The Reserve Bank of India (RBI) has issued the Master Circular regarding Bank Finance to Non-Banking Financial Companies.
The credit related matters of banks have been progressively deregulated by the Reserve Bank of India. Consistent with the policy of bestowing greater operational freedom to banks in the matter of credit dispensation and in the context of mandatory registration of NBFCs with the Reserve Bank, most of the aspects relating to financing of NBFCs by banks have also been deregulated. However, in view of the sensitivities attached to financing of certain types of activities undertaken by NBFCs, restrictions on financing of such activities continue to be in force.
In terms of “Master Direction – Exemptions from the provisions of RBI Act, 1934” dated August 25, 2016, 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.
The activities undertaken by NBFCs, are not eligible for bank credit Bills discounted / rediscounted by NBFCs, except for rediscounting of bills discounted by NBFCs arising from sale of commercial vehicles (including light commercial vehicles), and two wheeler and three wheeler vehicles, subject to the various conditions, 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; Unsecured loans / inter-corporate deposits by NBFCs to / in any company; All types of loans and advances by NBFCs to their subsidiaries, group companies / entities; and Finance to NBFCs for further lending to individuals for subscribing to Initial Public Offerings (IPOs) and for purchase of shares from secondary market.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
