RBI has, on 11 February 2010, amended the Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 [NBFC Directions] to introduce a 4th category of Non Banking Financial Company [NBFC] viz. “Infrastructure Finance Company” [IFC]. This is in addition to the existing 3 categories of NBFCs viz. Asset Finance Company (AFC), Loan Company (LC) and Investment Company (IC).
Salient features of the amendments to the NBFC Directions are as under:
Meaning of IFC:
IFC has been defined to mean a NBFC which deploys at least 75% of its total assets in “infrastructure loans”.
The definition of “infrastructure loan” has been amended to include credit facility extended to a project of laying down and/or maintenance of gas, crude oil and petroleum pipelines. However, credit facility extended by NBFC to a project of construction of educational institutions and hospitals has been excluded from the definition of the term an “infrastructure loan”. The amended definition of “infrastructure loan” under the NBFC Direction is as under:
Infrastructure loan means a credit facility extended by NBFC to a borrower, by way of term loan, project loan subscription to bonds / debentures / preference shares / equity shares in a project company acquired as a part of the project finance package such that such subscription amount to be “in the nature of advance” or any other form of long term funded facility provided to a borrower company engaged in:
any infrastructure facility that is a project in any of the following sectors:
(a) a road, including toll road, a bridge or a rail system;
(b) a highway project including other activities being an integral part of the highway project;
(c) a port, airport, inland waterway or inland port;
(d) a water supply project, irrigation project, water treatment system, sanitation and sewerage system or solid waste management system;
(e)telecommunication services whether basic or cellular, including radio paging, domestic satellite service (i.e., a satellite owned and operated by an Indian company for providing telecommunication service), network of trunking, broadband network and internet services;
(f) an industrial park or special economic zone;
(g) generation or generation and distribution of power;
(h)transmission or distribution of power by laying a network of new transmission or distribution lines; [(ha) laying down and/or maintenance of gas, crude oil and petroleum pipelines] *
(i)construction relating to projects involving agro-processing and supply of inputs to agriculture;
(j) construction for preservation and storage of processed agro-products, perishable goods such as fruits, vegetables and flowers including testing facilities for quality; and
(k) [ ** ]
(l)any other infrastructure facility of similar nature.
* Inserted w.e.f. 11 February 2010.
** Construction of educational institutions and hospitals – deleted w.e.f. 11 February 2010.
Requirements for IFC:
Under NBFC Directions, “Systemically important non-deposit taking NBFC” [NBFCs-ND-SI] has been defined to mean a NBFCs
Having regard to the condition that the net owned fund of IFC to be not less than Rs. 3 billion, it follows that an IFC would be a NBFCs-ND-SI.
NBFC satisfying the above conditions may approach the Regional Office of RBI for classification as IFC. The application is to be supported by the certificate from Statutory Auditors of such NBFC confirming the asset / income pattern of the company as on March 31 of the latest financial year.
Concentration of credit limits for IFCs relaxed:
Limits on lending to a single borrower or single group of borrowers by IFC have been relaxed. IFC may lend to –
Further, IFC may lend to and invest in (loans / investments taken together) –
Present norms relating to concentration of credit limits in respect of infrastructure loan as laid out in NBFC Directions will continue to be applicable to NBFCs-ND-SI that do not meet the criteria to be classified as IFC.
Existing provisions of NBFC Directions which are based on asset specification viz. income recognition, asset classification and provisioning norms shall be applicable to IFC.
Comparative chart of concentration of credit and investment:
A comparative chart showing limits on concentration of credit and investments in respect of various NBFCs-ND-SI after the amendment of NBFC Directions is as under:
|Credit / Investment||AFC / LC/ IC (limits as a % to its owned
|AFC / LC/ IC giving loans / making investments in infrastructure sector (note 1) (limits as a % to its owned
(limits as a
% to its
|any single borrower||15%||20%||25%|
|any single group of borrowers||25%||35%||40%|
|Investments in (note 2)|
|shares of another company||15%||20%||15%|
|shares of single group of companies||25%||35%||25%|
|Lending to and investments in|
|single group of parties||40%||50%||50%|
1) The higher limits would be available only for exposure to infrastructure related loan and / or investments.
2) Investment limits will not be applicable for investment in the equity capital of an insurance company upto the extent permitted by RBI
3) In case of AFC, above limits to a single party / single group of parties may be increased by 5% of its owned funds in exceptional circumstances with the approval of such AFC’s Board of Directors.
4) NBFCs-ND-SI not accessing public funds (commercial papers, public deposits, debentures, inter-corporate deposits and bank finance), either directly or indirectly, may make an application to RBI for modifications in the above limits.
Risk weights and exposure norms for bank exposure to IFCs:
RBI has, on 12 February 2010, also made separate amendments to the master circulars to banks with regard to assigning risk weightage and exposure norms for banks’ exposure to IFCs and bank finance to NBFCs. Accordingly –
(i) Notification No. DNBS. 213 / CGM(ASR) -2010 dated 11 February 2010 issued by RB!
(ii) Circular No. DNBS.PD. CC No. 168 / 03.02.089 /2009-10 dated 12 February 2010 issued by RB!. (iii) Circular No. DBOD. No. BP. BC. 74 /21.04.172/ 2009-10 dated 12 February 2010 issued by RB!.