Revised FDI Policy: Clarification in relation to NBFCs

The Government of India (DIPP) has issued the revised Consolidated FDI Policy Circular 1 of 2012 that is effective from April 10, 2012. An accompanying press release lists the key changes.

The FDI Policy includes a clarification regarding the scope of ‘leasing’ for investment in non-banking finance companies (NBFCs). Note (ii) to Paragraph 6.2.24.2(1) of the FDI Policy states that "Leasing & Finance covers only financial leases and not operating leases." The press release also states that "...the activity of ‘leasing and finance’, which is one among the eighteen NBFC activities where induction of FDI is permitted, covers only ‘financial leases’ and not ‘operating leases’. This provision intends to clarify the coverage of the term ‘leasing and finance’, insofar as the NBFC sector is concerned." AS-19 defines a finance lease as a lease that transfers substantially all the risks and rewards incident to ownership of an asset.


The category of 'leasing and finance' is quite interesting and encompasses a wide variety of activities, including pure finance/ loan companies.