Page 42 - DTPA Journal Aug 18

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

is towards upgrading the quality of such vehicles. Here, Medical Equipment Finance
the fact whether it is a new or second hand asset does
Generally assets in this segment are highly capital
not make a difference. The intent of the financing facility
intensive and have huge cost implications. Further,
should be to provide financing for commercial vehicle
most of the equipment required are imported. Financing
supporting the economic activity of such transport
the acquisition of such medical equipments for
operators. If the user in these cases have an existing hospitals, diagnostic centers and clinics can be done by
asset (say a truck), and he acquires funding against the
way of leasing as well as secured loans. It is to be noted
same, the financier is anyways releasing the money
that these assets or machines are the backbone of the
that went directly into the acquisition or holding of the
medical industry and support economic activity of the
asset which otherwise would qualify as productive
medical institutions. Hence, they shall also qualify as an
asset.
eligible asset under AFC.
Repossessed Assets
Commercial real estate
Repossessed assets get either released back to the
The financing is against real estate and not necessarily
customers, who continues to use the asset, on payment
to acquire an asset supporting productive/economic
of due amount or are sold to a third party and the asset
activity. Though the property can be commercial in
automatically moves out of the book. While on the
nature but is not supporting any productive or economic
books, it can be considered as an eligible asset in case
activity. Hence, the answer whether it shall be
the original financing was towards an asset supporting considered as an eligible asset is very clearly negative.
productive/economic activity. Only such repossessed
assets can be considered as supporting a Loan against Property (LAP)
productive/economic activity and hence, shall be an In case of LAP, the financing is against an existing real
eligible asset under AFC. estate and not necessarily to acquire an asset
Office IT Equipment supporting productive/economic activity. In this case
the end use is not regulated by the NBFC. Further, at
Nowadays, IT equipments both hardwares and
time even if the NBFC takes a confirmation from the
softwares and other technical equipment are very
borrower, the same cannot be considered as an eligible
commonly taken on lease. IT equipments used in the IT
asset under AFC.If we take a contrarian approach, then
Industry, Business Processing Outsourcing (BPO) or
by the same analogy even normal loan transaction
Knowledge Process Outsourcing (KPO) sector forms
would have been classified as eligible asset by
an integral part of their business. Any funding or
obtaining an end use confirmation from the borrower.
financial facility towards the acquisition of such IT Since the latter is not considered as an eligible asset,
equipments shall qualify as an eligible asset since they LAP shall also fall out of the eligible asset criteria.?
are supporting the economic activity of such BPO/KPO.
In such cases the asset qualifies as productive asset. PTCs and SRs
Finance towards softwares & licenses As per RBI guidelines on securitization transaction
DNBS. PD. No. 301/3.10.01/2012-13 dated August 21,
Looking at the examples set out in definition of asset
2012, originating NBFCs are required to have a
finance business, wherein it states that the principal
continuing stake in the performance of securitized asset
business should be of financing of real/ physical assets
for the entire life of securitization process by way of
supporting productive/ economic activity such as Minimum Retention Requirement (MRR). The
automobiles, tractors, lathe machines, generator sets, guidelines make it mandatory for the securitizing NBFC
earth moving and material handling equipments,
to retain the minimum investment in its books. There
moving on own power and general purpose industrial
can be instances where had the Company not
machines – it will be difficult to establish that financing of
securitized these assets, it would have continued to be
software & licenses will be included in the calculation,
in the books and would have been eligible towards the
for the purpose of asset finance classification. The fact asset financing criteria. In case of such securitization
that financing of an asset should lead to income
transactions, if the loan portfolio was originally eligible
generation, may be directly or indirectly. Financing of
as an asset under AFC, the exposure in form of PTCs
software & licenses in this regard will fail this test, is not
shall also qualify as an eligible asset.
in lines with the examples cited above and may not
meet the test of being physical asset as well. Further, similar analogy can be drawn in case of
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