INTRODUCTIONNon-Banking Financial Companies (“NBFCs”) are financial entities performing functions akin to that of a bank, except they cannot accept demand deposits, issue cheques, or notes on themselves and provide Deposit Insurance and Credit Guarantee Corporation cover. They have established themselves as an integral part of the financial system; few of the large NBFCs have even outgrown certain small banks. There are different types of NBFCs; a separate Registration Certificate is issued based on the nature of activities elected by the applicant company. The industry, until today, has played a pivotal role in financial inclusion programmes, offering various products suitable to different classes of society. In hindsight, it was also observed that it carries a huge potential to affect the public interest adversely if not regulated prudently. The regulator, over time, has taken many initiatives to minimize systemic risk and enhance the quality and coverage of compliance in the industry.
Clauses pertaining to NBFCs in CARO 2016 were one such attempt to preserve public interest, which proved to be highly successful. Hence, in the light of recent disruptions in the NBFC industry, the Revised Companies (Auditor’s Report) Order, 2020 (“CARO”) has been rolled out. This report has introduced additional clauses, entrusting Auditors to report on crucial regulatory aspects over NBFCs and those entities which undertake the business o
