RBI regroups NBFCs into three

Mumbai: The Reserve Bank of India (RBI) has re-classified non-banking finance companies (NBFCs) into three broad categories from the existing four groups. The new groups are classified as: asset finance companies, investment companies and loan companies.

Asset finance companies (AFC) would include companies financing real or physical assets for productive or economic activity. The companies included in this category are divided into equipment leasing and hire purchase companies.

AFCs are defined as the aggregate of those principally engaged in the business of financing real or physical assets supporting economic activity. Income arising from such business should not be less than 60 per cent of its total assets and total income respectively.

Companies financing automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines would come under asset finance companies.

Investment companies would include any financial institution carrying on the acquisition of securities as its principal business while loan companies would include those providing finance by way of loans or advances or otherwise for any activity other than its own.

Since the classification for the purpose of income recognition, asset classification and provisioning norms is based on asset specification, the extent of prudential norms will continue as hitherto. The exposure norms as regards restriction on investments in land and buildings and unquoted shares shall be modified to make provisions applicable to equipment leasing and hire purchase companies applicable to asset financing companies, RBI said.