The extension of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act 2002 to non-banking financial companies (NBFCs) is credit positive for retail-focussed NBFCs, especially those which extend mortgage-backed loans, according to credit rating agency ICRA.

Following a notification by the Finance Ministry, the Act is now applicable to NBFCs having assets of more than ₹500 crore according to their last audited balance sheet. The provisions for the enforcement of security interest are applicable to loans of ₹1 crore and above.

ICRA said loans higher than ₹1 crore are most likely to be loans against mortgage of property

The government notification included a list of 196 NBFCs to which the Act would be applicable.

According to the credit rating agency, as on March 31, 2016, about 19 per cent of the total retail NBFC credit of ₹5-lakh crore was extended as loan against property (17 per cent) and housing loans (2 per cent).

The retail LAP (loan against property) and SME (small and medium enterprise) credit (property backed and non-property backed) by NBFCs together stood at about ₹1.20-lakh crore as on March 31, it added.

Non-property backed loans are either secured by plant/machinery or could be unsecured, and are quite modest in the overall SME credit.

Referring to some concerns it has regarding over-leveraging of borrowers and weakening in underwriting standards in the LAP and SME credit segment owing to high competitive pressures with the presence of several players, ICRA said Sarfaesi is expected to result in some moderation in delinquencies.

Related Topics
comment COMMENT NOW