The Reserve Bank of India on 5th June 2022 has published a master circular on Bank Finance to Non-Banking Financial Companies (NBFCs) which shall be applicable to all Scheduled Commercial Banks (excluding Regional Rural Banks).
The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs has been withdrawn in respect of all NBFCs which are statutorily registered with RBI and are engaged in principal business of asset financing, loan, factoring and investment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.
The following 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, with certain 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.
- Finance to NBFCs for further lending to individuals for subscribing to Initial Public Offerings (IPOs) and for purchase of shares from secondary market.
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.
Further 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).
