New Reserve Bank of India regulations RBI likely to increase NBFC bad loans by a third: Study

Last month, RBI provided clarification on IRAC norms for banks, NBFC

A report said the recent clarification of the Reserve Bank of India on unsatisfactory advances (NPA) could increase the bad debts of the ”non-banking financial companies” (NBFCs). . Last month, the RBI provided clarifications on the Income Recognition and Provisioning Asset Classification (IRAC) for banks, NBFCs and All India Financial Institutions.

Clarifications include special mention account (SMA) and NPA classification on an end-of-day position basis, and upgrading from NPA to standard category only after all delinquencies have been cleared.

Domestic ratings agency India Ratings and Research said: “RBI’s clarification of non-performing advances (NPA) accounting is likely to increase NPA by around a third for non-bank financial firms. (NBFC),” domestic ratings agency India Ratings and Research said in a report on Friday.

However, the impact on provisioning is likely to be modest, given that NBFCs are using Indian Accounting Standards (IND-AS) and in general for higher rated NBFCs, the policy more conservative provisioning than IRAC requirements.

The report said the RBI circular also calls for daily stamping of accounts to count the number of days they are past due rather than monthly or quarterly stamps. This will again result in faster NPA recognition rates for the accounts, it said.

NBFC borrowers, usually cash collectors, typically pay their past dues with some delay. Accounts can be included in the NPA category because of a one-day delay in installment payments, the report said, and once it is classified as an NPA, it will not become standard unless all the payments are made. debt is written off, the report said.

“So in other words, the accounts will be classified as NPA at a faster rate and will stay in that category for a longer period of time. Both of these accounting treatments will result in a count. higher title for the NBFC,” it said.

The agency said it may be possible for the NBFC to disclose the IRAC NPA number and the Ind-As stage 3 number separately in their disclosures.