Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs) - आरबीआय - Reserve Bank of India
Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs)
RBI/2009-10/30 July 1, 2009 Chairman and Managing Directors / Dear Sir, Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs) Please refer to our Master Circular No.RBI/2008-09/33 DBOD.BP.BC.No.4/08.12.01/2008-2009 dated July 1, 2008 on the captioned subject. The Master Circular has been suitably updated by incorporating instructions issued up to June 30, 2009 and has also been placed on the RBI web-site (http://www.rbi.org.in).
(B.Mahapatra) Master Circular Bank Finance to Non-Banking Financial Companies (NBFCs) Purpose Structure
1. Introduction (a) 'NBFCs' means the Non-Banking Financial Companies registered with Department of Non-Banking Supervision of Reserve Bank of India. (b) Residuary Non-Banking Companies (RNBCs) are the companies classified and registered with Department of Non-Banking Supervision of Reserve Bank of India as such. (c) 'Current investments' means the investments classified in the balance sheet of the borrower as 'current assets' and are intended to be held for less than one year. (d) 'Long term investments' means all types of investments other than that classified as 'current assets'. (e) 'Unsecured loans' means the loans not secured by any tangible asset. 1.2 Background 4.1 Residuary Non-Banking Companies (RNBCs) are also required to be mandatorily registered with Reserve Bank of India. In respect of such companies registered with RBI, bank finance would be restricted to the extent of their Net Owned Fund (NOF). 4.2 Net Owned Fund (NOF) 4.2.1. Banks should follow the definition of NOF as given in the explanation to Section 45-IA of the Reserve Bank of India Act, 1934, i.e, I. Net Owned Fund means (a) the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting therefrom (i) accumulated balance of loss; (ii) deferred revenue expenditure; and (iii) other intangible assets; and (b) further reduced by the amounts representing (1) investment of such company in shares of (i) its subsidiaries; (ii) companies in the same group; (iii) all other Non-Banking Financial Companies; and (2) the book value of debentures, bonds, outstanding loans and advances (including hire purchase and lease finance) made to, and deposits with (i) subsidiaries of such company; and (ii) companies in the same group, to the extent such amount exceeds ten percent of (a) above II. "subsidiaries" and "companies in the same group" shall have the same meanings assigned to them in the Companies Act, 1956 (1of 1956). 5. Activities not Eligible for Bank Credit 5.1 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 : * the bills should have been drawn by the manufacturer on dealers only; * the bills should represent genuine sale transactions as may be ascertained from the chassis / engine number; and * 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 stockin- trade. Unsecured loans / inter-corporate deposits by NBFCs to / in any company. (iii) All types of loans and advances by NBFCs to their subsidiaries, group companies / entities. (iv) Finance to NBFCs for further lending to individuals for subscribing to Initial Public Offerings (IPOs) and for purchase of shares from secondary market. 5.2 Leased and Sub-Leased Assets Notwithstanding the restrictions mentioned at Paragraph 5.1(i) and 5.1(iii) above, banks can extend financial assistance to support the factoring business of Factoring Companies which comply with the following criteria : (a) The companies carry out all the components of a standard factoring activity, viz., financing of receivables, sale-ledger management and collection of receivables. (b) They derive at least 80 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 80 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. 7. Other Prohibitions on Bank Finance to NBFCs 7.1 Bridge loans / interim financeBanks 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). 7.2 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. 7.3 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. 8. Prudential ceilings for exposure of banks to NBFCs 8.1 The exposure (both lending and investment, including off balance sheet exposures) of a bank to a single NBFC / NBFC-AFC (Asset Financing Companies) should not exceed 10% / 15% respectively, of the bank's capital funds as per its last audited balance sheet. Banks may, however, assume exposures on a single NBFC / NBFC-AFC up to 15% / 20% respectively, of their capital funds provided the exposure in excess of 10% / 15% respectively, is on account of funds on-lent by the NBFC / NBFC-AFC to the infrastructure sector. 8.2 Banks may also consider fixing internal limits for their aggregate exposure to all NBFCs put together. 8.3 Infusion of capital funds after the published balance sheet date may also be taken into account for the purpose of computing exposure ceiling. Banks should obtain an external auditor's certificate on completion of the augmentation of capital and submit the same to the Reserve Bank of India (Department of Banking Supervision) before reckoning the additions to capital funds. Appendix
List of Other Circulars Containing Instructions / Guidelines /
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