Bank Finance to Residuary Non-Banking Companies (RNBCs)
Residuary Non-Banking Companies (RNBCs) are also required to be mandatorily registered with RBI. In respect of such companies registered with RBI, bank finance would be restricted to the extent of their Net Owned Fund (NOF). The computation of NOF will be as per definition of NOF as given in the explanation to Section 45-IA of the Reserve Bank of India Act, 1934.
Bridge loans / interim finance to NBFCs
Banks should not grant bridge loans of any nature, or interim finance against capital / debenture issues and / or in the form of loans of a bridging nature pending raising of long-term funds from the market by way of capital, deposits, etc. to all categories of Non-Banking Financial Companies, i.e., equipment leasing and hire-purchase finance companies, loan and investment companies and also Residuary Non-Banking Companies (RNBCs).
Banks should strictly follow these instructions and ensure that these are not circumvented in any manner whatsoever by purport and / or intent by sanction of credit under a different nomenclature like unsecured negotiable notes, floating rate interest bonds, etc., as also short-term loans, the repayment of which is proposed / expected to be made out of funds to be or likely to be mobilised from external / other sources and not out of the surplus generated by the use of the asset(s).
Advances against collateral security of shares to NBFCs
Shares and debentures cannot be accepted as collateral securities for secured loans granted to NBFCs borrowers for any purpose.
Restriction on Guarantees for placement of funds with NBFCs
Banks should not execute guarantees covering inter-company deposits / loans thereby guaranteeing refund of deposits / loans accepted by NBFCs / firms from other NBFCs / firms. The restriction would cover all types of deposits / loans irrespective of their source, including deposits / loans received by NBFCs from trusts and other institutions. Guarantees should not be issued for the purpose of indirectly enabling the placement of deposits with NBFCs.
Bank Finance to Equipment Leasing Companies
Banks should not enter into lease agreements departmentally with equipment leasing companies as well as other Non-Banking Financial Companies engaged in equipment leasing.
Bank Finance to Factoring Companies
Banks are permitted to extend financial assistance to support the factoring business of Factoring Companies which comply with the following criteria:
(a) The companies qualify as factoring companies and carry out their business under the provisions of the Factoring Regulation Act, 2011 and Notifications issued by the Reserve Bank in this regard from time to time.
(b) They derive at least 75 per cent of their income from factoring activity.
(c) The receivables purchased / financed, irrespective of whether on ‘with recourse’ or ‘without recourse’ basis, form at least 75 per cent of the assets of the Factoring Company.
(d) The assets / income referred to above would not include the assets / income relating to any bill discounting facility extended by the Factoring Company.
(e) The financial assistance extended by the Factoring Companies is secured by hypothecation or assignment of receivables in their favour.
(f) Banks offering factoring services may decide percentage of the invoice to be paid upfront based on their own assessment of the credit worthiness of the assignor / buyer, due diligence carried out by them and other commercial considerations.
(g) Factoring transactions on ‘with recourse’ basis shall be eligible for priority sector classification by banks, which are carrying out the business of factoring departmentally. The factoring transactions taking place through TReDS shall also be eligible for classification under priority sector upon operationalization of the platform. For detailed guidelines, refer RBI circular FIDD.CO.Plan.BC.10/04.09.01/2016-17 on “Priority Sector Lending status for Factoring Transactions”
Restrictions regarding investments made by banks in securities/ instruments issued by NBFCs
Banks should not invest in Zero Coupon Bonds (ZCBs) issued by NBFCs unless the issuer NBFC builds up sinking fund for all accrued interest and keeps it invested in liquid investments / securities (Government bonds).
Banks are permitted to invest in Non-Convertible Debentures (NCDs) with original or initial maturity up to one year issued by NBFCs. However, while investing in such instruments banks should be guided by the extant prudential guidelines in force, ensure that the issuer has disclosed the purpose for which the NCDs are being issued in the disclosure document and such purposes are eligible for bank finance in terms of instructions given in the preceding paragraphs.