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Our Bureau

Mumbai , Dec. 6

Non- banking finance companies financing real or physical assets will now be classified as asset financing companies (AFCs).

This follows the re-classification of NBFCs announced by the Reserve Bank of India on Wednesday.

An AFC is defined as any company "which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines." Principal business for this purpose is defined as that not less than 60 per cent of the income of the company would be from these activities.

In a notification issued today, RBI said since the classification for the purpose of income recognition, asset classification and provisioning norms is based on asset specification the extant prudential norms will continue.

Exposure norms

However, the exposure norms as regards restriction on investments in land and buildings and unquoted shares shall be modified to make provisions applicable to EL/HP companies to include AFCs.

These companies will now have to approach RBI for re-classification.

Currently there are four categories of NBFCs: equipment leasing, hire purchase companies, loan companies and investment companies. Under the modified classification, they will become three: asset finance company, investment company and loan company.

According to RBI, the reclassification follows the representation made by NBFCs for a separate classification for those engaged in financing tangible assets.

More Stories on : NBFCs | RBI & Other Central Banks

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