Definition: The Asset Finance Company is the financial institution engaged in the principal business of financing physical assets that correspond to productive/economic activity such as machinery, automobile, tractors, material handling equipment, power generators, etc.
The Asset Financing refers to the act of pledging company’s assets Viz. Bills Receivables, short-term inventories or investments to borrow loan or cash. This type of financing is used when the company is seeking the short-term borrowing such as working capital and often the cash is borrowed against the bills receivables.
As per RBI, any non-banking company can act as an asset finance company, subject to, the income arising from the aggregate of physical assets supporting the economic activity is not less than 60% of its total assets and total income respectively. Once the companies satisfy this condition can visit the regional office in the jurisdiction where their registered office is located along with their certificate of registration as issued by the bank to classify them as the asset finance companies.
The documents of the companies must be supported by their statutory auditor’s certificate wherein the asset/income pattern of the company as on March 31, 2006, should be clearly mentioned. Once all these conditions are fulfilled, then the change in the classification in the certificate of registration issued by the banks would be incorporated as NBFC-Asset Finance Company, either as NBFC-D-AFC (if, accepting deposits) or NBFC-ND-AFC (if, not accepting deposits).