NBFCs · Financial services and fintech
NBFC books in which every loan in the system agrees with the ledger
An NBFC's accounts are only as reliable as the link between its loan management system and its ledger. We reconcile the two loan by loan and make interest, fees, provisions and collections agree across both. We also prepare the data and reconciliations behind the returns your compliance team files.
In one paragraph
Small and mid-sized non-banking financial companies — vehicle, gold, MSME, microfinance and consumer lenders — mostly sit in the base or middle layer of RBI's scale-based regulation. Their loan books run from ₹50 crore to a few thousand crore. For their chief financial officers and chief executives, the balance sheet is the product. A small mismatch between systems becomes a misstated loan book, a wrong provision or an inaccurate regulatory return.
Chief financial officer or chief executive, often with the head of operations
The economics
How the money moves in this trade
An NBFC borrows from banks, through debentures or from other lenders, and lends at a spread. Income is interest, processing fees and other charges, accrued daily in the loan system and posted to the ledger in summaries. Disbursements, collections through several channels, foreclosures, restructures and write-offs all move through the loan system first. Any posting that fails, or is made by hand in only one place, breaks the link.
Over that sit the requirements of RBI regulation: asset classification and provisioning, capital adequacy, asset-liability maturity and the returns that report them. Whether an NBFC follows Ind AS depends on its net worth, its listing and its group. Ind AS brings expected-credit-loss provisioning and effective-interest income; NBFCs outside it apply the prescribed income-recognition and provisioning norms. Co-lending, direct assignment and securitisation add loans that are partly off the books but still serviced by the NBFC.
The problem
Where the numbers usually break down
Loan system and ledger agree only in total
Principal outstanding matches at portfolio level, but individual loans differ because of failed postings, manual entries and timing.
Collections suspense that never clears
Receipts through bank accounts, payment links and field collection land in suspense and are allocated to loans late or not at all.
Fees recognised upfront
Processing fees and related costs are taken to income or expense on disbursement rather than over the life of the loan where the accounting framework requires it.
Co-lent and assigned loans mixed with the own book
The partner's share of co-lent loans and assigned pools is not separated cleanly, so income, collections payable and servicing obligations are misstated.
Return data compiled outside the books
Regulatory returns are prepared from loan-system reports that are not reconciled to the ledger, so figures differ between returns and accounts.
What we do
The work, and the result each part produces
Loan-level reconciliation
Principal, interest accrued, overdues and charges matched loan by loan between the loan system and the ledger every month, with breaks investigated.
The loan book in the accounts is the loan book in the system.
Collections and suspense clearance
Receipts from every channel matched to loans on a daily or weekly cycle, with unallocated amounts aged and cleared.
Collections suspense is small and explained.
Income recognition review
Interest, fees and costs recognised on the basis the applicable framework requires, with effective-interest calculations reconciled where Ind AS applies.
Income is recognised on a stated, consistent basis.
Provisioning and classification data
Days past due, stage or asset classification and provisions computed from reconciled loan data and tied to the ledger.
Provisions rest on the same data as the loan book.
Co-lending and assignment accounting
Partner shares, servicing fees, collections payable and pool-level reconciliations maintained for each arrangement.
Own book and partner book are separated and agree with each partner.
Regulatory return support
Data, reconciliations and working papers prepared for the returns your compliance team files, tied to the books.
Returns and accounts tell the same story.
Where we start
The first steps of an engagement
Loan system and ledger extracts
We ask for loan-level extracts from the loan management system, the general ledger and trial balance, bank statements for the collection accounts, and the last regulatory returns filed.
Loan-by-loan reconciliation
Principal, accrued interest, overdues and charges are matched loan by loan between the loan system and the ledger. The breaks are then sorted by cause.
Suspense clearance and posting checks
Collections suspense is aged and cleared, and a check is put on every posting between the loan system and the ledger so that failed postings surface on a daily cycle.
Reconciled loan book report
The first report shows loan-level breaks by cause, collections suspense by age and channel, and provisions tied to the reconciled loan data.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Loan-level breaks between loan system and ledger
- Collections suspense, by age and channel
- Provisions reconciled to classified loan data
- Co-lent and assigned pools reconciled with each partner
- Asset-liability maturity data tied to the ledger
- Regulatory return figures reconciled to the books
Who it suits
Written for, and not the right fit for
- You need the NBFC's statutory audit, the auditor's report or an auditor's certificate for RBI; an independently engaged CA signs those.
- You want someone to file RBI returns or hold a regulatory role; those stay with your company and its designated officers.
- Small and mid-sized NBFCs whose loan system and ledger have drifted apart.
- Lenders adding co-lending, direct assignment or new collection channels.
- NBFCs preparing for a statutory audit, an RBI inspection or a new bank lender's diligence.
Services
Services this work draws on
Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗Internal audit
Independent process review that closes findings rather than filing them.
Explore service ↗Internal controls and risk
Controls sized to your business, documented and actually tested.
Explore service ↗Finance technology and automation
Systems configured around your process, not the other way round.
Explore service ↗MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
Our loan system vendor says the data is correct. Why reconcile?
The system is usually right about what it was told. Breaks come from postings that failed between systems, manual ledger entries, receipts allocated late and reversals made in one place only. A loan-level match is the only way to show the two agree.
Who files an NBFC's RBI returns?
Your company does, through its designated officers. We prepare the data, reconciliations and working papers behind the returns, so the figures agree with your books.
Can an NBFC outsource its internal audit?
Not the function itself. RBI expects an NBFC to own its internal audit function, under its own head of internal audit and audit committee, though outside experts can be engaged on contract. Within that, we carry out reviews of credit, collections, operations and controls to your audit plan. Any review a direction requires a licensed professional to perform or certify is coordinated with an independently engaged firm.
5th Quadrant is not a regulated entity. It prepares reconciliations, working papers and data for an NBFC's accounts and returns, and supports the NBFC's own internal audit function rather than replacing it. Regulatory returns and filings with the Reserve Bank of India are the NBFC's own responsibility, and the statutory audit, auditor's certificates and any prescribed certification are signed by an independently engaged licensed professional, coordinated through 5th Quadrant. Full detail is on our Professional Scope page.
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