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Non-banking finance companies (NBFC) are still hopeful of some relaxation by the Reserve Bank of India (RBI) on the norms of income recognition, asset classification, and provisioning for advances.
“Industry associations have requested the RBI to have a re-look at the requirements and give us a little more time to make this alignment. The reason is that we have to communicate to customers across the country, and they will have to align their payments. We are hopeful that something should come from the RBI in terms of direction this month,” said the head of an NBFC.
The RBI has however, not acceded to such requests till now.
“We have been following up with the RBI on this issue for some time. The impact of the circular is evident on the NPAs of a number of NBFCs. We hope that there is some extension given so that NBFCs have some more time to comply with the norms. Otherwise, even the fourth quarter results will be impacted,” said another industry player.
Industry bodies including Finance Industry Development Council, Confederation of Indian Industries and Assocham are understood to have requested the RBI for some relief on the issue.
In a representation in January, FIDC had asked the RBI to consider a one year extension, until April 1, 2023 to implement the norm and to exempt small retail loans upto Rs 2 crore from the guidelines until the situation returns to normal.
Highlighting the disruption from the pandemic, the FIDC in its representation had said that most of the borrowers of NBFCs are self employed or belong to the MSME segments and are economically vulnerable and would require more time to stabilise their operations.
“At the present moment, it would be rather onerous for them to adhere to the revised norms for reclassification as a standard account, after being marked NPA,” it had said.
In a notification in November 2021, the RBI had clarified on prudential norms on income recognition, asset classification and provisioning pertaining to advances for all banks, NBFCs and all India financial institutions. It had said that NBFCs must recognise loans as NPAs if they are not serviced for over 90 days. The objective is to bring uniformity in the implementation of IRACP norms across all lending institutions. Further, upgradation of accounts classified as NPA needs to be done only when the entire arrears of interest and principal is paid by the borrower.
Borrower accounts shall 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, the RBI had said, adding that classification of borrower accounts as SMA as well as NPA shall be done as part of day-end process.
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