The evolution of leasing in banking in India can be traced back to the early 1970s when the first leasing company, named ‘MICO Finance and Leasing Limited’, was established by the Tatas. During this time, the concept of leasing was relatively new to India, and the industry faced several regulatory hurdles. However, the government recognized the potential of leasing as a tool for industrial development and started taking measures to promote the industry.
In 1973, the government passed the Companies Act, which allowed companies to raise funds through the issuance of shares and debentures. This led to the establishment of several leasing companies, which raised funds through the issuance of debentures and used the funds to lease assets to businesses.
In 1975, the Reserve Bank of India (RBI) issued guidelines for the establishment and operation of leasing companies in India. The guidelines required leasing companies to maintain a minimum net owned fund of Rs. 5 lakhs and to obtain a license from the RBI to operate as a leasing company.
In 1981, the government passed the Taxation Laws (Amendment) Act, which provided tax incentives to businesses that leased assets rather than purchasing them outright. This led to an increase in demand for leasing services, and several new leasing companies were established during this time.
In the 1990s, the Indian economy started to liberalize, and the government started to remove regulatory hurdles for the leasing industry. In 1993, the RBI issued guidelines for the establishment of non-banking financial companies (NBFCs), which could provide lease finance and other financial services.
In 2000, the government passed the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, which allowed banks and financial institutions to seize and sell assets in the event of default. This provided a boost to the leasing industry, as leasing companies could now use the leased assets as collateral for loans.
In 2005, the government passed the Central Goods and Services Tax (GST) Act, which unified the tax regime for goods and services across the country. This simplified the tax structure for leasing transactions and made it easier for leasing companies to operate across different states.
Today, leasing is an established industry in India, with several large leasing companies providing a range of leasing services to businesses across different sectors. The industry has evolved over the years, and leasing companies now offer a range of leasing products, including operating leases, finance leases, and sale-and-leaseback transactions. The industry is regulated by the RBI and the Securities and Exchange Board of India (SEBI), and the leasing companies are required to comply with the guidelines issued by these regulatory bodies.