FDI in leasing business

[naresh kumar]

Dear Members,
Is FDI is allowed for a wholly owned subsidiary(holding co. is in out side India) company registered in India, engaged in the business of leasing of machinery in India and such machinery shall be imported from out side India and then will be given on lease in India ?

Is there any sectoral cap for this or can such subsidiary company can do this business in India ?

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Naresh Kumar

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[R V Seckar]

Hello,

Leasing and finance’ is one of the 18 NBFC activities wherein FDI up to 100 per cent is permitted under automatic route, subject to minimum capitalisation norms. It is hereby clarified that FDI is permitted only in ‘financial leases’ (financial leasing activity) and not in ’operating leases’ (operating leasing activity). ( RefRBI/2011-12/542
A. P. (DIR Series) Circular No.121dated 8 May 2012)

 

RVS

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[naresh kumar]

thnx for ur reply... but this is a private limited company and not the NBFC.
can a pvt. ltd. company also be eligible to do leasing business under this rule ? or this is only applicable for NBFCs ?

[naresh kumar]

sir, is operating lease business is allowed to pvt. ltd. company under FEMA ?

[R V Seckar]

Hello,

 

Leasing is exclusively reserved for NBFC companies under automatic route . For NON -NBFC companies , they have to go for under approval route for financial leasing activities.

 

RVS

[naresh kumar]

thnx for reply... so a pvt. ltd. company has to taken prior permission of RBI for operating lease business ?

[R V Seckar]

Hello,

 

Operating lease will also fall under approval route as the same is not included in the automatic route.

Lease basically is of two types one is called financial lease and other is operating lease, let’s look at the differences between financial operating lease in order to get a better understanding about both financial and operating lease –

1. While financial lease is a long term arrangement between the lessee (user of the asset) and the owner of the asset, whereas operating lease is a relatively short term arrangement between the lessee and the owner of asset.
2. Under financial lease all expenses such as taxes, insurance are paid by the lessee while under operating lease all expenses are paid by the owner of the asset.
3. The lease term under financial lease covers the entire economic life of the asset which is not the case under operating lease.
4. Under financial lease the lessee cannot terminate or end the lease unless otherwise provided in the contract which is not the case with operating lease where lessee can end the lease anytime before expiration date of lease.
5. While the rent which is paid by the lessee under financial lease is enough to fully amortize the asset, which is not the case under operating lease.
   RVS

[naresh kumar]

thnx sir.. as per my understanding we will do the business of operating lease and now first we will incorporate a pvt. ltd. company in India and then will go to RBI for approval ?

is it ok ?

[R V Seckar]

It is ok