Non-banking finance companies are in further dialogue with the Reserve Bank of India on NPA classification, which calls for daily stamping of accounts.

NBFCs have sought exemption for borrowers with loans upto ₹2 crore from the norms, pointing out that they often have erratic cash flows.

Helping small borrowers

“There’s one issue on which there has been a continuous dialogue, which is moving the NPA to a day stamping. We have pointed out to the regulator that our customer segments are often daily, weekly or monthly earners and for them, the due date for loan repayment is a month and not a date,” noted an industry source, adding that it would be challenging for such small borrowers to repay loans on the exact due date.

“We have accordingly sought some exemption for borrowers. This is not to help the industry but small borrowers,” the source said.

The RBI, in its circular on November 12, 2021, had issued clarifications on prudential norms on income recognition, asset classification and provisioning (IRACP) pertaining to advances.

As part of NPA classification norms, the RBI had said borrower accounts will be flagged as overdue by the lending institutions as part of their day-end processes for the due date, irrespective of the time of running such processes. Similarly, classification of borrower accounts as SMA as well as NPA shall be done as part of day-end process for the relevant date, it had said.

End-of-month payments

“The RBI has already given some relaxation in the norms with the extension of the deadline till September 30, 2022. Our other request on daily stamping of accounts is pending. This will especially impact borrowers in segments such as transport and MSME,” said another industry source.

The Finance Industry Development Council, a representative body of asset and loan financing NBFCs, too had requested the RBI to exempt small retail loans up to ₹2 crore from the guidelines until situation returns to normal.

“Given the nature of the business and erratic nature of cash inflows of these borrower segments, it does happen that they miss the due date for EMI payment, but manage to make payment by the end of the respective month,” it had said, adding that their ability to borrow further would be severely impaired if they continue to remain classified as NPA, in spite of paying most of the overdues.

The RBI had in February this year extended the deadline for NBFCs to meet the asset classification norms by September 30, 2022, from the earlier deadline of March 31, 2022.

Accelerated NPA recognition

Experts have said daily stamping of accounts would lead to an accelerated pace of NPA recognition of NBFCs.

“NBFC borrowers, typically where there is cash collection, pay their overdues generally with some delays. Accounts can get into NPA category just for a day’s delay in paying the instalments and once it gets categorised as NPA it will not be able to become standard unless all the arrears are cleared,” India Ratings and Research had said in a note in December 2021.