity capital + free reserves (excluding revaluation reserves) − accumulated losses − deferred revenue expenditure − other intangible assets, further reduced by investments in shares of subsidiaries/group companies/other NBFCs and the book value of debentures, bonds, deposits and loans to such entities, to the extent this exceeds 10% of the Owned Fund figure. NOF must meet the minimum prescribed for the entity's registration category.

Q: Why compare Ind AS 109 ECL against IRACP provisioning?

NBFCs following Ind AS must hold impairment allowances computed under Ind AS 109 (Expected Credit Loss), but RBI additionally requires provisioning at least equal to the extant IRACP (Income Recognition, Asset Classification and Provisioning) norms. Where the Ind AS 109 ECL allowance is lower than the IRACP-prescribed provisioning, the entity must appropriate the shortfall from net profit after tax into a separate "Impairment Reserve" — not run it through the P&L — and that reserve cannot be used for dividend distribution. Testing this comparison and appropriation is a standard NBFC audit procedure.

Classification, Net Owned Fund computation, IRACP asset classification with the Ind AS 109 ECL / Impairment Reserve comparison, and ALM testing in one working paper — aligned to RBI's Scale Based Regulation framework.

Free · CORAA original — SA-aligned

Updated 19 Jul 2026

Registration

Sec 45-IA, RBI Act 1934

Classification

Base / Middle / Upper / Top Layer (SBR, 2023)

Provisioning

Higher of IRACP or Ind AS 109 ECL

Liquidity

ALM — structural + interest-rate sensitivity

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NBFC Statutory Audit Checklist — Registration, NOF, IRACP, ALM

2 September 2026

NBFC STATUTORY AUDIT CHECKLIST

Entity: {{client_name}} · Year ended: {{period_end}} · Prepared by: __________ · Reviewed by: __________

Purpose: a working checklist for the statutory audit of a Non-Banking Financial Company registered with the RBI under Section 45-IA of the RBI Act 1934, covering registration/classification, Net Owned Fund, IRACP asset classification and provisioning, ECL under Ind AS 109, and ALM reporting. VERIFY the entity's current SBR layer and any entity-specific directions on the RBI website before finalising Part A.

Part A — Registration and classification

Particulars	Details / verification
Certificate of Registration (CoR) number and date
SBR layer (Base / Middle / Upper / Top Layer, per RBI's Scale Based Regulation framework, eff. 1-Oct-2022) — VERIFY against RBI's current published list of Upper Layer NBFCs; note Upper Layer status carries a 5-year minimum stickiness even if the entity later falls below the qualifying threshold
Deposit-taking (NBFC-D) or non-deposit-taking (NBFC-ND)?
Category (Investment & Credit Company / Housing Finance / Microfinance / Factor / IDF / Core Investment Company, etc.)
Any change in classification/layer during the year — re-registration or fresh conditions triggered?

Part B — Net Owned Fund (Sec 45-IA, RBI Act 1934)

NOF computation step	Amount (₹)
Paid-up equity capital
Add: Free reserves (incl. share premium, excl. reserves created by asset revaluation)
Less: Accumulated balance of loss
Less: Deferred revenue expenditure
Less: Other intangible assets
= Owned Fund
Less: Investments in shares of subsidiaries / group companies / other NBFCs, and book value of debentures/bonds/deposits/loans/advances to these (incl. deposits with group companies), to the extent exceeding 10% of Owned Fund
= Net Owned Fund (NOF)
Minimum NOF prescribed for this category — met? (Y/N)

Part C — IRACP asset classification and provisioning

Asset classification bucket	Criteria (days past due, unless category-specific norms apply)	Provisioning tested (Y/N)
Standard assets	Not NPA — as per extant IRACP Directions
Sub-standard assets	NPA for ≤ 16 months (or the entity's applicable IRACP threshold)
Doubtful assets	NPA for > 16 months
Loss assets	Identified as loss by the entity, auditor, or RBI inspection; no realisable value

For NBFCs following Ind AS: hold impairment allowance per Ind AS 109 (Expected Credit Loss). Where the Ind AS 109 ECL allowance is LOWER than the provisioning required under the extant IRACP norms (including standard-asset provisioning), the entity must appropriate the difference from net profit after tax to a separate "Impairment Reserve" — test that this appropriation, not a P&L charge, was correctly made and that the Impairment Reserve is not used for dividend distribution.

ECL vs IRACP comparison	Amount (₹)
Ind AS 109 ECL allowance (stage-wise)
IRACP-prescribed provisioning (asset-classification based)
Shortfall, if ECL < IRACP (transferred to Impairment Reserve)

Part D — Asset Liability Management (ALM)

Item	Tested (Y/N)	Observation
ALM policy approved by the Board and reviewed during the year
Structural Liquidity Statement — bucket-wise maturity of assets and liabilities filed
Interest Rate Sensitivity Statement filed
Negative gap in the 1-30 day bucket within the RBI-prescribed tolerance
ALCO (Asset-Liability Committee) minutes reviewed for the period
Liquidity Coverage Ratio (LCR) computed and disclosed, if applicable to this NBFC's category/layer

Part E — Other prudential and governance checks

Item	Tested (Y/N)	Observation
Capital adequacy ratio (CRAR) computed and meets the prescribed minimum for the category
Exposure norms (single/group borrower limits) tested
Fair Practices Code adopted and followed (interest-rate model, recovery practices)
KYC / AML policy in place and tested on a sample basis
If a co-lending / Default Loss Guarantee (DLG / FLDG) arrangement exists: provisioning tested against the current RBI DLG provisioning norms — VERIFY the applicable circular on the audit date, this area was amended in 2026
Statutory returns filed with RBI on time (NBS returns, ALM returns, etc.)
RBI inspection report (if any) reviewed for the period and observations tracked to closure

Part F — Conclusion

Conclusion on compliance with the RBI regulatory framework applicable to this NBFC's classification: ____________________________________________

Prepared by	Reviewed by	Engagement partner

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What’s inside

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NBFC STATUTORY AUDIT CHECKLIST

Entity: ___ · Year ended: ___ · Prepared by: __________ · Reviewed by: __________

Part A — Registration and classification

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Common questions

FAQs.

How does RBI's Scale Based Regulation (SBR) classify NBFCs?

The RBI (Non-Banking Financial Company – Scale Based Regulation) Directions 2023 (notified 19 October 2023, effective from the SBR framework introduced 22 October 2021) sort NBFCs into four layers by size, activity and risk: Base Layer — non-deposit-taking NBFCs with assets below ₹1,000 crore, plus NBFC-P2P, NBFC-AA, NOFHCs and NBFCs with no public funds and no customer interface, regardless of size; Middle Layer — all deposit-taking NBFCs regardless of size, plus non-deposit-taking NBFCs not otherwise in the Base, Upper or Top Layer; Upper Layer — NBFCs RBI identifies by asset size and a supplementary scoring methodology (RBI publishes the list; once classified NBFC-UL, enhanced regulatory requirements apply for a minimum of 5 years even if the entity later falls below the criteria); Top Layer — reserved for NBFCs RBI assesses as posing exceptional systemic risk (currently empty). Higher layers carry progressively stricter capital, governance and disclosure requirements. Always verify an entity's current layer on the RBI website at the time of the audit.

How is Net Owned Fund (NOF) computed for NBFC registration purposes?

NOF (Sec 45-IA, RBI Act 1934) = paid-up equity capital + free reserves (excluding revaluation reserves) − accumulated losses − deferred revenue expenditure − other intangible assets, further reduced by investments in shares of subsidiaries/group companies/other NBFCs and the book value of debentures, bonds, deposits and loans to such entities, to the extent this exceeds 10% of the Owned Fund figure. NOF must meet the minimum prescribed for the entity's registration category.

Why compare Ind AS 109 ECL against IRACP provisioning?

NBFCs following Ind AS must hold impairment allowances computed under Ind AS 109 (Expected Credit Loss), but RBI additionally requires provisioning at least equal to the extant IRACP (Income Recognition, Asset Classification and Provisioning) norms. Where the Ind AS 109 ECL allowance is lower than the IRACP-prescribed provisioning, the entity must appropriate the shortfall from net profit after tax into a separate "Impairment Reserve" — not run it through the P&L — and that reserve cannot be used for dividend distribution. Testing this comparison and appropriation is a standard NBFC audit procedure.

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