Bank Finance to NBFCs registered with RBI
The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs has been withdrawn in respect of all NBFCs which are statutorily registered with RBI and are engaged in principal business of asset financing, loan, factoring and investment activities. Accordingly, banks may extend need based working capital facilities as well as term loans to all NBFCs registered with RBI and engaged in infrastructure financing, equipment leasing, hire-purchase, loan, factoring and investment activities subject to provisions of para 8 of these guidelines.
In the light of the experience gained by NBFCs in financing second hand assets, banks may also extend finance to NBFCs against second hand assets financed by them.
Banks may formulate suitable loan policy with the approval of their Boards of Directors within the prudential guidelines and exposure norms prescribed by the Reserve Bank to extend various kinds of credit facilities to NBFCs subject to the condition that the activities indicated in paragraphs 4 and 6 are not financed by them.
Bank Finance to NBFCs not requiring Registration
In terms of “Master Direction – Exemptions from the provisions of RBI Act, 1934” dated August 25, 2016, as updated from time to time, few categories of non-banking financial companies are exempted from certain provisions of the Reserve Bank of India Act, 1934 (the RBI Act, 1934), including the need for registration with the Reserve Bank. For such NBFCs not needing registration with the Reserve Bank, banks may take their credit decisions on the basis of usual factors like the purpose of credit, nature and quality of underlying assets, repayment capacity of borrowers as also risk perception, etc.
Activities not eligible for Bank Credit
The following activities undertaken by NBFCs, are not eligible for bank credit:
(i) Bills discounted / rediscounted by NBFCs, except for rediscounting of bills discounted by NBFCs arising from sale of –
(a) commercial vehicles (including light commercial vehicles), and
(b) two wheeler and three wheeler vehicles, subject to the following conditions :
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the bills should have been drawn by the manufacturer on dealers only;
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the bills should represent genuine sale transactions as may be ascertained from the chassis / engine number; and
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Before rediscounting the bills, banks should satisfy themselves about the bona fides and track record of NBFCs which have discounted the bills.
(ii) Investments of NBFCs both of current and long-term nature, in any company / entity by way of shares, debentures, etc. However, Stock Broking Companies may be provided need-based credit against shares and debentures held by them as stock-in-trade.
(iii) Unsecured loans / inter-corporate deposits by NBFCs to / in any company.
(iv) All types of loans and advances by NBFCs to their subsidiaries, group companies / entities.
(v) Finance to NBFCs for further lending to individuals for subscribing to Initial Public Offerings (IPOs) and for purchase of shares from the secondary market.
Leased and Sub-Leased Assets
Other Prohibitions on Bank Finance to NBFCs
Bridge loans / interim finance
Advances against collateral security of shares to NBFCs
Restriction on guarantees for placement of funds with NBFCs
Link – https://www.rbi.org.in/
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