Reserve Bank of India issues regulatory policy regarding financing of NBFCs by banks
A statutory guideline is issued under Section 35A of Banking Regulation Act, 1949.
As per the circular, the ceiling on bank credit linked to the Net Owned Fund (NOF) of NBFCs has been withdrawn in respect of all NBFCs that are statutorily registered with RBI and are engaged in the principal business of asset financing, loan, factoring, and investment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.
Moreover, the following activities undertaken by NBFCs, are not eligible for bank credit:
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(i) Bills discounted/rediscounted by NBFCs, except for rediscounting of bills discounted by NBFCs arising from the sale of –
commercial vehicles (including light commercial vehicles), and two-wheeler and three-wheeler vehicles, subject to the following conditions :
Shares and debentures cannot be accepted as collateral securities for secured loans granted to NBFC borrowers for any purpose.
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Banks should have an internal sub-limit on their aggregate exposures to all NBFCs, having gold loans to the extent of 50 percent or more of their total financial assets, taken together. This sub-limit should be within the internal limit, where fixed by the banks for their aggregate exposure to all NBFCs put together.
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