Bank Finance to Non-Banking Financial Companies (NBFCs)
The RBI, vide its Master Circular No. DBR.BP.BC.No.5/21.04.172/ 2015-16 on Bank Finance to Non-Banking Financial Companies (NBFCs) dated July 1, 2015 provides as follows:
The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs has been withdrawn in respect of all NBFCs which are statutorily registered with RBI and are engaged in principal business of asset financing, loan, factoring and investment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.
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 the Master Circular are not financed by them.
In respect of NBFCs which do not require to be registered with RBI, viz.:
i) Insurance Companies registered under Section 3 of the Insurance Act, 1938;
ii) Nidhi Companies notified under Section 406 of the Companies Act, 2013;
iii) Chit Fund Companies carrying on Chit Fund business as their principal business as per Explanation to Clause (vii) of Section 45-I(bb) of the Reserve Bank of India Act, 1934;
iv) Stock Broking Companies / Merchant Banking Companies registered under Section 12 of the Securities & Exchange Board of India Act; and
v) Housing Finance Companies being regulated by the National Housing Bank (NHB) which have been exempted from the requirement of registration by RBI], 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.
Banks are prohibited from providing credit for the following activities of NBFCs:
(i) Bills discounted/rediscounted by NBFCs, except for rediscounting of bills discounted by NBFCs arising from the sale of –
(a) commercial vehicles (including light commercial vehicles), and
(b) two-wheeler and three-wheeler vehicles, subject to the following conditions:
the bills should have been drawn by the manufacturers on dealers only.
the bills should represent genuine sale transactions as may be ascertained from the chassis/engine numbers.
before rediscounting the bills, banks should satisfy themselves about the bonafides 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/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 secondary market.