What changed
RBI issued a clarification on May 15, 2012, responding to queries on whether operating leases are permissible under the FDI scheme for NBFCs. It explicitly states that the activity 'leasing and finance' in the NBFC sector covers only financial leases, not operating leases.
What it means for you
Banks and NBFCs must ensure that FDI proposals under the automatic route for leasing activities are restricted to financial leases. Operating leases will not qualify for the automatic route and may require separate approval or be treated differently under FEMA regulations.
What you must do
- Update internal FDI processing guidelines to exclude operating leases from the automatic route for NBFCs.
- Advise customers seeking FDI for NBFC leasing activities that only financial leases are eligible under the automatic route.
- Monitor FDI applications to ensure compliance with the minimum capitalisation norms for NBFC activities.
- Refer to FEMA 20/2000-RB amendments when processing such cases.
Who it affects
Category-I Authorised Dealer Banks, NBFCs engaged in leasing activities, Foreign investors investing in NBFC sector
Does this circular apply to all NBFC activities under the FDI scheme?
No, it specifically clarifies that for the activity 'leasing and finance', only financial leases are covered under the automatic route. Other NBFC activities remain unaffected.
What should banks do if a customer proposes FDI for an NBFC involving operating leases?
Banks should inform the customer that operating leases are not eligible for the automatic route under this circular. They may need to seek separate approval or restructure the proposal.
Are there any separate regulations being updated for this change?
Yes, RBI stated that necessary amendments to FEMA 20/2000-RB regulations are being notified separately.