The Reserve Bank of India (RBI) has tightened asset classification norms for non-banking financial companies (NBCFs), which brings them on par with banks.
Two rules will change for NBFCs. One, the nonperforming asset (NPA) classification should be as of end-of-day and not the month. And second, if an account has to be upgraded from NPA to standard, all the arrears should be paid and not just a part of it.
The aim of the RBI circular is harmonisation, that is, the same set of rules should apply to both banks and NBFCs.
To understand how the new rules will impact NBFCs, CNBC-TV18 caught up with YS Chakravarti, MD and CEO, Shriram City Union Finance, Deepak Shenoy, founder, Capitalmind and Vikas Khemani, founder, Carnelian Capital Advisors.
When asked if this would mean a one-time rise in GNPAs for some NBFCs, Chakravarti said, as far as Shriram City Union Finance is concerned, the firm has always followed the ‘once an NPA always an NPA rule’, so up-gradation is not an issue because it actually follows the same rule that RBI has specified.
“Probably on the daily admission of the NPA problem, we may have an impact, but it will be marginal. We are still working on it but it would be about Rs 60 to 70 crores of impact. On the provisioning and on P&L, there would be no impact,” he said.
When asked if his company would follow the exact due date or the month that is taken into consideration, Chakravarti said it is as per month and the impact would be between Rs 60 to 70 crore as on the GNPAs. They have more than adequate provisioning, he added.
Meanwhile, Shenoy said the industry has complained, in general. “If you are on the other side of the equation, for instance, securitized loans, when banks buy them from NBFCs, they uncover a few practices that are not followed by banks but are followed by NBFCs. Like for instance, the quarter-end rule, which sometimes gives 180 days because the loan comes due in the first week of say April, they get 90 days from the end of June technically but now it has been clarified, it is going to be 90 days from the due date of the loan. So this will change,” he explained.
He also pointed to several other practices like cheque bouncing when it is presented when the person does not have a balance towards the end of the quarter. It bounces but the bounce impact only happens at the beginning of the next quarter. So technically, it is not an NPA. This is a bad practice, but it has been found and identified in certain audit cases as well, Shenoy said.
According to Shenoy, the new rules are a good step to reduce misreporting of NPAs but it will have an impact, which the companies will exactly find out next year because it is only applicable from March 2022.
Khemani termed it a good measure by RBI but not something game-changing. It can have only a one-time impact, he said, adding that it has been done at a time of economic recovery and NBFCs have been given a time frame to come around until March 22. “I don't think it will really have a major impact on the industry,” he said.
For the full discussion, watch the accompanying video