Page 39 - DTPA Journal Aug 18

DTPA - J | 2017-18 | Volume 3 | August 2018

Delving into Asset Finance Companies

CA Anita Baid

Introduction (ii) Hire-Purchase (HP) company that carried on
as its principal business, the activity of hire
For an economy as diversified as India, even the
financial sectorconsists of several intermediaries. Apart purchase transactions;
from banking entities, there are several other entities (iii) Investment Companies (IC) company that
that offer financial services and may be broadly carried on as its principal business, the
classified as non-banking financial institutions. In India, acquisition of securities; and
the term 'non-banking financial companies (iv) Loan Companies (LC) company that carried on
(NBFCs)'generally refer to such entities which are not
as its principal business the providing of
banks, and yet carry lending activities almost at par with
finance whether by making loans or advances
banks. Some of them may also accept deposits, or otherwise for any activity other than its own
however, these are term deposits and not demand
but did not include an equipment leasing
deposits.
company or a hire-purchase finance company
The significance of NBFCs in India lies in the massive
Subsequently, it was proposed to re-group such NBFCs
capabilities of NBFCs. Apart fromthe disability of not
as asset financing companies and RBI came up with its
accepting demand deposits and undertaking
notification no RBI / 2006-07/200DNBS.PD. CC No. 85 /
remittance function, the ease of entry and lightness of 03.02.089 /2006-07 dated December 06, 2006. Upon
regulation applicable to NBFCs makes it a tremendous
re-classification of NBFCs, companies financing
focus of interest, particularly for foreign investors
real/physical assets for productive / economic activity
wanting to enter India's financial sector.
were classified as Asset Finance Company (AFC) as
NBFCs are broadly classified in terms of the type of per the prescribed criteria. The remaining companies
liabilities- deposit and non-deposit accepting NBFCs continued to be classified as loan/investment
and by the kind of activity they conduct- such as Asset companies. Accordingly, the following categories of
Finance Company (AFC), Investment Company (IC), NBFCs emerged:
Loan Company (LC), Infrastructure Finance Company (i) Asset Finance Company
(IFC), Systemically Important Core Investment
Company (CIC-ND-SI), Infrastructure Debt Fund, Micro (ii) Investment Company
Finance Institution (NBFC-MFI), Non-Banking (iii) Loan Company
Financial Company – Factors (NBFC-Factors) and
Asset Finance Company- Eligibility Criteria
others.
As per the aforesaid notification, the then existing
The Mid-term Review of Annual Policy for the Year
classification in the Non-Banking Financial Companies
2006-07, was the first document that stated thatRBI
Acceptance of Public Deposits (Reserve Bank)
shall be introducing guidelines for the re-
Directions, 1998 was modified as follows:
classification of NBFCs, to provide a separate
classification for NBFCs engaged in financing tangible AFC would be defined as any company which
assets, as a consequence of requests received from is a financial institution carrying on as its
representatives of NBFCs.Earlier to 2007, NBFCs were principal business the financing of physical
classified into four different groups for the purpose of assets supporting productive / economic
acceptance of deposits by NBFCs, namely: activity, such as automobiles, tractors, lathe
machines, generator sets, earth moving and
(i) Equipment Leasing (EL) company thatcarried
material handling equipments, moving on own
on as its principal business, the activity of
power and general purpose industrial
leasing of equipment;
machines. Principal business for this purpose
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