Master Circular on Bank Finance to Non-Banking Financial Companies issued by RBI
The Reserve Bank of India has released a Master Circular on Bank Finance for Non-Banking Financial Companies.
The Reserve Bank of India has gradually deregulated the credit-related activities of banks. Most areas of bank financing of NBFCs have been deregulated, in line with the goal of giving banks more operational independence in the area of credit dispensation and in the context of mandatory registration of NBFCs with the Reserve Bank. However, because of the sensitivity surrounding the funding of certain types of operations carried out by NBFCs, limits on such financing remain in place.
A 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, according to the “Master Direction – Exemptions from the provisions of RBI Act, 1934″ dated August 25, 2016. Banks may make credit decisions based on conventional variables such as the purpose of credit, nature and quality of underlying assets, repayment capacity of borrowers, risk perception, and so on for such NBFCs that do not require registration with the Reserve Bank.
NBFCs do not have access to bank credit for their activities. Bills discounted / rediscounted by NBFCs, with the exception of rediscounting of bills discounted by NBFCs arising from the sale of commercial vehicles (including light commercial vehicles), two wheeler and three wheeler vehicles, subject to various conditions, NBFCs’ current and long-term investments in any company / entity by way of shares, debentures, and other instruments. Stock Broking Companies, on the other hand, may be provided need-based credit against shares and debentures held as stock-in-trade by NBFCs; 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 purchasing shares on the secondary.
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