The Hindu : Business : Asset financing NBFCs regrouped

Online edition of India's National Newspaper
Friday, Dec 08, 2006
ePaper

Business

Business

Asset financing NBFCs regrouped

Special Correspondent

Public deposits rules to be modified

MUMBAI: The Reserve Bank of India on Thursday re-grouped the asset financing non-banking financial companies (NBFCs), engaged in financing real and physical assets supporting economic activity such as automobiles, general purpose industrial machinery, as asset financing companies (AFCs).

In the Mid-term Review of Annual Policy of the RBI in October last, Governor Y. V. Reddy had stated that a request was received from the representatives of the NBFC sector to provide a separate classification for NBFCs engaged in financing tangible assets. Companies engaged in financing real and physical assets supporting economic activity such as automobile, general-purpose industrial machinery and the like would generally correspond to the classification as asset finance companies. "Accordingly, it has been decided to re-classify the NBFCs,'' the RBI stated in a notification.

At present, the four different groups for the purpose of acceptance of deposits by NBFCs defined in paragraph 2(1) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, are: equipment leasing, hire-purchase, investment companies and loan companies.

New categories

"Consequent upon re-classification of NBFCs, companies financing real and physical assets for productive and economic activity will be classified as asset finance company. The remaining companies would continue to be classified as loan and investment companies. In the proposed structure, the following categories of NBFCs will emerge: asset finance company, investment company and loan company,'' the RBI stated. The Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, would be now modified and AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive and economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real and physical assets supporting economic activity and income arising therefrom is not less than 60 per cent of its total assets and total income, respectively.

Since the classification for the purpose of income recognition, asset classification and provisioning norms is based on asset specification, the extant prudential norms will continue as hitherto. However, the exposure norms as regards restriction on investments in land and buildings and unquoted shares will be modified.

Printer friendly page
Send this article to Friends by E-Mail

Business

News Update

Stories in this Section