NBFCs to seek exemption of small-value accounts from new NPA norms

The non-banking financial company (NBFC) industry is planning to continue talks with the Reserve Bank of India (RBI) to seek an exemption of small-value loan accounts from the ambit of the new asset classification norms for the sector. On Tuesday, the RBI acceded to the industry’s requests for an extension and granted an additional six months – up to September 30, 2022 – to NBFCs to comply.

Under the guidelines outlined in a circular dated November 12, 2021, NBFCs will be allowed to upgrade a non-performing borrower account to ‘standard’ only if all outstanding dues are cleared. Industry sources told FE they will continue talking to the regulator and seek further exemptions for some specific categories of loan accounts. “We are in constant touch with RBI officials. Now that they have extended the implementation deadline, we will request them to exempt vehicle loans of up to Rs 25 lakh and micro, small and medium enterprises (MSME) loans from the ambit of the circular,” said a person privy to the developments.

In a letter to RBI chief general manager Manoranjan Mishra dated January 17, industry association Finance Industry Development Council had sought the deferment of the deadline for implementation by a year to March 31, 2023. Citing the impact of subsequent waves of the pandemic on borrowers, the letter sought an exemption for retail loans of up to Rs 2 crore from the ambit of the new guidelines “until situation returns to normal”.

The deferment of the deadline sent stocks of some NBFCs soaring on Wednesday. PNB Housing Finance gained the most, with its shares rising as much as 11% intra-day. Shares of Centrum Capital, Srei Infra Finance, M&M Financial Services and Reliance Capital rose 4-6%.

Most listed NBFCs have already complied with the RBI’s guidelines and accounted for the impact in Q3 results. YS Chakravarti, MD & CEO, Shriram City Union Finance, said, “We believe it could have been helpful if the measures extending the revised asset classification and provisioning norms had come along with the RBI circular issued on November 12, 2021. Most NBFCs have already absorbed the impact in their third-quarter results. The clarification by the RBI only defers the adoption of the new norms.”

Companies are unlikely to reverse the provisions they have already made in order to avoid accounting complexities, Chakravarti said. “For Shriram City Union Finance, there will be no impact since our loan book is already well provided for.”

India Ratings and Research had earlier said NPA accounting changes are likely to increase NPAs by around one third for NBFCs.

from Banking & Finance – The Financial Express https://ift.tt/qmUe5YF