Which of the following activities undertaken by NBFCs is eligible for bank credit, according to the recent Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs)?

Solution

The following activities undertaken by NBFCs, are not eligible for bank credit: (i) Bills discounted / rediscounted by NBFCs, except for rediscounting of bills discounted by NBFCs arising from sale of - (a) commercial vehicles (including light commercial vehicles), and (b) two-wheeler and three-wheeler vehicles, subject to the following conditions: ·                     The bills should have been drawn by the manufacturer on dealers only. ·                     The bills should represent genuine sale transactions as may be ascertained from the chassis / engine number; and ·                     Before rediscounting the bills, banks should satisfy themselves about the bona fides and track record of NBFCs which have discounted the bills. (ii) Investments of NBFCs both of current and long-term nature, in any company / entity by way of shares, debentures, etc. However, Stock Broking Companies may be provided need-based credit against shares and debentures held by them as stock-in-trade. (iii) Unsecured loans / inter-corporate deposits by NBFCs to / in any company. (iv) All types of loans and advances by NBFCs to their subsidiaries, group companies / entities. (v) Finance to NBFCs for further lending to individuals for subscribing to Initial Public Offerings (IPOs) and for purchase of shares from secondary market.