Initially, there were four different categories of companies for the purpose of acceptance of deposits by Non Banking Financial Companies ("NBFCs") namely:
Equipment Leasing company - any financial institution which carried on the activity of leasing equipment, as its principal business;
Hire Purchase company - any financial institution which carried on the activity of hire purchase transactions, as its principal business;
Investment Companies - any financial institution which carried on the acquisition of securities, as its principal business; and
Loan Companies - any financial institution which provided finance whether by making loans or advances or otherwise for any activity other than its own but does not include an equipment leasing company or a hire purchase finance company.
Earlier companies engaged in financing real/physical assets supporting economic activity such as automobile, general-purpose industrial machinery etc would generally come within the purview of "Asset Finance Companies" ("AFCs").
However, with a view to provide a separate classification for NBFCs engaged in financing tangible assets, the Reserve Bank of India ("RBI"), has vide its circular dated 6th December 2006 now re -classified companies financing real/physical assets for productive/ economic activity as AFCs. The remaining companies would continue to be classified as loan/investment companies.
AFCs would accordingly be 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".
Such principal business of an AFC being that the aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.
Companies satisfying the above conditions would be required to approach the Regional Office in the jurisdiction of which their registered office is located, along with the original Certificate of Registration, issued by the Bank for recognition of their classification as AFCs.
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