In the evolving landscape of Indian finance, leasing and hire-purchase remain cornerstone financing mechanisms for asset acquisition, particularly for MSMEs and corporates. Governed by distinct legal frameworks—leasing under the RBI’s NBFC directions and the Factoring Regulation Act (to an extent), and hire-purchase via the Hire-Purchase Act, 1972—these tools offer banks and NBFCs flexible avenues to deploy funds. Understanding their nuances is crucial for compliance, risk management, and client advisory in a post-2025 regulatory environment emphasizing asset quality.

What is Leasing?

Leasing involves a lessor (typically an NBFC or bank subsidiary) procuring an asset and granting the lessee the right to use it for a specified period in exchange for periodic lease rentals. Ownership vests with the lessor throughout the term, reverting fully at expiry unless a purchase option is exercised.

• Types in India: Operating leases (short-term, cancellable) and finance leases (long-term, akin to loans, non-cancellable per Ind AS 116).
• Regulatory Oversight: RBI mandates NBFCs to classify leases as exposures under the Prudential Framework for Income Recognition, Asset Classification, and Provisioning (IRACP). Capital adequacy norms treat finance leases as funded assets.
• Tax Benefits: Lessees claim lease rentals as deductible expenses; lessors depreciate the asset (Section 32, Income Tax Act, 1961).
• Banking Relevance: Banks like SBI and HDFC offer leasing via subsidiaries, aiding sectors like machinery and vehicles amid MSME growth under schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

What is Hire-Purchase?

Hire-purchase is a hybrid agreement where the hirer (buyer) pays instalments for asset usage, with ownership transferring only upon final payment. Until then, the financier retains title as security, allowing repossession on default.

• Core Features: Instalments cover principal plus interest; includes a hire-purchase price exceeding cash price.