It has also barred NBFCs from creating any new asset by granting fresh loans or making investments as long as they are defaulters in repayment of public deposits under section 45QA(1) of the RBI Act.

The central bank modified the prudential norms -- in regard to accounting for investments and provisions and against NPAs -- in line with the accounting standard issued by the Institute of Chartered Accountants (ICAI). The modifications are effective from January 31.

The earlier provisioning norms for hire purchase and lease assets did not take into account the value of underlying asset and consequently the entire amount of overdue installments, net of the finance charges not taken to the credit of profit and loss account, was to be fully provided for. "Duecredit has now been given under the revised norms to the value of underlying asset," an RBI release said on Tuesday.

In effect, provisioning on account of non-performing hire purchase and lease assets has been phased out. This will have a positive impact on the NBFC balance sheet for the fiscal year 1998. "Following the modification, an NBFC will now require to provide for Rs 46 instead of Rs 70 on account of a hire purchase and Rs 35 instead of Rs 67 on account of a lease asset in the first year," an industry source said.

The RBI has also done away with the bifurcation of long-term investments into quoted and unquoted investments. NBFCs are now required to value unquoted equity shares in the nature of current investments at cost or break-up value--whichever is lower. They are also given the option to value these shares at their fair value.

As a result of this modification, the provisioning on account of mark to market will come down substantially.

All long-term investments including unquotedinvestments, however, will be valued in accordance with the ICAI accounting standards, the RBI release said.

The Association of Leasing & Financial Services Companies hailed the RBI move. "Any relaxation is welcome as it will provide oxygen to the dying industry," ALFS executive director Mahesh Thakkar said. The central bank has also pared the risk weight in NBFC investments in public sector banks as well as the Unit Trust of India units and the bonds and deposits of public financial institutions from 100 per cent to 20 per cent.

It has modified the income recognition norms. "The NBFCs have been asked to reverse with immediate effect the income including interest/discount or any other charges on NPAs recognised and taken to the profit and loss account but remaining unrealised before the asset became NPA," the RBI release said.